Accounting Play Podcast: Learn Accounting

In this particular episode, you will learn About Accounting Careers How To Get a Job This is an hour long interview where Bobby and I go deep into what it takes to get hired in accounting. You will appreciate the brutal honestly behind the mic. My goal is that this interview will provide some insight into the accounting career world, which took us a long time to figure out. If this interview can save you some networking time and better your chances at a job in any way – then it is a success. Moderator:     John Gillingham Respondent:   Bobby Simon John: Hey, welcome to The Accounting Play podcast with me, John Gillingham, today we are talking career tips with the Accounting Super Recruiter, Bobby Simon from San Francisco, California. What’s up Bobby? Bobby: Thanks John, thanks for having me tonight, I am excited. John: Yes, just let me know, why we are here, where are we? And let me know a little bit about the firm you are representing today. Bobby: Right on, you are at 5 3rd Street, San Francisco, California, suite 1225, BVOH San Francisco. John: That’s freaking awesome, so before we get on, I just want to remind everyone, thanks so much for being here, check out The Accounting Play apps on I Tunes, leave us a review in the story really; really counts to me, you can also email me too. So this episode is designed for anyone, looking and entering the field of accounting to improve their career, but here is the thing I actually met Bobby a few years ago when I was doing a lot of consulting work, and he is just amazing, he knows this business inside and out, and I have had the pleasure of seeing, many different careers developed with him. You go to LinkedIn, this guy he’s got 26 recommendations, and he is not asking for them. You can see John Gillingham, I am one of them up there for him, so I just want to talk about the things that are going to help accounting students and professionals at every stage of their career. Bobby welcome to the show and thanks for being here. Bobby: Right on man, so I’d say half the reason why I am here, is to plug me and my firm and our functions here at the barrier is a boutique staffing firm, and the other half would be to answer all your questions John, what you got? John: That’s great, so how did you get into recruiting for accounting? And, if you could just tell me a little bit about your career path, that would be really amazing. Bobby: Someone once told me saying, good question is not the good thing to say because it degrades any other questions anyone ask, but John you nailed it man .How the heck did I get here? My recruiter, who is still here at the office working late, is he once asked me when I first met him, Bobby do you even like accounting. No, why are you here? I said, well my accounting professor at my university said that students who graduates here, said that they get hired faster and paid more and so the light bulb went off, and he heard that and said, what motivates you, is time and money. Being a recruiter is all about the commission, this is a commission based job, but the silver lining is actually got to help people. So, when he asked me if I got any ambitions of getting into recruiting, no I spent some long, hard hours in accounting courses dragging over my debits and credits. But at the end of the day, I got too much after sometime in public accounting, so I opt ship and got into the recruiting business. John: That’s great, so tell me a little about, real briefly, your school, your accounting path, because I think a lot of our listeners are either just starting developing, and so how do you see the progression of getting out of school, what school did you go to? What were your goals? What did you struggle with, and how did this eventually turn into what you are doing now?  Bobby: Okay, so when I left the United States Coast Guard Academy, I made my way into university in San Francisco.

In this particular episode, you will learn What "it" is all about Accounting Play and I trying to get paid (My company is trying to make money) Debit assets up, credit them down (Assets increase with a debit and decrease with a credit) San Francisco livin’ - up town (I live in San Francisco in a nice area) Now listen up - to the CPA sound (Listen to what a Certified Public Accountant has to say) Hook: Debit cash up, credit down (Assets increase with a debit and decrease with a credit) Other side now, flip around (The other side of the balance sheet is liability and equity, which increase with a credit and decrease with a debit, the opposite (flip) of assets) I got revenue credits, expenses as debits (Revenue increases with credits and decreases with debits) (Expense increases with debits and decreases with credits) Debit left, credit right - balance sheet so tight (Debits are on the left side of the T-account and credits are on the right side of the T-account) (Total debits always equal total credits on the balance sheet) Liability, not for me you see (Liabilities are traditionally viewed as a bad thing for a company, but it depends) Drop down with a debit, come up with a credit (Reduce liability with a debit and increase with a credit) I ain’t no nerd, no cash deferred (I am not boring and I do not have any deferred revenue, a liability account) Down down with a debit, up up with a credit (Reduce liability with a debit and increase with a credit) Reppin’ S.F.C., profits - to equity (I am representing the city of San Francisco and I close my profits out to retained earnings) Drop down with a debit, come up with a credit (Reduce equity with a debit and increase with a credit) Earnings retained, CPA brains (I have accumulated profits and I am a smart Certified Public Accountant) Down down with a debit, up up with a credit (Reduce equity with a debit and increase with a credit) Hook: Debit cash up, credit down Other side now, flip around I got revenue credits, expenses as debits Debit left, credit right - balance sheet so tight Revenue credits, expenses as debits (Increase revenue with a credit and reduce with a debit) (Increase expense with a debit and reduce with a credit) Fo’ my profit and loss, CPA Boss (A profit and loss statement is comprised of revenue minus expenses) Revenue credits to the sky so high (Revenue is increased with a credit) Without a doubt - expenses debit out (Expenses increase with a debit) Balance sheet impeccable, assets, and capital (My balance sheet is clean, neat, with lots of assets and equity) Accounting Play for the Bay out rapable (The Bay is the extended San Francisco and Oakland area in California) Bonds is owned and yours is payable (I own bonds as assets, making me a lender) (Your bonds are a liability to your company) independent now, I ain’t for sale bro Hook: Debit cash up, credit down Other side, now flip around I got revenue credits, expenses as debits Debit left, credit right – balance sheet so tight Debit left, credit right – balance sheet so tight Debit left, credit right – balance sheet so tight The Debits & Credits rap is designed to make the debits and credits concept more easily memorable and fun. There is also a dance to go along with the hook. By analyzing the song in the context of T-accounts and tracing through the concepts, you can deepen your understanding in this area. If you have your own version of the song and dance, please post. It is always appreciated.

