Jacksonville CPA | Talking About Cash Flows
So welcome to another episode of the podcast. My name is Brandon Mcelroy and I’m president of Beneva, Jacksonville tax and accounting firm. So if you’re Jacksonville CPA is not giving you the information you need to grow your business, give them a call today. We’re just learning more about the accounting process, uh, going through an accounting lecture. Um, so, uh, just enjoy,
not pay our bills. At some point in time they can take legal action to recover their claims. The law requires that in the event a business liquidates filed, bankruptcy, goes out of business. You have to pay back all of your liabilities first to your creditors, and if there’s anything left for the owners of the business, you would get what’s ever left over. Okay? Another way to write this equation would be assets minus liabilities Jacksonville CPA
Assets minus liabilities equals stockholders’ equity. It’s the same as saying assets equals liabilities plus stockholders’ equity. And let me give you a quick mathematical analysis of this to illustrate the point. Okay. If assets were six and liabilities were for equity would be to assets of six minus liabilities of four equals stockholders’ equity of two, but this is the format of the equation. We’ve spend most time talking about assets equals.
So if you have a business and you want to grow that business and you need to learn more about the business given neighbor call and we will help you. Uh, if you’re Jacksonville CPA is not giving you the information you need and please, uh, give me a call.
Liabilities plus stockholders’ equity and every transaction that takes place in any business within this equation, because every transaction has to involve at least two or more different than counts.
Okay? Talking about revenues, depending upon the nature of our business revenues, if we provide a service, we would call service revenue. Sometimes it’s referred to as fees earned. If we sell inventory, like, um, Walmart or I’m footlocker or I’m home depot, we call that sales revenue. We could also have rental or rent revenue. We can have interest revenue. When we earned interest on money in the bank, if we own stock in another company and they pay us a dividend, that would be dividend revenue, royalty revenue. There’s a variety of different types of revenues depending upon the nature of your business expenses. There are even more expensive, so there’s a greater list of expenses and there is revenues typically. Look at some of the examples on your slide. Rent expense, wage expense. You can also say salary or payroll expense, same thing. Utilities expense insurance, expense supplies, expense, depreciation expense.
We have warranty expense, we have bad debt expense, interest expense, property tax expense, so there’s a long list of various expenses out there and we will see a lot of these. Okay, so again, you need to get comfortable with all these different accounts and which category they fall under. Okay. If it’s an asset, the liability, stockholders’ equity, and then within stockholders’ equity, we know that retained earnings is this unusual account because there’s all sorts of stuff that ultimately go into it. Revenues and here’s a long list of revenues, expenses, wide variety of expenses, and then dividends. There’s only one account called dividends. Okay. Um, Jacksonville CPA but, and that again, that is a distribution back to the owners. Okay. But that is also part of retained earnings. So again, you need to study these and be able to sort this information so that you can make sense of it and you know where to put things when the accounting process actually begins.
Okay. The end product, if you will, of the accounting process is the preparation of financial statements. And remember financial accounting has to satisfy the needs and the questions of both internal users of financial information and external users of financial information. The internal users of financial information is management and the employees. External users include investors, creditors, people. We owe money to unions, the government vendors, customers, society at large. Okay. So various different groups have to have access to this information so they can make decisions. Now in your book, and I’m not going to spend much time on this, we talked about how corporations can either be a privately held corporation, which is simply a family business. It could be a very large family wisdom ups up until about, I don’t know, 15 years or so. It was a family business, family owned business. Now they’re one of the biggest companies in the world. They were very big when they were privately held. They are now publicly held. Okay, so corporations can be privately held, which means you and I cannot buy stock in that company or they can be publicly held, also called publicly traded companies.
Okay, so if you’re Jacksonville CPA is not educating you on things you need to know to grow your business, then give them a neighbor, a call and we will help you out.
Disney, Boeing, General Motors, Microsoft, Intel, Google, apple, all these different companies. You and I can buy stock in them. Okay? So every company, no matter what form of business, whether it’s a sole proprietor or a partnership or a corporation, public corporation, private corporation, they have to prepare financial statements. They have to follow certain sets of rules, which we call it gap generally accepted accounting principles. These are the rules we have to follow and we prepare these four financial statements. The income statement, retained earnings statement, balance sheet, and the cash flow statement. Now, quick comment. This is the order in which we prepare them. We have to prepare the income statement first because we need information from the income statement in order to prepare the retained earnings statement. Okay. We need information from the retained earnings statement in order to prepare the balance sheet and we need both the income statement and balance sheet in order to prepare the cash flow statement. Okay, so please make note of the four financial statements and the order in which they have to be prepared. Okay. The order income statement, first retained earnings balance sheet, and then cash flows. Okay. One of the assumptions talked about in the early stages when we’re defining all the different elements of accounting is this concept called the time period assumption for financial statements. Now on the slide, notice that on the far left, we see January first of the first year.
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and December 30, first of the first year, the beginning of the year, the end of the year. Now, I commonly use the term time period as opposed to years because a period can be a month, it can be a quarter, it can be half a year or it can be a full year. All companies prepare annual financial statements. All publicly traded companies are required to release to the public quarterly financial statements as well as their annual financial statement. And most companies, public or private will prepare monthly financial statements. Okay, so when I say the end of the period, again, it could be the end of the month, quarter, half year, or a year depending upon what the company is doing. We always prepare financial statements at the end of a time period. In our example here on the slide, it’s the end of the year. So notice the income statement which is revenues minus expenses, and we’re going to do an example on the board. We all the revenue.
So if your Jacksonville CPA is not taking the time to help you grow your business, give them a call and we will get you into packets, will help you meet your financial goals.