Show me the $$$ Ed ODonnell, CPA Adjunct Professor, CSU - - PowerPoint PPT Presentation

Show me the $$$

Ed O’Donnell, CPA Adjunct Professor, CSU

ed_od_cpa@wideopenwest.com 440.725.8260

AGENDA

I. FINANCIAL ACCOUNTING II. MANGERIAL ACCOUNTING

Financial Accounting FINANCIAL ACCOUNTING OVERVIEW

Basics The 4 Key Financial Statements

* Income Statement * Balance Sheet * Statement of Cash Flows * Shareholders’ Equity

Financial Accounting

Statement of Income

Purpose: to determine profitability. Report card on your business operations. Components: * Sales * Expenses

Financial Accounting

Southern Organic Sweetcakes, LLC Income Statement

For the year ending December 31, 2016

Sales $150,000 Less: Cost of Goods Sold 100,000 Gross Margin $50,000 33% Rent Expense 12,000 Utilities Expense 4,500 Legal & Accounting Expense 3,000 General Expense 3,000 Marketing & Selling Expense 2,000 Depreciation Expense 1,000 Insurance Expense 1,000 License Expense 700 Total SGA Expense $27,200 Operating Earnings $22,800 15%

Balance Sheet

Purpose: to determine financial position, liquidity, leverage & net worth. Components: * Assets * Liabilities * Contributed Capital * Retained Earnings Financial Accounting

Financial Accounting

Southern Organic Sweetcakes, LLC Balance Sheet

December 31, 2016

ASSETS Cash $16,800 Accounts Receivable 2,800 Supplies 1,000 Inventory 4,000 Current Assets 24,600 Equipment 10,000 Accumulated Depreciation (1,000) 9,000 TOTAL ASSETS $33,600

Financial Accounting

Southern Organic Sweetcakes, LLC Balance Sheet

December 31, 2016

LIABILITIES & SHAREHOLDERS' EQUITY Accounts Payable $3,800 Sales Tax Payable 300 Payroll Taxes Payable 700 Current Liabilities 4,800 Notes Payable 5,000 Total Liabilities 9,800 Common Stock 1,000 Retained Earnings 22,800 Shareholders' Equity 23,800 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,600

Financial Accounting

Statement of Cash Flows

Purpose: to determine inflow/outflow of

• cash. Remember: CASH IS KING!

Components: * Cash from/used in operating activities * Cash from/used in investing activities * Cash from/used in financing activities

Financial Accounting

Southern Organic Sweetcakes, LLC Statement of Cash Flows

For the year ending December 31, 2016

Cash flows from operating activities Net Income $22,800 Depreciation expense 1,000 Changes in current assets & liabilities 2,000 Total cash from operating activities 25,800 Cash flows used in investing activities Purchase of equipment (10,000) Purchase of recipe (5,000) Total cash used in investing activities (15,000) Cash flows from financing activities Issuance of notes payable 5,000 Total cash from financing activities 5,000 Net increase in Cash $15,800 Beginning Cash balance, 1/1/16 $1,000 Ending Cash balance, 12/31/16 $16,800

Financial Accounting

Statement of Shareholders’ Equity

Purpose: to determine capital structure. Components: * Capital stock * Contributed capital * Retained earnings

Financial Accounting

Southern Organic Sweetcakes, LLC Shareholders' Equity December 31, 2016 Common Stock $1,000 Preferred Stock 2,000 Additional Paid In Capital 1,000 Contributed Capital 4,000 Retained Earnings 22,800 Treasury Stock (11,800) Total Shareholders' Equity $15,000

CPA Services CPAs offers professional assistance:

* Compilations * Reviews * Audits * Taxes * Cash management * Sell Price, Cost, Volume

CPA Services Your CPA provides an independent viewpoint to:

* Investors * Creditors * Bankers

Managerial Accounting MANAGERIAL ACCOUNTING OVERVIEW

Managerial Accounting Cost Structure Elements: * Direct Labor * Direct Materials * Overhead * Selling, General & Administrative Expense

Managerial Accounting Cost Behavior: * Variable Cost – varies with output * Fixed Cost-does NOT vary with output

Managerial Accounting Key Profitability Inputs: * Sell Price * Cost (Variable & Fixed) * Volume / Traffic