In this particular episode, you will learn Memorizing something - yup The Debits & Credits Rap is designed to help teach the debits and credits accounting concept in an entertaining way. Accounting Play and I trying to get paid Debit assets up, credit them down San Francisco livin’ - up town Now listen up - to the CPA sound Hook: Debit cash up, credit down Other side now, flip around I got revenue credits, expenses as debits Expense increases with debits and decreases with credits Debit left, credit right - balance sheet so tight Liability, not for me you see Drop down with a debit, come up with a credit I ain’t no nerd, no cash deferred Down down with a debit, up up with a credit Reppin’ S.F.C., profits - to equity Drop down with a debit, come up with a credit Earnings retained, CPA brains Down down with a debit, up up with a credit Hook: Debit cash up, credit down Other side now, flip around I got revenue credits, expenses as debits Debit left, credit right - balance sheet so tight Revenue credits, expenses as debits Fo’ my profit and loss, CPA Boss Revenue credits to the sky so high Without a doubt - expenses debit out Balance sheet impeccable, assets, and capital Accounting Play for the Bay out rapable Bonds is owned and yours is payable independent now, I ain’t for sale bro Hook: Debit cash up, credit down Other side, now flip around I got revenue credits, expenses as debits Debit left, credit right – balance sheet so tight Debit left, credit right – balance sheet so tight Debit left, credit right – balance sheet so tight Summary The Debits & Credits rap is designed to make the debits and credits concept more easily memorable and fun. There is also a dance to go along with the hook. By analyzing the song in the context of T-accounts and tracing through the concepts, you can deepen your understanding in this area. If you have your own version of the song and dance, please post. It is always appreciated.

In this particular episode, you will learn Debits and Credits Entries Topics Journal Entries Example Accounting Entries Memorization Contra Accounts Trial Balance Presentation Summary   Journal Entries Each transaction in accounting has a debit and credit side. Yet, the user of accounting software can be unaware of this because the entries are mostly automatic. Journal entries are the mechanism of how accounting transactions are manually entered using debits and credits. Every journal entry first displays debits and then credits for the purpose of consistent presentation. But as long as the total debits and credits are equal, the entry will still work regardless of order. Journal entries will have a date that the transaction takes place, description, and amounts. Journal entries are often referred to as adjusting journal entries, or AJEs, as they adjust the accounting record. Adjusting journal entries are commonplace to make corrections. Entries are also made for non-cash transactions, such as depreciation and amortization. Journal entries can incorporate more than one account, as long as the sum of debits equals the sum of credits. For example: Recording a cash asset sale of depreciated machinery for a gain would require increasing cash with a debit, removing the accumulated depreciation with a debit, removing the asset with a credit, and increasing gain on sale of asset with a credit. Entries can quickly become complicated, but make performing adjustments possible. Memorize rule: journal entries first record debits, then credits Memorize rule: journal entry debits = credits   Example Accounting Entries Transfer $15,000 from savings to checking Entries: Increase cash in checking: debit cash in checking $15,000 Reduce cash in savings: credit cash in savings $15,000 Receive $1,000,000 from issuing common stock Entries: Increase cash: debit cash $1,000,000 Increase common stock: credit common stock $1,000,000 Make $300 credit sale Entries: Increase accounts receivable (AR): debit AR $300 Increase revenue: credit revenue $300 Collect cash for $300 credit sale Entries: Increase cash: debit cash $300 Decrease accounts receivable (AR): credit AR $300 Receive $250 internet bill for May, the last day of May, but not due until June Entries: Increase internet expense: debit internet expense $250 Increase accounts payable (AP): credit AP $250 Pay $250 internet bill for May in cash at the end of June Entries: Decrease accounts payable (AP): debit AP $250 Decrease cash: credit cash $250  Record $7,000 of depreciation expense Entries: Increase depreciation expense: debit depreciation $7,000 Increase accumulated depreciation: credit accumulated depreciation $7,000 Receive $1,000 of cash revenue and pay $200 cash for meals and entertainment (assume no beginning balances in the accounts) Entries: Increase cash: debit cash $1,000 Increase revenue: credit revenue $1,000 Increase expense: debit meals and entertainment $200 Decrease cash: credit cash $200 Result: Ending cash: $800 debit Ending revenue: $1,000 credit Ending expense: $200 debit Ending debits: $800 Ending credits: $800   Memorization Typical debits & credits explanation diagrams start with assets. Assets increase with a debit. Expenses also increase with a debit. Therefore, assets and expenses both increase with a debit and decrease with a credit. Liability, equity, and revenue decrease with a debit and increase with a credit. Debits & Credits Mnemonic (memory aid) You may use this Debits & Credits Mnemonic to memorize how to increase and decrease accounts using debits and credits. Debit cash up, credit down Other side now, flip around I got revenue credits, expenses as debits Debit left, credit right - balance sheet so tight Debits & Credits Mnemonic Explained Debit cash up, credit down

