Finance for Non-Finance People

30 January 2012

06/01/2014 1

Basic accounting concepts

idea deluge

The Accounting equation

Owners Equity

Assets

Liabilities

idea deluge

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

We bought it

Its an asset!
We receive revenue for doing scans

idea deluge

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

Its a liability
We are going to pay

idea deluge

What is Owners Equity?

The residual interest in the assets of the entity after deducting all its liabilities.

Owners Equity

Assets

Liabilities

Is increased by: Revenue and capital contributions

Is decreased by: Expenses and drawings/ dividends

idea deluge

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

idea deluge

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.
Owners Equity 1 Revenue +$20k Assets Cash +$20k Liabilities

2 3
4

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

Cash -$1k

Creditors +$1k
Creditors -$1k

idea deluge

Overview of the accounting equation

Owners Equity Assets Liabilities

Assets Buildings Accounts Receivable Computer Equipment Motor Vehicles Revenue Sales of Products Interest received Private Donations
idea deluge

Liabilities Accounts Payable Bank Overdraft Long-term Debt Expenses Staff Salaries MD sponsorship Travel cost
9

Financial reports and KPIs

idea deluge

10

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.

idea deluge

11

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).

idea deluge

12

How much should I spend on my MD?

Expense
- MD sponsorship

Income
- prescription

KPI Cost ratio 6%-7%

idea deluge

13

Which Product should I promote to MD?

HNA

Detail will be provided by BSDG

COGS Gross Profit

Discount Prod Contribution

idea deluge

14