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Module 6Financial Statements

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Module 6 - Purpose

> Shows Financial “health” of business over a given period of time

> Provides history of business performance

> Will highlight any changes in costs, sales, business strategy, ect...

If you have any difficulties understanding this Module please refer to the Module 6 guide on how to

do the module or glossary for quick definitions of terms.

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Module 6 - Projected Outcomes

> Increased awareness of accounting role and importance in small business

> Understand the “accounting equation”

> Increase awareness of basic financial statements; Start-up Schedule, Income Statement, Balance Sheet, and Cash Flow Projection.

> Increased Awareness of accounting terminology

> Increased awareness of financial statement preparation.

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Requirements in Module 6

> Start Up Expenses

> Loan Calculations

> Cash Flow Forecast

> Four-month Projected Income Statement

> Balance Sheet

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What is Accounting?

> Accounting is the process of recording, processing, classifying, summarizing, and interpreting financial transactions.

> Essentially how you manage, record, organize, and deal with the money you have coming in and out of your business.

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What are Financial Statements for?

> Shows the business is able to pay back debts to any and all sources while still making profit

> Shows potential financers (banks or other lenders) how financially strong your idea is, this allows them to decide whether or not to finance your idea.

> Shows that your business is able to still make money after paying any monthly bills or other expenses

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The Accounting Equation

> The fundamental accounting equation, which resides at the core of all financial transactions is:

ASSETS = LIABILITIES + OWNER’S EQUITY

This comes into play largely in the Balance Sheet section of the Module

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Module 6 - Start-Up Costs

We will now start to look at the various financial statements found in Module 6, each one is mandatory

for the competition. A step-by-step guide can be found on the E-Spirit website.

> The goal of the Start-Up costs section is to show potential financer’s how much it will take to get your business off the ground.

> It shows what you need to start-up your business along with detailing costs for doing so.

For the purpose of example we will now look at Lizzy’s Insurance Brokerage

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Module 6 – Start-Up Example

Office Furniture $4,500.00Office Equipment $4,000.00Stationery Supplies $2,000.00Rent (1st & last month) $2,000.00Insurance $800.00Land $0.00Building $0.00Improvments (Mechanical, Electrical, Construction) $0.00Machinery & Equipment $0.00Installation of equipment $0.00Tools & Supplies $0.00Vehicles $0.00Stating Inventory $0.00Utility hook-up & installation $150.00Licences & permits $130.00Advertising & promotion $1,000.00Cash for unexpected expenses $0.00Other cash requirements $0.00

$0.00Total $14,580.00

Start-Up Costs for Lizzy’s Insurance Brokerage

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Module 6 - Financing

> The purpose of this is to determine how much money you will need to borrow and how you intend to pay it back

> It shows your lending amount (principal), monthly payments, loan term, interest rates, and the financing options you’ve pursued.

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Module 6 – Financing Examples

Equity, Other Contributions, Loan Amount, and Repayment TermsOur total start-up costs are:

$14,580.00Our equity contribution should be:

$1,458.00We are eligible for an ABC contribution of:

$1,458.00Our loan amount should be:

$11,664.00We have investigated the loan and monthly payments of:

$240.24over a 60-month term at 7.5% Rate of Interest

Loan CalculatorPrincipal $11,664.00Interest 7.50%Number of Years 5Monthly Payment $240.24

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Module 6 - Cash Flow Forecast

> A cash flow forecast shows how much money have coming in per month (inflow) vs. money going out per month (outflow), along with total profit or lose at the end of the period.

> It also shows where your spending your money and how much money in sales your are making.

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Module 6 – Cash Flow Examples

Owners Equity $1,458 $0 $0 $0Sales 6,000 4,000 7,000 9,000ABC Grant 1,458 0 0 0Bank Loan 11,664 0 0 0

Total Cash $20,580 $7,425 $10,600 $12,274

Expenses

Furniture $4,500 $0 $0 $0Equipment 4000 0 0Supplies 2,000 0 2,000 0Rent 2,000 1,000 1,000 1,000Insurance 800 100 100 100Advertising 1,000 0 1,000 0Legal 130 0 0 0Telephone 150 150 150 150Utilities 185 185 185 185Debt Service 240 240 240 240Bank fees 150 150 150 150

0 0 0 00 0 0 00 0 0 0

Total Expenses $15,155 $1,825 $4,825 $1,825

Cash Ending $5,425 $5,600 $5,774 $10,449

Owners Draw $2,000 $2,000 $2,500 $2,500

Four Month Cash Flow for Lizzy’s Insurance Brokerage

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Module 6 - Projected Income Statement

> Your projected or estimated Income statement is a financial statement that tries to give a reasonably accurate idea of what your financial situation is in a fairly condensed form.

> It gives a fairly quick snapshot of profits, spending, and gross and net income.

Recommended Video: http://www.youtube.com/watch?v=VlGHoPv8BBQ

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Module 6 – Income Statement Example

Lizzy’s Insurance BrokerageProjected Income Statement

For 4-month period endingApril

Sales $26,000.00Cost of Sales $0.00Gross Profit $26,000.00

Expenses % of salesWages & Benefits 0.00% $0.00Office Supplies 15.38% $4,000.00Rent 19.23% $5,000.00Insurance 4.23% $1,100.00Advertising 7.69% $2,000.00Telephone 2.31% $600.00Bank Fees 2.31% $600.00Loan Payment 3.70% $960.96Owner's Drawings 32.69% $8,500.00Heat & Hydro 2.85% $740.00

$0.00Total Expenses $23,500.96Income before taxes $2,499.04Taxes (33% Assumed) $833.01Net Income $1,666.03

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Module 6 - Balance Sheet

> A balance sheet is a “snapshot” of a company’s financial condition. It essentially measures how much money your business has in comparison to how much it owes.

> An asset is something your business has either acquired or obtained that has monetary value.

> Liabilities are money that you owe and have going out of your business

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Module 6 – Balance Sheet Example

Balance SheetFor Period Ending

April

Cash $300.00 Accounts payable $3,000.00Accounts Receivable 1,400.00 Current portion of LTD 2,800.00Inventory 0.00 0.00Prepaid Expenses 2,800.00 0.00Investments 2,500.00 0.00

0.00 0.00Total current assets $7,000.00 Total current liabilities $5,800.00

Equipment $8,500.00 Loan $9,000.00Accumulated depreciation 700.00 Retained earnings 0.00

0.00 0.000.00 Owner's Equity (see notes)0.00 Lizzy $0.000.00 0.000.00 0.000.00 0.00

Total fixed assets $7,800.00 Total owner's equity $9,000.00

Total Assets $14,800.00 Total Liability & Equity $14,800.00

Current Assets Current Liabilities

Fixed assets Long term liabilities

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