In this particular episode, you will learn The Income Statement, Shareholders’ Equity, Cash Flows, and the Notes to the Financial Statements Podcast transcript: Topics Shareholders’ Equity Cash Flows Notes Statement Relationships Different Names, Similar Concept Statement Analysis Preparing Financial Statements Summary   Shareholders’ Equity The statement of shareholders’ equity, also referred to as the statement of retained earnings, reports the sources of equity financing and prior income statement activity. The statement provides detailed information that is summarized in the equity section of the balance sheet and is most relevant for large, publically traded companies. Different sources of equity financing, such as the issuance of common stock and preferred stock is reported. The change in retained earnings is also detailed. Provides detail of changes in the equity section of the balance sheet   Cash Flows The statement of cash flows details the flow of cash in and out of the business in operating, investing, and financing categories. Under Generally Accepted Accounting Principles in the United States (US-GAAP), revenue is recorded when earned, not received. Expenses are recorded when accrued, not paid. These rules set the basis for accrual accounting, where revenue and expenses do not always follow the flow of cash. Accrual business accounting provides the opportunity for accountants to manipulate the financial results. The statement of cash flows can provide information as to how a business is actually operated by looking at the cash movement. It is typically prepared using the indirect method, which uses the change in balance sheet accounts over two time periods. Reports the change in cash under operating, investing, and financing categorie   Notes Defined Notes to the financial statements provide valuable information that is not in the other statements alone. A wide range of topics are covered: accounting methodology, balance sheet detail, and pending lawsuits. Stakeholders interpret the other statements along with the notes to get a complete picture of the business. Some information will be required to be disclosed under US-GAAP, such as certain pending lawsuits and risks. Other information might be optional, such as disclosing the number of users or customers a company has. Notes can give stakeholders important information that might make a business more or less valuable if not taken into account. Asset values under US-GAAP will be stated at historical cost, meaning that the current fair market value of business property is not reflected on the balance sheet. Detail of property holdings could be presented in the notes so that an investor can make a more informed decision. Social media companies may want to disclose users and other valuable metrics that cannot be incorporated into regular financial statements. Reports detailed information not covered in other statements   Statement Relationships The balance sheet and income statement together create a visual representation of the summarized transactions, which appear behind the scenes in a trial balance. They are linked together, because entity performance measured in profit or loss is reported to retained earnings in the equity section of the balance sheet. The change in retained earnings is therefore based upon the income statement. This is summarized in the statement of shareholders’ equity. The statement of cash flows prepared using the indirect method utilizes the change in balance sheet accounts. Finally, the notes of the financial statements will provide further details of the other statements. Financial statements are therefore related.   Different Names, Similar Concept Different entities may refer to financial statements using different names. A charity for example, may refer to the balance sheet as the statement of financial position. Because the goal of a charity is not to have profit l...

In this particular episode, you will learn Accounting Debits and Credits Podcast transcript: Debits and Credits Accounting System The Double Entry System Different Account Types   Increases and Decreases Debits and Credits Accounting System Debits and credits form the foundation of the accounting system. The mechanics of the system must be memorized. Once understood, you will be able to properly classify and enter transactions. These entries make up the data used to prepare financial statements, such as the balance sheet and income statement. While software has simplified entering daily transactions, debit and credit entries are always recorded in the background. Learning about debits and credits requires a combination of memorization and application of the terms. Memorization of account types, as well as increase and decrease rules, is a good first step. Next, you must understand how transactions are recorded into the system. The goal is to be able to manually record and adjust transactions using debits and credits. Use all resources: lessons, flashcards, rap memory aid, practice sets, video, and Accounting Play – Debits & Credits game for iPhone and iPad. For video and downloads, please go to AccountingPlay.com. Every accounting transaction involves at least one debit and one credit. The sum of debits and the sum of credits for each transaction and the total of all transactions are always equal. This equaling process is referred to as balancing. A list of all transactions appears in the general ledger and the sum of assets will equal the sum of liability and equity accounts on the balance sheet. Transactions are manually entered into the accounting record using adjusting journal entries (AJEs) which present debits before credits. Accountants may use a trial balance to summarize all accounts in debit and credit format so they can be further adjusted with AJEs. Memorize rule: debits always equal credits Memorize rule: debits before credits   The Double Entry System The process of recording transactions with debits and credits is referred to as double entry accounting, because there are always at least two accounts involved. The result of using double entry accounting ensures that every transaction is classified and recorded. The double entry system requires us to pick at least two accounts to record a transaction. Let's say a business receives $1,000 cash. To record the transaction, the cash account is increased $1,000. As a rule we need at least one other account to record the activity. The other account will help explain the source and purpose of the transaction. Cash can come from a variety of sources, such as: revenue, loans, investments, investors, or cash back from returning an item. In this example, the business was paid cash for services performed. The revenue account therefore also increases $1,000 the same time cash increases $1,000. The double entry system is used to categorize all transactions in the accounting record. Let's say $200 cash is paid from the bank. Cash is decreased $200, which explains where the money came from. Another account is required to explain the destination and purpose of the transaction. Cash is used for a variety of things: equipment, investments, loan payments, expenses, and stock repurchases. In this example, the business paid a $200 phone bill in cash. The telephone expense account therefore increases $200. The combined entry will be to increase telephone expense and reduce cash for the same amount. The increase and decrease will be expressed on the accounting record as one debit and one credit. The double entry system categorizes transactions using five account types: assets, liabilities, equity, income, and expense. The same account may be used if there is an increase and a decrease of the same category, such as a cash transfer. Assets, liabilities, and equity make up the balance sheet and form the accounting equation: Assets (A) = Liabili...

