Accounting 101

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t Accounting fundamentals, financial statements, and

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 THE FUNDAMENTALS

The Accounting Equation

The Equation

What It Means

Cash vs Accrual

Cash Basis of Accounting

Accrual Basis of Accounting

Debits & Credits

Assets
Liabilities
Owners Equity

Revenue
COGS
Opex
Other Income
Other Expenses

Reporting Standards

GAAP

IFRS
Tax

The Financial Statements

The Profit and Loss
The Balance Sheet
The Statement of Cash Flows

How the Financial Statements are connected

Profit & Loss <> Balance Sheet

Profit & Loss <> Cash Flows
Balance Sheets <> Cash Flows
 THE FUNDAMENTALS

Assets = Liabilities + Owners Equity

All items of economic value that the business owns / controls (Assets)
Were funded by amounts owed to creditors (Liabilities)
and amounts owed to owners (Equity)

Revenue is recorded when cash is received and expenses are recorded when cash is paid out (there are
exceptions, ex: inventory)
Revenue is recognized when earned and expenses are recognized when incurred, regardless of when
cash is received or paid out
Cash basis is more common for smallers businesses, Accrual basis is more common for larger
businesses, and is required by GAAP

Used to denote increases & decreases in general ledger accounts. For every debit, there must be a
credit
Increase with debits, decrease with credits
Increase with credits, decrease with debits
Increase with credits, decrease with debits

Increase with credits, decrease with debits

Increase with debits, decrease with credits
Increase with debits, decrease with credits
Increase with credits, decrease with debits
Increase with debits, decrease with credits

Stands for Generally Accepted Accounting Principles (GAAP), and are collection of commonly-followed
accounting rules and standards for financial reporting
Stands for International Financial Reporting Standards (IFRS), and are a set of global accounting
standards design to promote transparency and comparability across international borders
Reporting standards regarding taxes, which can vary based off of the jurisdiction

Tells you how much you are EARNING vs how much you are CONSUMING
Provides a snapshot of a company's financial position at a specific point in time
Refers to the inflows and outflows of cash and cash equivalents during a specific period of time

Net income, depreciation, and amortization from the Profit & Loss is linked to the balance sheet as
retained earnings, accumulated depreciation, and accumulated amortization, respectively
Net Income from the P&L links to the first line in the Statement of Cash Flows (indirect method)
The net change in all assets, liabilities, and owners equity (other than cash, accumulated depreciation,
accumulated amortization, retained earnings) get shown on the statement of cash flows
Account What it means Q1 2023
Revenue This shows you how much you are EARNING 65,998
Implementation Fees One time fees to set up a customer with your platform 19,507
MRR Revenue from Recurring Contracts 46,491

The direct costs associated with producing and selling a

Cost of Goods Sold product or service 4,948
Hosting & Servers Costs associated with hosting digital products 4,649
Customer Support Costs associated with servicing customers 299

The total earnings of a company minus the direct costs

Gross Profit associated with producing and selling a product or service 61,049
Gross Margin The % of Gross Profit compared to Revenue 93%

The costs that a business incurs to keep running on a day-

Operating Expenses to-day basis. 50,504
General & Administrative Costs related to general operations of the business 19,228
Costs related to growing your business via sales &
Sales & Marketing marketing 5,694
Research & Development Costs related to developing new products & features 10,511
Customer Success Costs related to supporting customers, and upselling 15,071

The income a company generates from its operations

Net Operating Income after deducting all operating expenses 10,546

The total income a business earns from sources other

than its primary operations, minus any associated
Other Income / Expense expenses 42,700
Revenue earned by a business that is not related to its
Other Income primary operations 45,000
Expenses incurred by a business that are not directly
Other Expense related to its primary operations (2,300)

All income accounts minus all expense accounts, before

Net Income before Taxes taxes 53,246

Provision for income tax taxes owed on profits 18,636

Net Income after Taxes All income accounts minus all expense accounts 34,610
Q2 2023 Q3 2023 Q4 2023
69,201 98,362 89,098
47,396 42,259 12,229
21,805 56,103 76,870

3,516 6,422 7,692

2,180 5,610 7,687
1,335 811 5

65,685 91,940 81,406

95% 93% 91%

39,461 31,839 71,117

14,608 8,285 19,292

1,561 14,409 14,568

10,919 1,722 23,485
12,372 7,423 13,772

26,225 60,101 10,289

2,300 4,500 17,900

5,000 8,000 21,500

(2,700) (3,500) (3,600)

28,525 64,601 28,189

9,984 22,610 9,866

18,541 41,991 18,323
 ACCOUNT

Assets
Cash & Cash Equivalents
Current Assets
Accounts Receivable
Inventory
Prepaid Expenses
Fixed Assets
Laptops & computers
Furniture
Accumulated Depreciation
Intangible Assets
Goodwill
Accumulated Amortization

