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Accounting for Entrepreneurs

by: Noelle Wiggins

Accounting for Entrepreneurs ENTP 102

Marketplace > Drexel University > Entrepreneurship > ENTP 102 > Accounting for Entrepreneurs
Noelle Wiggins
GPA 3.8

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About this Document

These notes cover the most important accounting techniques and habits for entrepreneurs. Dr. Z has taken complex and difficult accounting concepts and made them easy to understand for even the newe...
Life Strategies 2
Zahed Subhan
Class Notes
Entrepreneurship, Accounting, business
25 ?




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This 6 page Class Notes was uploaded by Noelle Wiggins on Friday February 26, 2016. The Class Notes belongs to ENTP 102 at Drexel University taught by Zahed Subhan in Winter 2016. Since its upload, it has received 18 views. For similar materials see Life Strategies 2 in Entrepreneurship at Drexel University.

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Date Created: 02/26/16
Tuesday, February 16, 2016 Basic Accounting Concepts Forms of Business Organization - Sole proprietorship • One person owns and operates the business • Simple to establish • Owner controlled • Tax advantages - Personal income tax advantages primarily • Owner personally liable for debts and obligations of business • Financing difficult - Partnership • Two or more owners • Simple to establish • Shared control • Broader skills and resources • Tax advantages • Personal liability - Corporation • Separate legal entity owned by stockholders - (C Corporation or S Corporation) • Easy to transfer ownership • Greater capital raising potential • Lower legal liability - No personal liability • Unfavorable tax treatment 1 Tuesday, February 16, 2016 The Corporate Veil - Shield between you and the company - The company has a “persona” of its own - The owners are shielded from liability associated with company - Certain things allow the courts to push aside the corporate veil - A situation in which courts put aside limited liability and hold a corporations shareholders or directors personally liable for the corporation’s actions or debts. “Veil piercing” is most common in close corporations. Users of Financial Information - Managers who plan, organize, and run a business (internal operations) • Marketing managers • Production supervisors • Finance directors • Company officers - Investors - Creditors - Others • Regulatory agencies • Tax authorities (IRS) • Customers • Labor Unions • Economic Planners 2 Tuesday, February 16, 2016 Types of Business Activity Financing - Borrowing creates liabilities: • Bank loans • Debt securities • Goods on credit or payables - Selling stock creates stockholders’ equity Investing - Obtaining resources or assets to operate the business • Land • Buildings • Vehicles Computers • • Furniture • Production Equipment Operating - Primary activity of business - Selling goods - Providing services - Manufacturing - Cost of sales - Advertising - Paying employees 3 Tuesday, February 16, 2016 - Paying utilities Operating Activities - Revenue is generated from sales or services - Expenses are the cost of doing business - If revenue > expenses = net income - If revenue < expenses = net loss Financial Statements Income Statement - Reports operating success or failure for a defined period - Looks at revenues and expenses for period - Revenue - Expenses = Net income/loss - If revenue > expenses = net income - Profit/Loss Statement - Retained Earnings Statement - Not particularly useful Balance Sheet - Reports assets and claims to assets - Claims of creditors and liabilities - Claims of owners, stockholders’ equity - Assets = Liabilities + Stockholders’ Equity - (Stockholders’ Equity = Any stock issued) - Specific date- one point in time! 4 Tuesday, February 16, 2016 - Covers a very particular point in time Statement of Cash Flows - Most important and informative statement for startups - Provides information about cash receipts and cash payments - Tells you where the cash is coming in and where it is going out - Summarizes for period: month, year, quarter - Cash effects of operating, investing, and financing activities - Can tell you when you’ll run out of cash - Where did cash come from? - Where is cash going? - What was the change in the cash balance during the period? - One of the most common metrics an investor will ask is “what is your burn rate?” - Burn rate is how much money you’re using every month, averaged over a period of time to tell when you’ll run out of money. Assets - Resources owned by the business • Cash • Accounts receivable • Inventories • Building • Furniture and fixtures • Equipment • Supplies - Anything that is cash or can turn into cash relatively quickly and easily - The easier you can turn it into cash, the more liquid that asset is 5 Tuesday, February 16, 2016 Liabilities - Obligations or debts of business - Notes payable (money promised in the future) - Accounts payable - Interest payable - Salaries payable - Unearned revenue Stockholders’ Equity - Ownership claims on assets - Paid-in Capital Preferred Stock- for investors • - Liquidation priority - Voting Rights • Common stock- for owners - Retained earnings Basic Accounting Equation - Assets = Equity + Liability 6


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