Accounting ABCs on LinkedIn: How to manage Cash? Credits to Nicolas Boucher, follow him for more… (2024)

Provisions in AccountingCredits to Sasa Pejic, MSc, follow him for more practical finance content.Here's the original post-----Provisions are a vital to protecting business from unexpected financial hits.A provision is an amount set aside from a company's profits to cover future liabilities or losses that are probable but uncertain in timing or amount.It helps businesses prepare for potential financial obligations.Business owners should know:-> By setting aside funds for potential future expenses, provisions help businesses manage risks effectively.-> Proper provisions ensure compliance with accounting standards and regulations, avoiding legal and financial penalties----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

186

5 Comments

The essential KPIs for accounting, tax, and audit firms.Credits to Nevena Miskovic, follow her for more practical finance content.Here's the original post-----The essential KPIs for accounting, tax, and audit firms.KPI- Revenue per accountant- Time utilization- Gross hourly rate- Actual billing rate- Gross profit- Gross profit rate- Net profit- Net profit rate- Profit per accountant- Revenue churn rate+ Formulas + Meaning.________________________________Join Corporate Finance Learning Platform:👉 https://lnkd.in/dyfrW-GyWhat is in?💠 6 Hours of video course sessions💠 50+ finance modeling sheets, editable in Excel💠 330 pages of PDF finance modeling instructions💠 30+ Pieces of actionable content: visuals, handbooks.----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

111

1 Comment

Everything you need to know about DEBTCredits to Josh Aharonoff, CPA, follow him for more practical finance content.Here's the original post-----Managing Debt & Liquidity is one of the most important responsibilities for a CFO…but how exactly does Debt work?and what are the different options available?Let’s do a deep dive 👨🏫Print & study the cheat sheet:https://lnkd.in/e6E6JbYV➡️ DEFINITIONDebt is borrowed money that businesses use to fund operations, expand, or invest. It comes with a promise to repay the principal plus interest.➡️ PROS AND CONS✅ Don’t need to give up Equity✅ Don’t need to give up voting rights✅ Interest payments are often tax deductible👎 Increases financial risk and potential or insolvency👎 Requires interest payments👎 May come with restrictive covenants➡️ DEBT SOURCES🏦 Banks & Credit Unions👤 Private Lenders🧑⚖️ Government Programs & Grants💵 Public Securities➡️ DEFINITIONS💡 Interest Rate → cost of borrowing money, expressed as an annual percentage of the principal💡 Principal → the loan balance, excluding interest💡 Accrued Interest → interest that has accumulated but not yet been paid💡 Covenants → conditions set by lenders to limit risk💡 Guaranty →promise by third party to repay debt if borrower defaults💡 Maturity → date in which loan must be repaid in full➡️ DEBT INSTRUMENTS📃 Revolver / Line of Credit → Allows you to access funds up to a set limit, repay, and borrow as needed🗓️ Term Loan → Typically repaid in regular installments with fixed interest over a set period↩️ Convertible Debt & SAFE notes → Designed with the intention of converting to Equity under favorable terms📜 Notes Payable → Broad category of formal written promises to repay a specific amount with interest👥 Syndicated Loan → A large loan provided by a group of lenders (syndicate)📈 Bonds & Commercial Paper → Financial instruments often times issued by public companies and paying periodic interest💴 Mezzanine Debt → A hybrid financing option combining debt and equity with a potential for conversion to equity if debt is not repaid➡️ DEBT FINANCING OPTIONS🚀 Revenue-Base- Financing → Loans secured by a % of future revenue🔧 Equipment Based Financing → Loans secured by business equipment / Capex💸 Receivables-Based Financing → Loans secured by accounts receivable📦 Inventory Financing → Loan secured by inventory===There’s a LOT more to say about Debt…but I only have 3k characters 😂What would you add?----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

