Accounting ABCs

What Are Intangible Assets? Credits to Nathan Liao, CMA, follow him for more useful content. The original post ---- What Are Intangible Assets? A Deep Dive 👇 Intangible assets are non-physical assets That grant rights or privileges to an entity 🏢 They’re often linked to future economic benefits List of Intangible Assets: 1️⃣ Trademarks: Definition: Symbols, names, or slogans used to identify goods or services. Example: The Apple logo or Nike's "Just Do It" slogan. 2️⃣ Patents: Definition: Exclusive rights to make, use, or sell an invention. Example: A pharmaceutical company's exclusive right to produce a new drug. 3️⃣ Copyrights: Definition: Protection of artistic or literary works. Example: The rights to a bestselling novel or a popular music album. 4️⃣ Franchises: Definition: Authorization granted to carry out specified commercial activities. Example: Owning a McDonald's outlet in a city. 5️⃣ Goodwill: Definition: Excess of purchase price over the fair value of net identifiable assets of a business in an acquisition. Example: If Company A acquires Company B for $2M and the net assets of Company B are valued at $1.5M, the goodwill recognized is $500K. 6️⃣ Licenses: Definition: Permission to perform activities or produce items, typically granted by a government. Example: A radio broadcasting license. 7️⃣ Customer Lists: Definition: Information about customers, crucial for sales and marketing activities. Example: A detailed list of clients for a CRM software company. —--------------- These assets can hold immense value 💰 👉 What would you add? Comment below --- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

How to Protect Your Job Against AI Credits to Nicolas Boucher, follow him for more practical finance content. Here's the original post ----- How to Protect Your Job Against AI AI power is doubling every 6 months It can now write and speak like us It can produce images It can write code Soon it will have access to your productive environment through APIs and will perform the mundane tasks at a large scale What can you do to continue keeping your edge? - Short term practical and efficient solution: Go through my 5-day free course on AI for Finance (comment below 5-day course to get the link and I will send it to you in the comments) -Long term solution: Follow these 10 advices below Here's how you can safeguard your role and thrive in this new era of finance: 1️⃣ Embrace Continuous Learning Stay updated on AI trends and corporate finance by setting up Google Alerts for keywords like "AI in finance" or "Fintech innovations." Follow top influencers in AI and finance for daily insights. 2️⃣ Develop Technical Skills Dedicate 1-2 hours a week to learning tools like data analytics, machine learning, or automation. Consider courses like “Advanced ChatGPT for Finance” https://lnkd.in/ePf_a5aE to enhance your skills. 3️⃣ Enhance Soft Skills Focus on improving communication, leadership, and adaptability. Join a Toastmasters club to sharpen these abilities and apply them at work by leading teams or presenting data-driven insights. 4️⃣ Specialize in Niche Areas Finance requires human judgment in areas like strategic decisions and ethics. Choose a niche, such as ESG analysis or financial compliance, and work on projects that demand specialized skills. 5️⃣ Leverage AI Tools Use AI platforms like Microsoft’s AI Builder or UiPath (with NLP functions) to automate routine financial tasks, boosting productivity and decision-making efficiency. 6️⃣ Focus on Data Interpretation Sharpen your ability to interpret and present data. Take a course on Power BI and apply your skills by creating dashboards for your projects. 7️⃣ Enhance Problem-Solving Abilities Practice solving complex business problems, such as optimizing financial processes, by applying newly learned cost-control techniques. 8️⃣ Adapt to New Technologies Stay flexible and open to evolving financial technologies by attending industry expos or virtual conferences. Stay informed about the latest tools. 9️⃣ Network and Collaborate Build a strong professional network by joining LinkedIn groups or finance-focused Slack communities. Stay connected to maintain relevance in the industry. 🔟 Focus on Ethical AI Use Understand the ethical implications of AI in finance by completing courses from institutions like Stanford or MIT. Apply ethical guidelines to ensure compliance and fairness in your work. With the right approach, you can future-proof your career! ---- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

