5.5.2023.

Entrepreneurship
in Creative
Industries

Seminar #5

Agenda

• Homework 4 presentations
• Basic accounting principles
• Balance sheet
• Income statement
• Depreciation
• Group project (last reminder)
• Homework #5

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Basic accounting principles

Accounting

• Accounting is the process of summarizing, analysing and reporting

the financial transactions in a manner that adheres to certain
accepted standard formats, helping to evaluate past performance,
present condition, and future prospects as well.

• Accounting is a business function for collecting information on the

financial aspects of doing business.

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Bookkeeping

• Bookkeeping is the process of recording your company's financial

transactions into organized accounts on a daily basis.

• It can also refer to the different recording techniques businesses

can use.

Bookkeeping

• Simple bookkeeping - each change is recorded as a single

entry

• Double-entry bookkeeping – each change is recorded in two

accounts: a debit to one account and a credit to another

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T-Account

• An account title at the top horizontal line of the T

• A debit side on the left
• A credit side on the right

T-Account example

• A company that issues shares worth $100,000 will have its T-

account show an increase in its asset account and a corresponding
increase in its equity account.

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Bookkeeping (terminology)

• Assets: The money that the company owns

• Liabilities: Anything that the business owes

• Owner’s equity: Owner’s investment in the company

• Income: Money the business earns by selling its products

• Expense: Money the company spends to run the business

Single entry Double entry

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Balance sheet

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Balance sheet

• Balance sheet is a financial statement which indicates the

state, i.e. scope and structure of assets, liabilities and equity
on specific day.
• It is typically prepared at the end of a business year
(mandatory), but it can be prepared more often if necessary.

• Assets=Liabilities + Shareholders’ Equity

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Example

On December 31, ACME company has the following balances:

• Cash and cash equivalents: 20,000
• Account receivable: 15,000
• Equipment: 30,000
• Inventory: 45,000
• Supplies: 35,000
• Long-term loans: 65,000
• Accounts payable: 10,000
• Stakeholders equity: 70,000

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Example (balance sheet)

Assets Liabilities & Equity

Cash: 20,000 Long-term loans 65,000
Account receivable 15,000 Accounts payable 10,000

Equipment 30,000 Stakeholders equity 70,000

Inventory 45,000
Supplies 35,000
TOTAL 145,000 TOTAL 145,000

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Example – check if everything is correct

On Dec 31, New PLC has the following balance on its accounts:
• Cash and cash equivalents: 30,000
• Accounts receivables: 75,000
• Inventory: 110,000
• Equipment: 500,000
• Accounts payable: 65,000
• Long-term liabilities: 150,000
• Stockholders equity: 500,000

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Assignment

On December 31, ACME company has the following balances:

• Cash and cash equivalents: 45,000
• Account receivable: 75,000
• Equipment: 55,000
• Land: 45,000
• Supplies: 41,000
• Long-term loans: 100,000
• Accounts payable: 12,000
• Stakeholders equity: ?

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Example (balance sheet)

Assets Liabilities
Cash: 45,000 Long-term loans 100,000
Account receivable 75,000 Accounts payable 12,000

Equipment 55,000 Stakeholders equity 149,000

Land 45,000
Supplies 41,000
TOTAL 261,000 TOTAL 261,000

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Assignment

On Dec 31, New PLC has the following balance on its accounts:
• Accounts receivables: 75,000
• Inventory: 110,000
• Equipment: 350,000
• Cash and cash equivalents: 30,000
• Accounts payable: 55,000
• Long-term liabilities: ?
• Stockholders equity: 300,000

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Income statement (Profit and Loss Account)

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Income statement/P&L statement

• Profit and loss (P&L) statement refers to a financial

statement that summarizes the revenues, costs, and
expenses incurred during a specified period, usually a quarter
or fiscal year.

• These records provide information about a company’s ability

or inability to generate profit by increasing revenue, reducing
costs, or both.

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Depreciation

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Depreciation

• The term depreciation refers to an accounting method used

to allocate the cost of a tangible or physical asset over its
useful life.

• Depreciation is a measure of the wearing out, consumption or

other loss of value of a depreciable asset arising from use,
effluxion of time or obsolescence through technology and
market changes.

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Depreciation

• The depreciation rate is calculated in the following way:

Depreciation rate=100/useful life

If the useful life of a building is 20 years, then it depreciation rate will

be 5%.

Depreciation rate=100/20=5%

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Depreciation

• The purchasing value of an asset is the base to calculate

depreciation.
• Depreciation methods and rates are country specific.
• In Croatia, rates are defined by the Government:

Type of asset Useful life Depreciation rate

Buildings 20 years 5%
Equipment, machinery 4 years 25%
Computer software 2 years 50%
Computers 2 years 50%
Cars 5 years 20%

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Example

A company procured the following items:

• Laptops for employees: 25,000 (useful life 2 years)
• Software: 30,000 (useful life 2 years)
• Equipment: 60,000 (useful life 4 years)

Calculate the value of assets after one year:

• Laptops for employees: 25,000 → 12,500
• Software: 30,000 → 15,000
• Equipment: 60,000 → 45,000

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Assignment

This year, the ACME company purchased the following assets:

• Land: 150,000
• Car: 90,000
• Computers: 34,700
• Software: 49,000
• Machines: 120,000
• 200 sqm of office space: 250,000

Calculate the value of assets after three years (after the third year).

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Assignment

• Land: 150,000 → 150,000 (value of land does not depreciate)

• Car: 90,000 → 36,000 (20% or 18,000 per year)
• Computers: 34,700 → 0 (50% per year)
• Software: 49,000 → 0 (50% per year)
• Machines: 120,000 → 30,000 (25% or 30,000 per year)
• 200 sqm of office space: 250,000 → 212,500 (5% or 12,500 per year)
TOTAL: 428,500

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Group project (last reminder)

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Group project (prerequisite for digital signature)

• Choose a combination of a product or service and market. The product or
service should exist, while the market can be national (Croatia or another
country) or regional/local (e.g. the city of Zagreb or a region in a country).
• Group assignment (e.g. assignment #1 teams)
• Structure of the document
• Abstract
• A short description of the product/service and the market that has been selected
• PESTLE analysis
• Estimation of the market size
• SWOT analysis
• Conclusion
• Technical details:
• MS Word file, 8-10 pages (excluding the title page, table of contents and
references)
• Font size: 11 pt, paragraph 1.5; margins 2.5 cm (standard)
• DEADLINE: April 30, 23:59 CET (nikola.draskovic@racunarstvo.hr)

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Homework 5

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Homework 5
• Individual activity
• LO5
• Points: 2

• Go to: https://forms.office.com/e/j2Be90nub4
• Answer the questions and submit the form.
• Include your calculation details.

• DEADLINE: May 10, 23:59 CET

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Thank you!

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