In this particular episode, you will learn How Debits and Credits Increase and Decrease in Accounting Podcast transcript: Topics Increases and Decreases Debits and Credits by Account Assets Expenses Liabilities Equity Revenue T-Accounts   Increases and Decreases The debit and credit rules used to increase and decrease accounts were established hundreds of years ago and do not correspond with banking terminology. Careful, as banks refer to debit cards, credit cards, account debits, and account credits differently than the accounting system. Cash for example, increases with a debit. The accounting equation diagram visually displays how accounts increase and decrease. The debits and credits diagram condenses this information. Balance sheet accounts: Assets: increase with a debit and decrease with a credit Liabilities: decrease with a debit and increase with a credit Equity: decrease with a debit and increase with a credit Income statement accounts: Revenue: decrease with a debit and increase with a credit Expenses: increase with a debit and decrease with a credit   Debits and Credits by Account Bellow, assets and expense accounts are presented first to aid beginners with memorization. Both these accounts increase with a debit and decrease with a credit.   Assets Asset increases are recorded with a debit. First step to memorize: “Debit asset up, credit asset down.” Asset accounts, especially cash, are constantly moving up and down with debits and credits. The ending balance for an asset account will be a debit. Increases and decreases of the same account are common with assets. Transfers from one cash account to another is recorded as a reduction of one cash account and increase to another cash account. An example of this is the transfer of cash from savings to checking. In the accounting record, the checking account is increased with a debit and the savings account is decreased with a credit. Note that these terms are exactly opposite of how the bank will refer to them! Increases and decreases of the same account type are common with assets. An example is a cash equipment purchase. The equipment account will increase and the cash account will decrease. Equipment is increased with a debit and cash is decreased with a credit. Let’s say a candy business makes a $9,000 cash purchase of candy to sell in the store. Cash in the bank is going to go down and candy will arrive at the store. Candy inventory is going to increase $9,000 with a debit and the cash account will decrease $9,000 with a credit. Memorize rule: debit asset up, credit asset down   Expenses Expense increases are recorded with a debit and decreases are recorded with a credit. Transactions to expense accounts will be mostly debits, as expense totals are constantly increasing. The ending balance for an expense account will be a debit. Under cash basis accounting, expenses are recorded when cash is paid. Take the example of a cash purchase for a client lunch. Cash is going to go down and an expense goes up. Meals and entertainment expense account is increased with a debit and the cash account is decreased with a credit. Under accrual basis accounting required by Generally Accepted Accounting Principles in the United States (US-GAAP), expense is recorded before cash is paid. Typically bills for items such as internet expense will be first recorded into accounts payable, a liability account. Accounts payable (AP) tracks all of the bills before they are paid for in cash. Say a $500 internet bill arrives for May service, but is not due until next month. The $500 internet expense is recorded in May with a debit and a $500 AP is recorded with a credit. When the bill is paid for in cash the next month, AP will decrease with a $500 debit and cash will decrease with a $500 credit. Expenses are almost always going to be a debit transaction, but expenses can also be decreased with a credit as ne...