Setting up your books wrong destroys businesses faster than any market crash. Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ----- Setting up your books wrong destroys businesses faster than any market crash. I’ve seen these mistakes so often - founders mixing personal and business accounts, messy charts of accounts, and pure chaos in their statements. 📌 How to do Bookkeeping like a PRO (step-by-step guide) Watch the full video: https://lnkd.in/eEbv4-yD Most businesses fail because they ignore their foundation. Not anymore. Here's the breakdown 👇 First, let's talk about what makes a solid foundation in 2024: - Automated transaction management - Clean separation of business and personal finances - Strategic software selection - Clear understanding of cash vs accrual implications Let's fix that! Here's my proven 10-step system: 1️⃣ BUSINESS SETUP Personal card for business expenses? BIG mistake. Not only will the government hate it... Your bookkeeper will too! (Plus you're risking that corporate veil protection) Creating a dedicated bank account for your business is a no-minder and will save you so many headaches. 2️⃣ GET YOUR SOFTWARE RIGHT Excel is great (trust me, I'm obsessed) BUT Your core accounting needs real software QuickBooks Online is the cheapest and most popular tool before you need an ERP 3️⃣ CASH VS ACCRUAL Quick example: Sell an iPhone for $1,000, deliver in 30 days Cash basis? Record now Accrual? that's deferred revenue 4️⃣ DESIGN YOUR CHART OF ACCOUNTS Think of this as your financial filing system. Strike the balance between: - Too detailed = overwhelming - Too broad = uninformative 5️⃣ IMPORT TRANSACTIONS Automation is your friend here. Direct bank feeds save hours of manual entry. Sort by description for bulk categorization. Set rules for recurring transactions. 6️⃣ CLASSIFY TRANSACTIONS Every transaction needs a home. Include: - Category - Vendor/customer - Department - Supporting documents Remember: Garbage in = Garbage out 7️⃣ PERFORM BANK RECONCILIATIONS Match every transaction to your statements. Investigate every discrepancy, no matter how small. 8️⃣ ADJUSTMENTS Key adjustments to consider: - Prepaid expenses spreading - Accrued expense recognition - Depreciation calculations - Revenue recognition - Inventory adjustments Remember the BASE formula: Beginning + Additions - Subtractions = Ending 9️⃣ FINANCIAL STATEMENTS This is where your hard work pays off. Review for: - Unusual fluctuations - Missing expenses - Revenue recognition timing - Margin changes - Budget variances Your statements should tell a story about your business. 🔟 MAKE DECISIONS Great bookkeeping is about insights. Use your clean books to: - Forecast cash flow - Plan hiring - Time major purchases - Identify cost savings - Drive growth strategies Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

Here’s how to build a 3-Statement Model Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ----- Here’s how to build a 3-Statement Model 👇 Learning how to create a 3 statement model has been one of the most valuable things I’ve learned how to do in my career… and there’s really not much to it once you understand a few core concepts on how the financial statements are connected. Simply follow these 5 steps… 1️⃣ Export your Profit & Loss and Balance Sheet ⬇️ Start with an export of these 2 financial statements from your accounting software…or build them from scratch. Decide on whether you want to showcase your information monthly (most common) Or instead quarterly, or annually 🗓️ 2️⃣ Connect your Profit & Loss to the Balance Sheet 🔗 Did you know that your P&L connects to the Balance Sheet? It’s all via an account called Retained Earnings… Which represents all of your prior EARNINGS…that have been RETAINED. You’ll often times see an account called “Net Income” or “Profit for the year” on your Balance Sheet. Start by linking this account to the Net Income amount on your Profit & Loss. Then take your Retained Earnings, and make it equal to the prior periods retained earnings + net income 3️⃣ Create a Cash Flow Statement 💵 OK…this is where most people get tripped up. But it’s actually REALLY easy See…a cash flows statement is really just showing the movements in your balance sheet accounts EXCEPT for cash. Since Assets = Liabilities + Owners Equity…the NET CHANGE in these values must equal each other as well. So just duplicate your balance sheet to a new tab, and label it cash flows… then remove all of your values, and for assets: Take Last periods value - this periods value Do the opposite for Liabilities + Owners equity by taking this periods value - last periods value Learn more about how to do this right here: https://lnkd.in/exi9fksF 4️⃣ Connect your Cash Flows back to your Balance Sheet 🔗 Now that you have your cash flows statement created, simply link your ending cash balance back to your Balance Sheet from your Statement of Cash Flows Way to go! You now have a basic 3 statement model 5️⃣ Refine & Built Out the Rest 📊 Now that you have your basic 3 statement model, take it to the next level by focusing on these areas: ➡️ Forecast your Revenue ➡️ Forecast your Headcount ➡️ Forecast your Profit & Loss ➡️ Forecast your Balance Sheet ➡️ Create Stunning Dashboards === Building a 3 statement model can do wonders for your Finance & Accounting function… and if you master this concept, you’ll become more comfortable with predicting the future, and drawing key insights. What has your experience been with creating a 3-statement model? ---- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