Liabilities
Current Liabilities
Accounts Payable
Credit Cards
Deferred Revenue
Long Term Liabilities
Line of Credit
Convertible Notes
Accrued Interest

Owners Equity
Common Stock

Preferred Stock
Retained Earnings

check
WHAT IT MEANS Q1 2023

The resources a business owns or controls that are expected to provide future
economic benefits. 142,204
Assets that a business has on hand that are readily convertible to cash (2,867)
Assets that a business expects to use or convert to cash within a year or less 127,873
Money owed to the business from customers 21,167
Merchandise & goods to be used in sales to customers 94,361
Amounts purchased where the economic benefit has yet to be incurred 12,345
Assets that a business owns and uses in its operations to generate income 15,030
Assets that will be depreciated over multiple periods 8,765
Assets that will be depreciated over multiple periods 8,765
The accumulated decrease in value in fixed assets (2,500)
2,168
Excess value of a company purchased above fair market value 2,468
The accumulated expensed portion of intangible assets (300)

Future obligations & amounts owed to creditors 96,941

Debts that must be paid within one year 51,796
Refer to any obligations or debts that a business owes to others 10,584
Money owed for expenses incurred via credit cards 16,000
Amounts owed to customers in the form of future goods or services 25,212
Debts that can be paid within a year or more 45,146
Amounts owed to creditors in the form of a loan, typically involving interest 35,000
Debt securities that can convert to equity upon a specific time or event 10,000
Interest that is owed but has not yet been paid 146

The portion of a company's assets that an owner can claim 45,263

Stock often times given to owners often with voting rights 6,852
Stock given to owners often times without voting rights, but with liquidiation &
dividends preferences 3,800
An accumulation of prior earnings not yet distributed to owners 34,610

this check row ensures assets = liabilities + owners equity. It must always tie! -
Q2 2023 Q3 2023 Q4 2023

188,593 226,696 260,320

31,170 4,310 21,077
103,025 160,788 191,239
59,581 93,635 80,980
18,244 54,807 84,637
25,200 12,345 25,622
42,530 40,030 34,306
28,765 28,765 18,256
18,765 18,765 26,050
(5,000) (7,500) (10,000)
11,868 21,568 13,698
12,468 22,468 14,898
(600) (900) (1,200)

131,750 123,209 139,404

86,458 77,771 78,759
41,791 31,818 10,193
21,549 17,404 46,457
23,118 28,550 22,109
45,292 45,438 60,646
35,000 35,000 50,000
10,000 10,000 10,000
292 438 646

56,843 103,487 120,915

210 510 2,225

3,482 7,835 5,225

53,151 95,142 113,465

- - -
Account
Cash from Operating Activities
Net Income

Accumulated Depreciation
Accumulated Amortization

Accounts Receivable
Inventory
Prepaid Expenses
Accounts Payable
Credit Cards
Deferred Revenue
Accrued Interest

Cash from Investing Activities

Laptops & computers
Furniture
Goodwill

Cash from Financing Activities

Common Stock
Preferred Stock
Line of Credit
Convertible Notes

Total Cash Flows

Beginning Cash
Ending Cash

check
What it means Q1 2023
Cash flows that are directly related to the normal course of a company's business operations (38,522)
This pulls from the P&L 34,610

This pulls from the P&L 2,500

This pulls from the P&L 300

This takes last months value from the balance sheet and subtracts out this months value (21,167)
This takes last months value from the balance sheet and subtracts out this months value (94,361)
This takes last months value from the balance sheet and subtracts out this months value (12,345)
This takes this months value on the balance sheet and subtracts out last months value 10,584
This takes this months value on the balance sheet and subtracts out last months value 16,000
This takes this months value on the balance sheet and subtracts out last months value 25,212
This takes this months value on the balance sheet and subtracts out last months value 146

Cash flows related to the purchase and sale of fixed / intangible, or long term assets (19,998)
This takes last months value from the balance sheet and subtracts out this months value (8,765)
This takes last months value from the balance sheet and subtracts out this months value (8,765)
This takes last months value from the balance sheet and subtracts out this months value (2,468)

Cash flows related to the financing of a company's business 55,653

This takes this months value on the balance sheet and subtracts out last months value 6,852
This takes this months value on the balance sheet and subtracts out last months value 3,800
This takes this months value on the balance sheet and subtracts out last months value 35,000
This takes this months value on the balance sheet and subtracts out last months value 10,000

The sum of Cash from Operating Activities, Investing Activities, and Finance Activities (2,867)

-
Beginning Cash + Total Cash Flows (2,867)