In this particular episode, you will learn The Income Statement Podcast transcript: The balance sheet, also referred to as the statement of financial position, reports the financial position of a business at a point in time. Because the information is reported at a point in time, the balance sheet can be compared to a photograph. It is based upon the accounting equation and reports the assets, liabilities, and equity of the business. At all times Assets = Liabilities + Equity (A = L + E) on the balance sheet and in the accounting system. For academic purposes the equation can also be expressed Equity = Assets – Liabilities. The balance sheet provides a check and balance to ensure that all transactions have been recorded. The financial statement is referred to as a balance sheet because assets will equal or balance to liabilities plus equity (A = L + E). Let’s say a $1,000,000 property is purchased with $200,000 cash and a $800,000 loan. The balance sheet would be expressed as: $1,000,000 Assets = $800,000 Liability + $200,000 Equity. The equity at purchase roughly translates into the value that the owner has in the property. This same transaction could be expressed as $200,000 Equity = $1,000,000 Assets - $800,000 Liability. As transactions are entered into the accounting system, two accounts are always affected. Let’s say a business receives $500,000 of cash. The cash account increases $500,000, but we need another account to balance the transaction and help explain where the cash came from. In this case, cash was received in exchange for giving ownership of the company to an investor, in the form of common stock. Cash assets therefore increase $500,000 and common stock equity will increase $500,000. At the end of the transaction $500,000 Assets = $0 Liabilities + $500,000 Equity. The balance sheet now balances. Balance sheet accounts fluctuate over time. Asset accounts such as cash continually go up and down, recording every cash transaction. Liability accounts will also go up and down as money is borrowed and repaid. Equity accounts will likely fluctuate less, because they are based on events that happen more infrequently: receiving investment, paying investors, and recording the ending profit or loss activity from the income statement. Assets are the first part of the balance sheet. Common assets are cash, accounts receivable, and property, plant, and equipment. Assets are presented on the balance sheet in order of liquidity: how easily assets can be converted to cash, with cash being presented first. Ending cash is calculated using a bank reconciliation, because there may be outstanding checks and deposits not reflected in the bank balance. Accounts receivable tracks amounts owed to the business from customers. Next, inventory is tracked as an asset until sold. Property, plant, and equipment are also considered assets. Property, plant, and equipment are expensed over time using the process of depreciation. Assets: cash, accounts receivable, equipment, inventory, property, plant, and equipment, intangibles Liabilities are debts that the business owes. The order is determined based upon how quickly the liabilities must be repaid. Common liabilities are accounts payable and notes payable. Accounts payable tracks amounts owed to providers of goods and services to the business, referred to as vendors. Notes payable are loans used to finance the business. Liabilities: accounts payable, notes payable, accrued expenses, bonds payable Equity represents amounts invested in the business and prior income statement activity. Common stock and retained earnings are typical equity accounts. Common stock is issued to investors in exchange for investment, typically in the form of cash. The retained earnings account tracks the accumulated activity that has been reported on the income statement. Retained earnings therefore connects the income statement and the balance sheet. Equity: Common stock,

In this particular episode, you will learn The Income Statement Podcast transcript: Income Statement The income statement, also referred to as a profit and loss statement, reports the financial performance of a business over a period of time. Because the information is reported over a period in time, the income statement can be compared to a video. Typically the time period will be one year or three months at a time. Revenue will indicate how the business is generating money from the sale of goods and services. Expenses show how assets are being used to generate revenue. Stakeholders prefer to see a profit at the bottom of the income statement, when there is more revenue than expenses. If expenses are greater than revenue, the business has a loss. Businesses operating at a loss are likely losing money. Revenue - Expenses = Profit or Loss, forms the basis for the income statement. On a cash basis, money received for goods and services is reported as revenue. Cash paid for expenses will be totaled in categories such as office and internet expense. The total of revenue minus expenses will then equal a profit or loss for the business. Let’s say a consultant receives $1,000 for a speaking engagement and uses $50 of supplies. In this simple example, the profit would be $950 ($1,000 of revenue - $50 of supplies). In reality, there will likely be several other expenses. Businesses that sell inventory have cost of goods sold on the income statement. Cost of goods sold is generally the cost of items that were sold during the period. If a candy store sells $10,000 of candy that it paid $3,000 for, then the gross profit would be $7,000. The gross profit does not take into account other selling expenses, such as the rent for the candy store. A cost of goods sold calculation is necessary because the purchase of inventory is not an expense until the inventory is actually sold. If the same candy store purchased $100,000 of candy, but only sold $3,000 of it, then the $3,000 would be the cost of goods sold and the remaining $97,000 would be an asset, until sold. At the end of the accounting period, typically one year or 3 months at a time, the income statement profit or loss results are recorded to retained earnings, a balance sheet account. This happens automatically in accounting software when the reports are run and can also be performed manually. This process is informally referred to as closing the books. Because the ending results of the income statement are recorded to the balance sheet, both financial statements relate to each other. Comparable to a video, because it reports financial activity over time Reports revenue and expenses to arrive at the profit or loss Expressed: Revenue – Expenses = Profit or Loss Measures financial performance Ending results reported on the balance sheet equity account, retained earnings