When to hard code bank reconciliations Credits to Chris Reilly, follow him for more useful content. The original post ---- Actually, yes, it's totally fine to hard code. Here's where 👇 ~~~ 📌𝗙𝗿𝗲𝗲 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲: building a model but not sure where to start? Grab a free checklist here 👉 https://lnkd.in/eVTU67fY ~~~ 𝗕𝗮𝗻𝗸 𝗥𝗲𝗰𝗼𝗻𝗰𝗶𝗹𝗶𝗮𝘁𝗶𝗼𝗻... 𝗯𝘂𝘁 𝗱𝗼𝗲𝘀 𝗶𝘁 𝘁𝗶𝗲? To the extent possible, each month I like to manually (yes, 𝘮𝘢𝘯𝘶𝘢𝘭𝘭𝘺) punch in the ending bank account balance from the company operating account and compare it to the model calculation. It's a great double-check to ensure I've captured everything correctly in my file, and is good practice for if/when the company undergoes a Quality of Earnings Report. 𝗪𝗵𝗲𝗿𝗲 𝗶𝘁 𝗺𝗶𝗴𝗵𝘁 𝗯𝗲 𝗼𝗳𝗳... There could still be outstanding transactions that have not yet cleared the bank, which could affect the accuracy of the ending balance in the accounting software. But in the grand scheme of things, manually checking and comparing the ending bank account balance with the model provides an additional level of validation to ensure the model is actually working properly. In the image, I like to call it "Proof of Cash" (from my PE days) but it's really a bank reconciliation. 𝗠𝗼𝗱𝗲𝗹𝗶𝗻𝗴 𝗕𝗲𝘀𝘁 𝗣𝗿𝗮𝗰𝘁𝗶𝗰𝗲 Everyone screams "automation, automation, automation!" but to be honest I love good old fashioned "typing in numbers" into my spreadsheet in a handful of places. This is one of them. It forces your brain to take a step back and say to yourself, "is this right?" (and for the truly reckless, you might even print it out on paper) A great update process I like is ~90/10 in terms of automation/manual. Just enough manual information in key places to make sure the automation is correct. --- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

Margin vs Markup: What's the Difference? 🤔 Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- Margin vs Markup: What's the Difference? 🤔 Let’s find out! After 10+ years in finance and accounting, I've seen countless professionals mix up these two crucial metrics. Let's break them down once and for all! Whether you're pricing products, analyzing profitability, or making strategic decisions, understanding the distinction between margin and markup is ESSENTIAL. Let's dive in 👇 ➡️ Margin Margin shows the percentage of your selling price that's PROFIT. Formula: (Selling Price - Cost) / Selling Price For example, if a pair of sneakers sells for $200 and costs $150 to buy, the margin is (200 - 150) / 200 = 25% ➡️ Markup Markup is the percentage ADDED TO THE COST price to get the selling price. Formula: (Selling Price - Cost) / Cost Using the same example, if a pair of sneakers costs $150 and is sold for $200, the markup is (200 - 150) / 150 = 33.33% ➡️ Why Should You Care in Accounting? A few reasons... 1️⃣ Pricing Strategy: Markup helps you ensure all costs are covered and desired profit margins are achieved. You don't want to sell shoes at a loss! 2️⃣ Profit Analysis: Understanding margin helps in analyzing profitability and making informed decisions on which product lines to expand or discontinue. 3️⃣ Competitive Analysis: Both metrics help you understand how your pricing compares to competitors. Are you leaving money on the table, or pricing yourself out of the market? ➡️ Pro Tip: Consistency is Key When sharing financial information with your team or stakeholders, be clear about which metric you're using. Mixing them up can lead to confusion and poor decision-making. Always specify whether you're talking about margin or markup to keep everyone on the same page. === That's my breakdown on the crucial difference between margin and markup, with a little help from our local shoe store. How do you use these metrics in your business? Have you ever encountered confusion between the two? Step into the discussion in the comments below 👇 ---- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