158

3 Comments

How the Profit & Loss connects to the Balance SheetCredits to Josh Aharonoff, CPA, follow him for more practical finance content.Here's the original post-----I'll reveal the secret sauce that links two important financial statements the Profit and Loss and The Balance Sheet. I'll also talk about other Accounts that have a relationship between P&L and the Balance Sheet if you work in Finance & Accounting, understanding this connection will unlock huge value in your career…allowing you to:✅ Build a 3 statement model✅ Book adjusting journal entries✅ Understand how to read financial statements1. Retained Earnings & Net IncomeThis is the key connection.Your P&L condenses into Net Income, which then integrates into your Balance Sheet under Retained Earnings.• Balance Sheet → Retained Earnings• Profit & Loss → cumulative net income2. Depreciation & Accumulated DepreciationDepreciation reflects the deterioration of your fixed assets….and recorded as an expense on your income statement…followed by an accumulation to your balance sheet.• Balance Sheet → Accumulated Depreciation• Profit & Loss → Total past depreciation expense• Journal Entry: Debit Depreciation, Credit Accumulated Depreciation3. Deferred Revenue & RevenueRevenue represents your earnings…Deferred Revenue is the income billed/collected but not yet fulfilled.• Balance Sheet → Deferred Revenue• Profit & Loss → Future Earnings• Journal Entry: Debit Deferred Revenue, Credit Revenue4. Prepaid Expenses & ExpensesPrepaid Expenses are costs paid in advance, which are yet to be utilized.Upon usage, it lowers your prepaid asset and is expensed on the P&L.• Balance Sheet → Prepaid Expenses• Profit & Loss → Upcoming Expenses (like software, marketing, travel)• Journal Entry: Debit Expense, Credit Prepaid Expense5. Accruals & ExpensesAccruals are estimated expenses incurred but not yet paid/settled.They appear as liabilities and reduce upon payment/settlement.• Balance Sheet → Accrued Liabilities• Profit & Loss → Recognized expenses• Journal Entry: Debit Expense, Credit Accrued Liability6. Accounts Payable & ExpensesAccounts Payable is what you owe to suppliers for goods/services.It's a liability that decreases with payments.• Balance Sheet → Accounts Payable• Profit & Loss → Recognized expenses• Journal Entry: Debit Expense, Credit Accounts Payable7. Accounts Receivable and RevenueAccounts Receivable is what customers owe you for sales. The asset reduces upon receiving cash.• Balance Sheet → Accounts Receivable• Profit & Loss → Earned Revenue• Journal Entry: Debit Accounts Receivable, Credit Revenue===These are some of the ways the Balance Sheet & Profit & Loss interact...but there are countless others.What would you add?----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

41

3 Comments

Accounts ReceivableCredits to Josh Aharonoff, CPA, follow him for more practical finance content.-----Learn Everything you need to know about Accounts Receivable (AR) 👇Accounts Receivable is a significant topic in finance and accounting, with many professionals dedicated to managing this crucial function daily.But what exactly is Accounts Receivable? And how does it work?Let's explore 🧑🏫➡️ What is Accounts Receivable?Accounts Receivable represents amounts OWED to you by your customers. Since it has economic value (i.e., the right to receive cash), it's considered an asset.➡️ Why is your Accounts Receivables balance important?Here are a few reasons:1️⃣ The longer your balance remains outstanding, the higher the risk of recording a bad debt.2️⃣ A higher Accounts Receivable balance can tighten your cash flow.3️⃣ Accounts Receivables are one of the few assets intended to convert directly to cash.➡️ What are some common formulas related to Accounts Receivable?1️⃣ Accounts ReceivableBeginning Balance ➕ new invoices sent ➖ payments collected2️⃣ Days Sales Outstanding (DSO)Accounts Receivables / Net Credit Sales * 360This formula shows how many days it takes, on average, to collect your balance. A lower number indicates quicker collection.3️⃣ Accounts Receivable Turnover RatioNet Credit Sales / Average Accounts ReceivableSimilar to DSO, this ratio shows how many times a company can convert its AR balance to cash within a given period. A higher ratio indicates faster collection.4️⃣ Bad Debt Expense RatioBad Debt Expense / Total Credit SalesThis ratio shows how much of your AR balance you can expect to write off as bad debt.➡️ What are some common reports related to AR?1️⃣ Accounts Receivable Aging SummaryThis report summarizes who owes you money, often grouped by how many days the amounts are outstanding.2️⃣ Accounts Receivable Aging DetailThis report provides detailed information on each outstanding invoice.➡️ What are some ways to keep your AR balance low?Friendly ways:▪️ Request payment upfront▪️ Collect credit card or banking details for autodebit▪️ Continuously follow up on outstanding balances—don't assume people will pay without reminders!▪️ Request credit check referencesNot-so-friendly ways:▪️ Turn off service▪️ Send the account to a collections agency▪️ Threaten legal action===That's our take on Accounts Receivables—what would you add? Let us know by joining the conversation in the comments below 👇PS: Shoutout to Tabs for sponsoring this video! Get 20% off via the link in the video.----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

48

3 Comments

CASH vs ACCRUALCredits to Nicolas Boucher, follow him for more practical finance content.Here's the original post-----CASH vs ACCRUALDo you understand the difference?Let me explain it to you in a short post:CASH:Cash movement is recorded when a payment from a client is received (cash in) or when a payment of a supplier is made (cash out).ACCRUAL:Revenue recorded when work is done/product changed hands legally.Expenses recorded when the service incurred or when a good is received.Based on these 2 principles, you can define the 2 different accounting methods to use:💵 Cash based accounting recognizes revenues when cash is received, and expenses when they are paid.This method does not recognize accounts receivable or accounts payable.The Cash basis method is more often used by small business due to the simplicity of the method.🧾 Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid.This method is used by middle and big companies to reflect the economic reality of debit and credit positions as well as the income and expenses in a specific period of time.👉 What do you think are the advantages of each of the methods?----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