In this particular episode, you will learn About the Balance Sheet and Income Statement Podcast transcript: Topics Introduction Summary of Statements   Introduction Financial statements provide valuable financial and operational information about an entity. Different operating entities can include: businesses, charities, trusts, governments, investment portfolios, and individuals. Financial statements serve several purposes for the users of financial information, referred to as stakeholders. Investors want to know whether or not they should put money into a business. Major donors want to see how a charity is being operated. Lenders need information to see whether they should loan money. Someone interested in working for a company might want to learn more about how the business makes money and if there is enough money to pay the employees. Stakeholders do not need to be accountants to get value out of financial statements, but must know where to look. A complete set of statements, also referred to as financials, includes a balance sheet, income statement, statement of shareholders’ equity, cash flow statement, and the notes. For a publically traded corporation, the complete set of statements can have over a hundred pages and contain several years of information. The content is audited by an independent accounting firm to verify the information released to the public. The statements and notes combined create a complete set of financials.   Summary of Statements Balance sheet: Reports the financial position at a point in time and reflects the accounting equation format: Assets = Liabilities + Equity Includes Assets: cash, accounts receivable, inventory, and equipment Liabilities: accounts payable, notes payable, and bonds Equity: common stock and retained earnings   Income statement: Reports the financial performance for a period of time and shows profit or loss in the format: Revenue – Expenses Includes Revenue: sales and income Cost of goods sold: costs of inventory sold Expenses: general costs of doing business   Statement of shareholders’ equity: Reports the sources and changes of equity Includes Changes in equity due to financing: stock issues Changes in retained earnings due to: profit or loss and dividends   Cash flow statement: Reports changes in cash between accounting periods Includes Cash flow: operating, investing, and financing   Notes to the financial statements: Reports information not covered in other statements Includes Accounting methods: basis of financial presentation Relevant topics: changes, risks, uncertainties, accounting developments, investments, taxes, and information specific to the business Statements are presented together to form a complete financial picture. As an investor, I might check the balance sheet to see how much cash there is in the asset section and learn about what debts there are in the liabilities section. Next, I can look at equity to see how much others have invested in the business. I will look at the income statement to see if the company is earning money after expenses or losing money. I can see the cash flow statement to verify that cash is actually being collected for the sales reported on the income statement. Finally, the notes to the financial statements will have information such as accounting methods and operational details which provide deeper insight into the business. All of the financial statements will be looked at and taken as a whole before the decision to invest is made.

In this particular episode, you will learn About Small Business Tax and Practical Tips Podcast transcript: Disclaimer: This information is for educational purposes only and not to be used as tax or legal advice. Tax law and accounting protocol are constantly changing. Seek an attorney and qualified accountant. Topics Tax Accounting for a Small Business Tax Implications Employees and Independent Contractors Summary   Tax The tax rules surrounding business structure may impact the owners and the ability to attract investors and raise capital. Generally structures are either taxed at the corporate level such as a C-corporation or at the owner level, such as a limited liability company. Each structure has very specific tax rules, costs, and benefits for the investors and owners. Seek professional guidance to determine the structure best suited for the needs of the business.   Accounting for a Small Business Accounting for small businesses is necessary for tax compliance and to monitor results. Keeping current records allows for better planning and less reactionary measures. Good records also allow for year- end tax planning. Often, businesses will use software to bill customers and pay vendors. Accounting software is a great recordkeeping tool, but still requires accounting knowledge if it is expected to generate reasonably accurate records. Accounting must always be viewed in the context of the costs and benefits of the system. In other words, while perfect records and software are ideal, they are not always time or cost effective. Maintaining the proper sources for transactions is the first step in building financial records. When cash moves, keep a record with a receipt and explanation of the transaction. Keep receipts in a simple, chronological order in a box or whatever is convenient. It will be fine to use bank records later, but in the case of an audit, the original records are very important. Taking notes on receipts as to the business purpose will help the accountant classify the transaction. When cash is received, make notes as to why and whom it is received from. Use a separate bank account and limit personal transactions. Comingling (combining) of business funds creates unnecessary accounting work. Having a separate business bank account provides legitimacy in audits and keeps transaction volume down. Save time by limiting bank accounts and transfers. Withdraw funds infrequently using relatively large and even amounts. This will make the transactions obvious for future categorization. If possible, avoid tiny purchases to reduce transactions. When paying for items, use credit and debit cards to make accounting faster and improve record keeping. Use checks only when necessary and avoid using cash. Though small business accounting can be done after the fact, current recordkeeping makes tax planning and decision making possible. Keep all receipts and document the sources of cash Do not use business accounts for personal expenditures Limit bank accounts and keep transaction volume low: withdraw infrequent and even amounts, limit bank transfers, and limit small purchases Use debit and credit cards whenever possible   Tax Implications Small business owners are taxed differently than employees. More taxes are shifted to the owner of a business and are not automatically withheld. Current record keeping is a necessity to effectively make proper tax payments and take advantage of potential tax benefits. Business ownership requires significant discipline to save for quarterly tax payments. There are also additional time and monetary costs to hire qualified professionals to help with the process. Be aware of all state and local business taxes. Even sole proprietors and flow-through entities may be subject to local registration and property taxes. If operating as a corporate or limited liability structure, there are likely state fees.