-
Q2 2023 Q3 2023 Q4 2023
80,997 (21,512) (8,133)
18,541 41,991 18,323

2,500 2,500 2,500

300 300 300

(38,414) (34,054) 12,655

76,117 (36,563) (29,830)
(12,855) 12,855 (13,277)
31,207 (9,973) (21,625)
5,549 (4,146) 29,053
(2,094) 5,432 (6,441)
146 146 208

(40,000) (10,000) 10,794

(20,000) - 10,509
(10,000) - (7,285)
(10,000) (10,000) 7,570

(6,961) 4,653 14,105

(6,642) 300 1,715
(318) 4,353 (2,610)
- - 15,000
- - -

34,037 (26,859) 16,766

(2,867) 31,170 4,310

31,170 4,310 21,077

- - -
KEY RATIOS & METRICS
Ratio
Debt-to-Equity
Gross Margin
Operating Margin
Return on Equity (ROE)
Return on Assets (ROA)
Inventory Turnover
Accounts Receivable Turnover
Days Sales Outstanding (DSO)

EBITDA
EBIT
Interest Coverage
Asset Turnover
Days Payable Outstanding (DPO)
Return on Ad Spend (ROAS)

Key Performance Indicators (KPIs)

Customer Acquisition Cost
ARR
MRR
Net Dollar Retention
Average Contract Value
Average Revenue per User
Expansion revenue
Contraction revenue
New Customers
Active Customers
Churned Bookings
Churned Customers
Bookings

Contribution Margin
Lifetime Value
Weighted Pipeline
CAC Payback
Sales Quota attainment
Budget attainment
Retention rate
CAC Efficiency
METRICS
What it means / why it's used
A company's total debt to its total shareholder equity
A company's Gross Profit displayed as a % of its Revenue
The percentage of a company's revenue that is left over after deducting its operating expenses
How much of a return you are getting on your equity
A company's
How profitability
efficiently a companybyuses
comparing its netbyincome
its inventory to itsthe
measuring total assets of times inventory is sold and then replaced within a g
number
period
A company's efficiency in collecting its credit sales
How long it takes a company to collect payments from its customers
Short for Earnings Before Interest, Taxes, Depreciation, and Amortization, and is metric used in accounting to measure a comp
profitability, and approximation for free cash flows
Short for Earnings Before Interest and Taxes, and one of many metrics is used in to measure a company's profitability
A company's ability to pay the interest on its debt
A company's efficiency in using its assets to generate revenue
The average number of days that a company takes to pay its accounts payable
Used in digital marketing to measure the effectiveness of advertising campaigns

What it means
The total cost incurred to acquire a new customer during a specific period
Total revenue from customers subscribed to annual recurring contracts
Total revenue from customers subscribed to monthly recurring contracts
The revenue a company maintains from its existing customers over a period of time. It is also referred to as net revenue reten
The average amount of revenue generated from a customer's contract
The average revenue generated per user or customer over a specified period
Revenue generated from an increase in sales to existing customers through either upselling or cross-selling
Revenue lost from existing customers due to downgrades
The number of new customers acquired during a specified period
The total number of customers who have engaged with the company's product or service during a specified period
Bookings lost due to customer churn or cancellation
The number of customers who stop using the company's product or service during a specified period
The total sales value of all the orders or contracts signed in a specified period
The amount of revenue left over after variable costs have been subtracted from revenue. It is used to measure the profitabilit
or service
The total amount of revenue a company expects to generate from a customer over the duration of their relationship with the
The total value of opportunities or potential deals in a company's sales pipeline, weighted by the probability of closing each de
The amount of time it takes for a company to recoup the cost of customer acquisition through revenue generated from those
The percentage of a salesperson's quota that they successfully meet or exceed
The percentage of a department or company's budget that is successfully met or exceeded
The percentage of customers who continue to use the company's product or service over a specified period
The effectiveness of a company's customer acquisition efforts, measured by the ratio of the lifetime value of a customer to the
acquiring that customer
Formula
Total debt / Total equity
Gross Profit / Revenue
Net Operating income / Revenue
Net Income / Owners Equity
Net Income / Total Assets
cost of goods sold / average inventory
Net Credit Sales / Average Accounts Receivable
(Accounts Receivable / Total Credit Sales) x Number of Days

Net Income + Interest Expense - Interest Income + Taxes + Depreciation + Amortization

Net Income + Interest Expense - Interest Income + Taxes
Earnings Before Interest and Taxes (EBIT) / Interest Expense
Net Sales / Total Assets
(Accounts Payable / Cost of Goods Sold) x Number of Days in Accounting Period
Revenue from Advertising / Cost of Advertising

Formula
Total Sales and Marketing Costs / Number of New Customers
Beginning ARR + New ARR - Churn ARR + Expansion ARR - Contraction ARR
Beginning MRR + New MRR - Churn MRR + Expansion MRR - Contraction MRR
Revenue of cohort / