fundamentals of finance presented by bob perry. three levels of record keeping level 1 (source)...
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Fundamentals of Finance
Presented byBob Perry
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Three Levels of Record Keeping Level 1 (Source)
Source Documents/Business Papers Examples: Cancelled Checks, Receipts, Deposit slips,
Sales tickets, etc. Level 2 (Organization)
Chronological Listing (By date) Journals
Categorical listing (By type) Ledgers
Level 3 (Summary) Financial Statements (Summaries of ledgers)
Income Statement Balance Sheet
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Video Library ExampleSource
Organizing
Summary
Sales Receipts, Cancelled Checks,
Labels
List of Videos,By Date Purchased,
By Kind of Movie
Summary Page____________ ________________________ ________________________ ____________
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Finance System in Action
IncomeStatement
_______ _______ _______ _______ ______________ _______
BalanceSheet
______ ____________ ____________ ____________ ____________ ____________ ______
Source
Organizing
Summary
Sales Receipts, Cancelled
Checks, Sales Tickets, Etc.
Pay to the OrderCHECK
SalesTicket Journal
sLedgers
CashReceipts
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Types of Accounts Revenue
An inflow of assets in exchange for goods or services
Expenses Goods or services consumed in operating a business
Assets Property or economic resources owned
Liabilities A debt owed
Equity Ownership, leftover profits
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Income Statement Measures the Profit or Loss of a
business entity for a specific period of time
Revenues increase Assets and Equity Expenses decrease Assets and Equity Income Statement tells what the
company has made or lost Revenues – Expenses = Profit or Loss
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Balance Sheet An ongoing Statement that shows
the financial position of a company for any period of time
The Balance Sheets shows what the company owes or owns
Assets – Liabilities = Equity
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Finance Formulas
Revenues – Expenses = Profit or Loss
Income Statement
Balance SheetAssets – Liabilities = Equity
(Revenues – Expenses) + Assets - Liabilities = Equity
Accounting Formula
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Formula Examples Income Statement
T.V. Sells for $750
Cost $600
Delivery Cost $50
Revenue – Expense + = Profit
If we have other cost like:Overhead Cost $40Insurance Cost $50Finance Cost $15
Revenue – Expense =Loss
$750 $600 $50 $100
$750 $600 $50 $40 $50 $15 $5
+
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Formula ExamplesBalance Sheet
Do I really own MY car?
Car was bought for $10,000
After 2 years I owe $8,000
Assets ($10,000) – Liability ($8,000) = Equity ($2,000)Car is worth $10,000 - $2,500 Depreciation
After 2 years I owe $8,000
Assets ($7,500) – Liability ($8,000) = Equity (- $500)
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What is Accounting?
The systematic organization, recording and summary of the financial information of a business
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The Three Levels of Record Keeping
LEVEL 1SOURCESource
Documents
LEVEL 2ORGANIZATIO
N Journals and
Ledgers
LEVEL 3SUMMAR
YSummary Reports
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The Accounting Formula
Assets = Liabilities + Equity + Revenues - Expenses
REVENUES increase EQUITY
EXPENSES decrease EQUITY
Assets + Expenses = Liabilities + Equity + Revenues
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Debits and CreditsLeft and Right
Type of Increased Decreased Account by by
ASSETS DEBITS CREDITS
LIABILITIES CREDITS DEBITS
EQUITY CREDITS DEBITS
REVENUE CREDITS DEBITS
EXPENSE DEBITS CREDITS
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Normal Operating CycleCASH
INVENTORYACCOUNTS RECIEVABLE
Purchase
Sell
Collect
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Assets and LiabilitiesAssets
Current Assets (Expected to be CASH in 1 year)Cash, Marketable Securities, Accounts Receivable, Inventory,
Prepaid expense
Non-current Assets (Expected to last more than 1 year)Investments, Property, Plant, and Equipment
LiabilitiesCurrent Liabilities (Expected to be paid in 1 year)
Accounts payable, Revenue Received in advance, normal billings
Long-Term Liabilities Debts to by paid in more than 1 year
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Balance Sheet
A summary of Assets, Liabilities and Equity accounts
ASSET – LIABILITIES = EQUITY
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Income Statement
A summary of Revenues and Expenses
REVENUES – EXPENSES = PROFIT (or LOSS)