Managerial Accounting Sell Price Point: * Should not be based on cost * Value Proposition !!! * Good/Better/Best offering

BACKGROUND

Southern Organic Sweetcakes, LLC

• Ms. Sidney A. Saunders

28 years old Elementary school teacher Lives in Rocky River, OH Family from Athens, GA Boyfriend is a CPA and CSU Alumni Secret organic sweet potato grown in Athens, GA

SECRET RECIPE

Southern Organic Sweetcakes, LLC Product Production Economics

Recipe - makes 1 dozen EXTRA LARGE cupcakes Cost per dozen 1 cup butter, softened $2.00 1 lb. unsweetened sweet potato, mashed $1.55 1 1/2 cups sugar $1.50 2 cups all-purpose flour $1.25 3 eggs $1.00 1 teaspoon ground cinnamon $0.25 1/2 teaspoon vanilla $0.25 2 teaspoons baking powder $0.05 1/2 teaspoon baking soda $0.05 1/4 teaspoon salt $0.05 Frosting (for 1 dozen EXTRA LARGE cupcakes) Cream cheese, 4 oz. $1.25 Powdered Sugar, 4 cups $1.25 Irish Whiskey , 1 tablespoons (can sub milk) $0.25 Butter 1/3 cup $0.80 finely shredded orange peel, topping on frosting $0.50 (can substitute candied pecans or crystalized ginger AT EXTRA COST) Raw Material cost (per dozen) $12.00 Raw Material cost per cupcake $1.00

PRODUCTION INFO.

Sweetcake Baking Production Economics

Bake Time: 30 minutes Oven capacity: 3 cupcake pans, 12 sweetcakes per pan Sweetcakes: 36 sweetcakes per ½ hour, 72 sweetcakes per hour, 144 sweetcakes in 2 hours

PRODUCT PROFIT

SOUTHERN ORGANIC SWEETCAKES, LLC Product Profitability Per Unit Per Batch 1 144 Number of Sweetcakes sold $4.00 $576 Sell price point to Pier W $1.00 $144 Variable direct material cost $3.00 $432 Gross profit margin

75% 75% Note: Pier W resells cupcakes at $6.50 each

FORECAST

Southern Organic Sweetcakes, LLC Forecast Income Statement For year ending December 31, 2017 Sales $150,000 100% $5.00 Less: Cost of Goods Sold 100,000 67% $3.33 Gross Margin $50,000 33% $1.67 Rent Expense 12,000 8% $0.40 Utilities Expense 4,500 3% $0.15 Legal & Accounting Expense 3,000 2% $0.10 General Expense 3,000 2% $0.10 Marketing & Selling Expense 2,000 1% $0.07 Depreciation Expense 1,000 1% $0.03 Insurance Expense 1,000 1% $0.03 License Expense 700 0% $0.02 Total SGA Expense $27,200 18% $0.91 Operating Earnings $22,800 15% $0.76 Sweetcakes sold 30,000

FORECAST

Southern Organic Sweetcakes, LLC Forecast Contribution Income Statement For year ending December 31, 2017 $ % $/unit Sales $150,000 100% $5.00 Variable cost 70,000 47% $2.33 Contribution margin 80,000 53% $2.67 Fixed cost 57,200 38% $1.91 Operating Earnings $22,800 15% $0.76 Sweetcakes sold 30,000

BREAK-EVEN

Southern Organic Sweetcakes, LLC Break-even Math Year ending December 31, 2017 Fixed cost $57,200 Contribution margin $2.67 Sweetcakes sold 21,423 Average sell price point $5.00 Sales dollars $107,116

BREAK-EVEN

Southern Organic Sweetcakes, LLC Forecast Break-even Income Statement For year ending December 31, 2017 Sales $107,116 100% $5.00 Variable cost 49,916 47% $2.33 Contribution margin 57,200 53% $2.67 Fixed cost 57,200 53% $2.67 Operating Earnings $0 0% $0.00 Sweetcakes sold 21,423 Sidney forecasts reaching break-even in the 17 month of operations

CAPITAL INVESTMENT

Southern Organic Sweetcakes, LLC Capital Requirements 2017 Production Equipment $7,000 Advertising 3,000 Working Capital until break-even point is reached 15,000 TOTAL CAPITAL $25,000