Fundamentals of finance
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Fundamentals of Finance. Presented by Bob Perry. 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

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Fundamentals of Finance

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Fundamentals of finance

Fundamentals of Finance

Presented by

Bob Perry


Three levels of record keeping

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


Video library example

Video Library Example

Source

Organizing

Sales Receipts, Cancelled Checks, Labels

List of Videos,

By Date Purchased,

By Kind of Movie

Summary

Summary Page

____________ ____________

____________ ____________

____________ ____________


Finance system in action

Finance System in Action

Source

Pay to the Order

CHECK

Organizing

Sales Receipts, Cancelled Checks, Sales Tickets, Etc.

Sales

Ticket

Cash

Receipts

Journals

Ledgers

Summary

Income

Statement

_______ _______ _______ _______ _______

_______ _______

Balance

Sheet

______ ______

______ ______

______ ______

______ ______

______ ______

______ ______


Types of accounts

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


Income statement

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


Balance sheet

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


Finance formulas

Finance Formulas

Income Statement

Revenues – Expenses = Profit or Loss

Balance Sheet

Assets – Liabilities = Equity

Accounting Formula

(Revenues – Expenses) + Assets - Liabilities = Equity


Formula examples income statement

Formula ExamplesIncome Statement

T.V. Sells for$750

Cost $600

Delivery Cost $50

Revenue – Expense + = Profit

$750

$600

$50

$100

If we have other cost like:

Overhead Cost $40

Insurance Cost $50

Finance Cost $15

Revenue – Expense =Loss

+

$750

$600

$50

$40

$50

$15

$5


Formula examples balance sheet

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)


What is accounting

What is Accounting?

The systematic organization, recording and summary of the financial information of a business


The three levels of record keeping

The Three Levels of Record Keeping

LEVEL 1

SOURCE

Source Documents

LEVEL 2

ORGANIZATION

Journals and Ledgers

LEVEL 3

SUMMARY

Summary Reports


The accounting formula

The Accounting Formula

Assets= Liabilities+ Equity+ Revenues- Expenses

Assets+ Expenses= Liabilities+ Equity+ Revenues

REVENUESincreaseEQUITY

EXPENSESdecrease EQUITY


Debits and credits left and right

Debits and CreditsLeft and Right

Type of Increased Decreased

Accountbyby

ASSETSDEBITSCREDITS

LIABILITIESCREDITSDEBITS

EQUITYCREDITSDEBITS

REVENUECREDITSDEBITS

EXPENSEDEBITSCREDITS


Normal operating cycle

Normal Operating Cycle

CASH

Purchase

Collect

ACCOUNTS RECIEVABLE

INVENTORY

Sell


Assets and liabilities

Assets and Liabilities

Assets

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

Liabilities

Current 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


Balance sheet1

Balance Sheet

A summary of Assets, Liabilities and Equity accounts

ASSET – LIABILITIES = EQUITY


Income statement1

Income Statement

A summary of Revenues and Expenses

REVENUES – EXPENSES = PROFIT (or LOSS)


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