283

2 Comments

ASSETS vs. LIABILITIES Credits to Financial Modeling World Cup, follow them for more practical finance content.Here's the original post-----ASSETS vs. LIABILITIES 💡Download a free high-resolution PDF on our website (link in the picture)!1️⃣ AssetsDefinition: Assets are resources owned by an individual or a company that have economic value and can provide future benefits.2️⃣ Types of Assets:1. Current Assets: These are short-term assets that can be converted into cash within a year.Examples include:-Cash and cash equivalents-Accounts receivable-Inventory-Marketable securities1. Fixed Assets: Long-term resources used in operations, not easily converted to cash.Examples include:-Property-Plant and equipment (PPE)-Machinery-Vehicles1. Intangible Assets: Non-physical assets that have value.Examples include:-Patents-Trademarks-Goodwill-Brand recognition3️⃣ Benefits of Assets:- Generate revenue-Improve company value-Enhance liquidity-Provide security for loans4️⃣ LiabilitiesDefinition: Liabilities are financial obligations or debts owed by an individual or a company to others.5️⃣ Types of Liabilities:1. Current Liabilities: Short-term debts to be paid within a year.Examples include:-Accounts payable-Short-term loans-Accrued expenses-Taxes payable1. Long-Term Liabilities: Debts and obligations due after one year.Examples include:-Long-term loans-Bonds payable-Mortgages-Deferred tax liabilities-Notes payable-Long-term provisions6️⃣ Impact of Liabilities:- Increase financial risk-Affect creditworthiness-Require cash outflows for repayment7️⃣ Key Differences- Nature: Assets - add value and provide future economic benefits; liabilities -obligations that need to be settled.- Balance Sheet: Assets - left side; liabilities - right side.- Net Worth: Assets – increase; liabilities – decrease.8️⃣ Managing Assets and Liabilities- Asset Management: Focus on acquiring high-value, revenue-generating assets. Regularly evaluate asset performance and liquidity.- Liability Management: Prioritize paying down high-interest and short-term debt. Maintain a balance between debt and equity financing.----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

667

7 Comments

Sustainable equity growth rateCredits to Nathan Liao, CMA, follow him for more practical finance content.Here's the original post-----What Is Sustainable Equity Growth?Definition and Example👇🚨 Definition:Sustainable equity growth rate represents the maximum growth rate a firm can achieve without resorting to external equity financing, while maintaining its current financial structure.🚨 Here's How We Calculate It:Sustainable Equity Growth Rate = Retention Ratio x Return on Equity (ROE)Where,Retention Ratio = 1 - Dividend Payout Ratio🚨 Here’s an Example:Suppose Company X has an ROE of 20% and distributes 50% of its earnings as dividends (implying a payout ratio of 50%).The retention ratio is:= 1 - 0.50= 0.50 or 50%Sustainable Equity Growth Rate:= 0.50 x 20%= 10%This means Company X can potentially grow its equity at 10% annually without needing external equity financing, given its current operational and financial dynamics.—---------------🚨 Why Does This Matter?Sustainable equity growth rate offers companies a way to understand their growth strategies.It signals the pace of growth sustainable from internal operations, paving the way for informed decisions on external financing, if needed.For analysts and investors, this rate helps clarify the organic growth capabilities of a company, separating the winners from the losers when evaluating investment opportunities.----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

59

Capex explained to KidsCredits to Nicolas Boucher, follow him for more practical finance content.Here's the original post-----Capex explained to Kids1. What is Capex?Capex, short for “capital expenditure”, is a long-term investment made by a business in assets like equipment, property, and buildings.These investments provide benefits to the company for years to come, and can help businesses grow and improve their operations.2. How is it different from Opex?Opex is the day-to-day expenses of a business like salaries and rent.Capex is a one-time investment that provides long-term benefits to a company.For example in a cookie business, the electricity is part of the Opex but the oven in the Kitchen is a long term asset is categorized as Capex.3. Why is Capex essential for businesses?It helps businesses grow and improve their operations.It can help increase productivity and efficiency.It can provide a competitive advantage in the marketplace.4. How do companies decide on Capex?Companies decide on Capex by looking at their future plans and goals.They might invest in new equipment to increase production, or build a new facility to expand into new markets.The decision to invest in Capex is based on a careful analysis of the costs and benefits of the investment.5. Example:Let's say you and your friends sell lemonade from a stand.You've been selling so much lemonade that you decide to buy a bigger table and more cups to keep up with demand.This is a Capex investment because it's a long-term investment in the future of your lemonade stand.----Follow our page Accounting ABCs to learn more about the fundamentals of Accounting

280

4 Comments