Top 12 Accounting Ratios Credits to Nathan Liao, CMA, follow him for more useful content. The original post ---- Top 12 Accounting Ratios Become a financial analysis pro today! 👇 1. Liquidity Ratios - Quick ratio: Assess 90-day liquidity: (Current Assets - Inventories) / Current Liabilities - Current ratio: Assess 12-month liquidity: Current Assets / Current Liabilities - Cashflow coverage ratio: Measures the ability to pay off obligations with operating cash flows: Operating Cash Flows / Total Debt 2. Profitability Ratios - Return on investment (ROI): Measure investment effectiveness: (Gain from Investment / Cost of Investment) x 100 - Return on equity (ROE): Assess shareholder value creation: Net Income / Shareholder's Equity - Gross margin: Measure financial efficiency: (Revenue - COGS) / Revenue 3. Debt Ratios - Debt ratio: Analyze debt proportion: Total Debt / Total Assets - Debt to equity ratio: Evaluate financial leverage: Total Debt / Total Equity 4. Efficiency Ratios - Inventory turnover: Analyze inventory sales rate: Cost of Goods Sold / Average Inventory - Asset turnover: Measure revenue generation: Net Sales / Average Total Assets 5. Valuation Ratios - Price/earning ratio (PE ratio): Understand stock valuation: Stock Price / Earnings per Share (EPS) - Dividend yield: Calculate shareholder return: Dividends per Share / Stock Price What other ratios would you add to this list? --- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

Let’s Play Accounting Pictionary 🎨 🛒 🌏 ! I’d be impressed if anyone can get all 9 of these 👀 Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- Let’s Play Accounting Pictionary 🎨 🛒 🌏 ! I’d be impressed if anyone can get all 9 of these 👀 When I first declared my Accounting major, I got a like of pushback from my friends “Why are you majoring in accounting, you are such a creative guy!” “Why do you want to become an accountant, accountants are boring!” After several doubts in choosing this major, and even more doubts later on when I had a bad experience with Big 4 Accounting…I’m proud to finally be able to look back and say they were all WRONG Accounting IS for creatives…and no, I’m not referring to creative accountants who end up in jail for the way in which they get creative 😂 I’m talking about creative ways that accountants use to develop EFFICIENT and ACCURATE processes to run their functions. I’m talking about creative ways that accountants can CONVEY deep technical information to those without a finance & accounting background. and NO…accountants are NOT boring. Accountants understand the LANGUAGE of BUSINESS 🗣️ They can tell you what’s happening at any given point of time, and what needs to happen in order to allow you to hit your goals. and Accounting is a very broad field… Like a doctor or a lawyer, you can specialize in countless areas to take your skills to the next level Whether that be real estate… Forensics… Non profits… Public accounting… Crypto accounting… the list goes on and on. But here’s the real kicker. If you are a creative type, don’t make the mistake I almost made in thinking that Accounting is just numbers. Accounting can also be ART. When I look at the world, I see accounting everywhere. and instead of conveying Accounting through numbers and words, accounting can also be conveyed with simple symbols. Like the ones below… So give it a shot and post in the comments the answers! ---- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

