Finance for Non-Finance People

30 January 2012

06/01/2014 1

Basic accounting concepts

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The Accounting equation

Owner’s Equity

Assets

Liabilities

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What is an asset?
Something we own or use that should generate income.

We bought it

It’s an asset!
We receive revenue for doing scans

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What is a liability?
Something we owe because of something we did and we are going to have to pay.

Owe money as we bought on credit Purchase Employee uniforms on credit

It’s a liability
We are going to pay

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What is Owner’s Equity?
The residual interest in the assets of the entity after deducting all its liabilities.

Owner’s Equity

Assets

Liabilities

Is increased by: Revenue and capital contributions
Is decreased by: Expenses and drawings/ dividends

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Income and expenses
Income: Any increase in equity resulting from increases in
assets or decreases in liabilities

Expense: Any decrease in equity resulting from decreases
in assets or increases in liabilities

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Accounting equation example
1. The company receives a sales (in cash) of $20,000

2. The company incurs expenses of $1,000
3. The company pays employees’ salaries of $5,000 4. The company pays the creditors.
Owner’s Equity 1 Revenue +$20k Assets Cash +$20k Liabilities

2 3
4

Expenses -$1k Expenses - $5k Cash -$5k
Cash -$1k

Creditors +$1k
Creditors -$1k

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Overview of the accounting equation
Owner’s Equity Assets Liabilities

Assets  Buildings  Accounts Receivable  Computer Equipment  Motor Vehicles Revenue  Sales of Products  Interest received  Private Donations
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Liabilities  Accounts Payable  Bank Overdraft  Long-term Debt Expenses  Staff Salaries  MD sponsorship Travel cost
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Financial reports and KPI’s

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Types of financial reports
The three main financial reports are :

Profit and loss : Revenue and costs for a particular period.
Balance sheet: Assets and liability position at a point in time. Cash flow statement: Cash inflows and outflows for a particular period.
Profit & loss and Cash flow statement Information for the whole period Balance sheet Point in time

1 Jan

31 Dec

Together, these three reports give the overall picture of the financial health of a company. A single report can give a quick look at the performance, but one section might be performing well whilst another is failing.

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Profit and loss
The main report we will focus on is the profit and loss statement as this gives a breakdown of revenues and expenses – something you may have some control over. In your role, you probably have more control over costs as opposed to revenue. Operating costs (e.g. meal, hotel, transport, etc). MD Sponsorship (e.g. Entertainment, etc).

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How much should I spend on my MD?

Expense
- MD sponsorship

Income
- prescription

KPI Cost ratio 6%-7%

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Which Product should I promote to MD?
HNA

Detail will be provided by BSDG

COGS Gross Profit

Discount Prod Contribution

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