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Accountability

<logo>. Accountability. Accounting: An Overview of Financial Performance.

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Accountability

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  1. <logo> Accountability Accounting: An Overview of Financial Performance

  2. The American Institute of Certified Public Accountants defines accounting as "the art of recording, classifying, and summarizing in a significant manner in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof." Accounting Defined

  3. A Business Example: The Acme Corporation supplies products and services to people world-wide. This presentation provides an overview of our financial performance. Unless marked as Company Confidential, all information has been made public. • Highlights • Income • Revenue • Balance Sheet • Assets • Stock Performance

  4. Highlights

  5. Income NetRevenues NetIncome Earnings / Share

  6. Revenue by Division

  7. Balance Sheet

  8. Assets

  9. Stock Performance Stock Performance to Date

  10. There is a direct correspondence between ‘reality’ and knowledge we have of it through financial reports. Objective is to give as accurate and ‘true’ a picture of what happened (transactions) and where we stand (financial condition) as humanly possible. How Accountants Think

  11. ”The Books” Ledgers record changes in condition Journals record, classify and summarize specific transactions. Charts of accounts list classification scheme for recording transactions Income Expenditures Accounting Records

  12. Financial condition at a given moment Changes over time All accounting systems use three fundamental terms: Assets (What we own or hold) Liabilities (What we owe) Equity (Difference) A-L = E Basic Formula

  13. Record changes Income (Inflows of Assets) Expenditures (Outflows of Assets) Two Other Basic Components

  14. Ledgers have five sets of accounts that all together should be in “balance” Assets, liabilities, equities, income and expenditures. All transactions are recorded twice (double-entry bookkeeping) Sum of all right hand columns should equal sum of all left hand columns Ledger Accounts

  15. Any (& usually all) of these five can be sub-divided into many more possibilities. Asset: Cash & inventory Liability: Current & long-term (e.g.mortgage) Equities: Categories Income: Revenue, Donations, Grants Expenditures: Salaries, Fringes, Rent, etc. Sub-categories must always total to the whole. Disaggregation

  16. Debit (Left side): Additions to Assets What we own Cash on hand Inventory Receivables (What we are owed) Credit (Right side): Reductions of Assets What we have spent Major offsetting entries are Income, Expenditures and Equity. Assets

  17. Debit side: Mostly adjustments and corrections Credit side: What we owe (payables) In nonprofits, often a very limited category. Major offsetting entries are in Expenditures (bought but not paid for) and Equity (reducing capital) Liabilities

  18. In nonprofits, has one of two names: Fund accounting: Fund balances Net income accounting: Net income Left (debit) offsetting entries are Liability credits (right). Right (credit) offsetting entries are Asset debits (left). Equity

  19. Left: Mostly adjustments Right: What we have received: Revenue Support What we expect to receive Off-setting entries are in Assets Inflows

  20. Left (debits) reduce assets (paid) or increase liabilities (payables). Right (credits) are mostly corrections and adjustments. Expenditures

  21. Small nonprofits (under $250,000) with limited payroll and limited accruals* can get good service out of Quickbooks URL: http://www.quickbooks.com They have a 30-day trial period you can sign up for. Quickbooks

  22. The purpose of keeping these records (“the books”) is to produce accurate financial statements. Nonprofit financial statements: Financial Position (Assets, Liabilities & Equity) Statement of Activities (Changes in Net Assets) Cash Flows (Operations, Investments, Financing) Functional Expenditures GAAP Financial statements

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