In this particular episode, you will learn About Small Business Legal and Practical Tips Podcast transcript: Disclaimer: This information is for educational purposes only and not to be used as tax or legal advice. Tax law and accounting protocol are constantly changing. Seek an attorney and qualified accountant. Audio Small Business Accounting Tips, United States, Communicating with Your Advisors, Legal Structure of a Business, Personal Liability and Business Topics Small Business Accounting Tips, United States Communicating with Your Advisors Legal Structure of a Business Personal Liability and Business   Small Business Accounting Tips, United States The focus of starting a business in the United States should be quickly finding customers for your goods and services. While liability and intellectual property protection are very important, aspiring business owners get caught up in the details of entity type, operation, and compliance requirements. Moreover, entrepreneurs stress over details and worry about someone copying an idea that few care about and even fewer have the capacity to implement. Thus, the optimal way to conduct business is to strike a balance between cost effectiveness and action by consulting insurance and legal professionals.   Communicating with Your Advisors Seek people who have significant experience in your business area. Interview them and ask for specific examples of their experience. Prior to talking with others, maximize their time by first educating yourself on the basics. Document a business plan, including goals and exactly how to accomplish them. By planning and researching questions prior to meeting with advisors, you will be able to accomplish more with them.   Legal Structure of a Business If there are two or more owners in a business, it is likely worth the associated cost to form a separate legal entity. Without a structure in place, two or more people in business together may be classified as a general partnership. If this is the case, all partners would share unlimited personal liability for the business. Common business structures that limit liability are corporations, limited liability partnerships, and limited liability companies. These structures provide the legal framework to set ownership and rights on paper. Having only one owner allows more flexibility in the entity choice. One owner may also decide to delay the entity formation and act as a sole proprietor until outside investors are willing to invest, a product is profitable, or employees are hired. Sole proprietors should carefully analyze the costs and benefits in pursuing a separate legal entity. Having employees creates many potential liabilities for businesses. Employees perform inherently risky things for employers: climb ladders, operate machinery, and perform other tasks. Insurance may cover things like injury, but policy maximums can quickly be reached and the owner held personally liable. Legal structures can help limit this risk and should be strongly considered when there are employees or even independent contractors. Limiting liability with a corporate or limited liability structure is ideal, but costly. Many California companies in the tech space register a corporation in Delaware and operate in California. In this example, the corporation will generally need to pay fees to Delaware, California, as well as file separate tax returns and hire an accountant. Delaware is a popular state to incorporate in because of the court system and laws. Using this legal structure may make it easier to attract investors and possibly sell a company. The necessity for outside investment is a very important factor when deciding on a business entity. If the business is seeking outside investment, ask other businesses and investors in the industry which structures are preferable. It is also valuable to seek legal counsel from firms that are experienced in your particular business type.

In this particular episode, you will learn About C-Corporations Introduction to S-Corporations Podcast transcript: Disclaimer: This information is for educational purposes only and not to be used as tax or legal advice. Tax law and accounting protocol are constantly changing. Topics Corporation (C-Corporation) Share Types and Stock Ownership Corporate Governance Summary Subchapter S Corporation (S-Corp) Other Business and Not For Profit Structures Conclusion: Business Types   Corporation (C-Corp) The C-corporation (C-Corp) is a business entity that is legally separate from owners, referred to as shareholders. Taxation is also separate and occurs on the corporate level. As a separate entity, the owners are not personally liable for business debts and lawsuits. While the corporate structure provides liability protection, owners and employees can still be liable for negligence. Because a corporation is separate from an individual, it can operate in perpetuity. Corporations are an effective structure for outside investors, as they are protected from corporate liability, may have different ownership types, and can operate after the death of the main owner. Company ownership is in the form of corporate stock or shares. Several different share types exist, depending on the needs and size of a corporation. Owners can receive cash from the corporation in the form of dividends if there are retained earnings on the balance sheet due to prior profits.   Advantages Corporations are designed to facilitate investment and live in perpetuity. Non-employee investors can own a fraction of the corporation without the concern of personal liability. Shareholders can be paid out profits via dividends or invest for potential capital appreciation. Capital appreciation refers to when stock purchased in a company increases in value over time for the shareholder. Stock held by investors have unrealized gains or losses until sold or become worthless. Large corporate stock is traded daily and the value of the stock is easily determined and realized with a sale. Because publically traded stocks are easy to buy and sell, investors may be more comfortable investing in stocks versus other types of business structures. Corporate law and ownership transfer is well established in court systems which appeals to many investors.   Disadvantages The primary disadvantages to the corporate structure are double taxation and other compliance costs. Double taxation refers to the combined corporate tax on profits before dividends and dividend income taxed at the individual level. Dividends are not a tax deduction to the corporation and must be paid in order to transfer cash to shareholders. To reduce double taxation, a company may actively perform tax planning which requires current accounting records and additional professional fees. Owner employees are compensated through payroll, which adds to the cost and complexity of the structure.   Accounting Accounting for corporations under GAAP requires double-entry, accrual based accounting for financial statements. Stock appears in the equity section of the balance sheet and different types of stock are outlined in the statement of shareholders’ equity. Because corporations are a taxable entity, significant differences may exist in GAAP income and taxable income, which are accounted for in technical ways, such as deferred tax accounts. Payments to non-employee shareholders are in the form of dividends, which reduce retained earnings when declared. An owner may not simply withdraw capital, as owners of partnerships and sole proprietorships can do.   Share Types and Stock Ownership Stock in a corporation represents ownership and different rights to a corporation. Various types of stock may be issued that pay different dividends or have different voting rights. Preferred stockholders can have preferential treatment for dividends compared to common stockholders.