The Financial Statements...explained on ONE page Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- The Financial Statements...explained on ONE page 🔖Bookmark this one for later It doesn’t matter what industry you are in… EVERYONE should understand how to read financial statements When you understand Financial Statements you… ✅ Understand more about business ✅ Can perform your job in Finance & Accounting better ✅ Can build a robust forecast and so much more Let’s do a deep dive on how they work ➡️ The Profit & Loss (also known as Income Statement) This statement is all about telling you about the PERFORMANCE of your company…IE your income, and your costs Your income is summarized by 1️⃣ Revenue → income related to your core business 2️⃣ Other Income → income related to none core activities (like credit card points) Your expenses are summarized by: 1️⃣ Cost of Goods Sold → Costs that relate to carrying out your product or service 2️⃣ Operating Expenses → Costs that relate to operating your business 3️⃣ Other Expense → Costs that don’t relate to carrying out your income, or operating your business From these you get a bunch of profitability metrics such as Gross Profit (Revenue-COGS), Net Operating Income (Gross Profit - Opex), and net income (all income - all expenses ➡️ The Balance Sheet This statement tells you all about the financial POSITION of your company it is summarized by: 1️⃣ Assets → Amounts of Economic value that business owns, or substantially controls 2️⃣ Liabilities → Amounts that you owe to creditors 3️⃣ Owners Equity → Amounts that you owe to the owners The Balance sheet is presented on a cumulative basis, which is the only statement of the 3 that acts this way ➡️ The Statement of Cash Flows This statement is all about telling you where your cash is going it is separated by: 1️⃣ Cash from Operating activities → this section relates to cash movements from operating your business 2️⃣ Cash from Investing activities → cash movements from fixed & long term assets (IE, Assets that are invested for long term benefit) 3️⃣ Cash from Financing activities → cash movements from amounts invested by owners, or creditors - both for amounts put in, and amounts repaid === I’ve done my best to include everything you need to know about how to read Financial Statements in the graphic below… but there’s so much more to say. What would you add? ---- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

Accounts Receivable Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- Everything you need to know about Accounts Receivable (AR) 👇 This is a really BIG topic in finance & accounting… With many professionals who are responsible everyday for this sole function. But what exactly is Accounts Receivable? And how does it work? Let’s do a deep dive 🧑🏫 📣 Watch the FULL video over here: 📽️ youtu.be/SzmgqIpkLGY ➡️ What is Accounts Receivable? Accounts Receivable represents amounts OWED to you by your customers Because it contains economic value (IE a right to receive cash), it’s an asset ➡️ Why is your Accounts Receivables balance important? A few reasons… 1️⃣ The longer your balance is outstanding, the higher the likelihood of recording a bad debt 2️⃣ The higher your Accounts Receivable balance, the tighter your cash constraints 3️⃣ Your Accounts Receivables balance is one of the few assets that are intended to convert directly to cash ➡️ What are some common formulas related to Accounts Receivable? 1️⃣ Accounts Receivable Beginning Balance ➕ new invoices sent ➖ payments collected 2️⃣ Days Sales outstanding (DSO) Accounts Receivables / Net Credit Sales * 360 This shows how many days it takes you on average to collect against your balance - the lower the number, the quicker you are collecting 3️⃣ Accounts Receivable Turnover Ratio Net Credit Sales / Average Accounts Receivable Similar to DSO, this shows you how many times a company can convert it’s AR balance to cash in a given period. The higher the ratio, the quicker you are collecting 4️⃣ Bad Debt Expense Ratio Bad Debt Expense / Total Credit Sales This shows you how much of your AR balance you can expect to write off in bad debt ➡️ What are some common reports related to AR? 1️⃣ Accounts Receivable Aging Summary This summarizes who owes you what, and is often grouped by how many days outstanding 2️⃣ Accounts Receivable Aging Detail This shows you the detail of each and every invoice that is outstanding ➡️ What are some ways you can keep your AR balance low? Let’s break this down into friendly ways and not so friendly ways… ❤️ FRIENDLY WAYS ▪️ Request payment upfront ▪️ Collect credit card / banking details for autodebit ▪️ Follow up on outstanding balances continuously - don’t assume people will pay without reminders! ▪️ Request credit check references 💔 NOT SO FRIENDLY WAYS ▪️ Turn off service ▪️ Send the account to a collections agency ▪️ Threaten legal action === That’s my take on Accounts Receivables - what would you add? Let us know by joining in on the conversation in the comments below 👇 ---- Follow our page Accounting ABCs to learn more about the fundamentals of Accounting