In this particular episode, you will learn About Partnerships Flow-Through Businesses Podcast transcript: Disclaimer: This information is for educational purposes only and not to be used as tax or legal advice. Tax law and accounting protocol are constantly changing. Topics Flow-through Entities and Corporate Double Taxation General Partnership Limited Partnership (LP) Limited Liability Company (LLC) Sole Member LLC (SMLLC)   Flow-through Entities and Corporate Double Taxation Partnerships, limited partnerships (LPs), and limited liability companies (LLCs) are referred to as flow-through entities for tax purposes. LPs and LLCs generally fall under the same tax and accounting rules formally established for regular partnerships. Flow-through entities do not pay federal or state income tax and therefore “flow” income and loss activity to owners. Owners then report income and deductions on a tax return as an individual or other business entity. The owner of a partnership, limited partnership, or limited liability company can be an individual, another partnership structure, corporation, and certain trusts. Some entities, such as trusts, may be a hybrid between flowing out income to beneficiaries and paying tax at the trust level. In addition to tax at the individual partner level, partnership entities may also pay state and local fees. State and local fees for flow-through entities are generally small compared to tax at the individual level. Fees can create some double-taxation; however, double taxation generally refers to the dual taxation of corporate income and corporate dividends. Regular corporations are taxed on profits at the corporate level and are therefore not flow-through entities. Once a corporation has paid tax on profits, dividends may be paid to shareholders who are owners of the corporation. Dividends are considered income to shareholders and are taxable. Corporate profits are therefore subject to double taxation because there is tax at both the corporate and shareholder level.   General Partnership The general partnership entity structure is comprised of two or more owners referred to as partners. Ownership of a partnership’s income, loss, and capital is represented as a percentage or units, which calculate to an ownership percentage. No stock is issued. A general partnership is not a separate entity from the owners. Partners are therefore personally liable for all business debts and lawsuits. If two or more individuals start operating as a business they will likely be considered a general partnership. The partnership establishes a business name by filing documents with the local government. Partners may choose to have a partnership agreement to govern operations of the business. As a flow-through entity, profit and loss for tax purposes are reported on the partner’s tax return, whether as an individual or business. Employees and partners receive compensation differently under the partnership structure. The entity may have employees who are paid wages. Partners generally distribute money to themselves based on profit or loss; however, may also be compensated using guaranteed payments. Guaranteed payments are similar to employee compensation, but without taxes being withheld. Typical general partnerships are small in nature and may be for: property ownership, consulting services, and two or more individuals operating informally.   Advantages Partnerships can be setup informally without additional legal or state fees. The structure allows for multiple owners and outside investment. The ownership is very flexible and can divide profit, loss, and capital ownership percentages differently. There is no tax on the federal level, but a separate federal tax return is still required. Similar to draws in a sole proprietorship, partners generally take distributions to receive cash payments. Partners may also be compensated unevenly using guaranteed wages,

In this particular episode, you will learn About business types Liability protection Podcast transcript: Topics Business Types, United States Liability Protection and Piercing the Corporate Veil Sole Proprietorship   Business Types, United States The legal structure of a business is referred to as the business entity, while Generally Accepted Accounting Principles (GAAP) provides guidance on different accounting methodologies. Under GAAP, a business will be on the accrual method, reconcile cash, and maintain a general ledger regardless of the entity type. Entity choice is driven more by legal, tax, and investment concerns. Most legal benefits and operating rules are governed by the state, while taxation rules will be governed at the federal level. States and cities may also charge fees and tax. While tax is an important feature of entity choice, it may outweighed by other business needs, such as capital investment.   Liability Protection and Piercing the Corporate Veil Different business structures offer different liability protection to owners, depending on the laws of the state. In the case of sole proprietorships and general partnerships, no liability protection is granted under the law. Limited liability partnerships, limited liability companies, and corporations provide liability protection to owners, but not in all circumstances. Regardless of the business entity choice, insurance can be used to protect owners against professional liability. Entity structure does little to protect individual owners who are negligent or break the law. For example, a self-employed surgeon cannot rely on a corporation to protect personal assets if he or she should kill a patient while performing surgery drunk. In such a scenario, the corporate structure would do little or nothing to protect the doctor’s personal assets. Holding corporate owners personally liable for wrongful acts is referred to as piercing the corporate veil. The courts may hold perpetrators of crime personally liable regardless of the business structure. There are other actions that owners can do that may effectively erode any protections under the law. If an owner does not follow the required entity protocols by co-mingling funds (combining business and personal accounts), neglects to pay state fees, or has fraudulent accounting, the courts may ignore the structure for legal purposes. Individual investor owners, chief executive officers, and chief financial officers may be held responsible for corporate negligence.   Sole Proprietorship The sole proprietorship is the most common entity structure in the United States. Only one person may own the business and he or she is personally liable in the case of lawsuits. To become a sole proprietor, an individual need only start operating as a business. By default, the sole proprietorship operates under the individual owner’s name. However, a business may establish a “DBA” which stands for Doing Business As in order to operate under a different name. The business may have employees compensated through payroll. The business owner does not receive a wage, but may withdraw or contribute funds at any time. Income taxes are computed at the individual level based on the profit or loss of the business. Typical sole proprietorships do not require outside investors and are small in nature. Examples include consulting services, lawn care, and small dental practices.   Advantages Sole proprietorships are low cost and require little to no setup. Some cities require registration and property tax if the sole proprietor has significant business assets. Because it is not a separate entity for tax and legal purposes, business activity is reported on an individual tax return. Business and personal accounts are not required to be separated, but encouraged. Many owners choose to perform non-GAAP accounting at year end to prepare a cash basis profit and loss statement.   Disadvantages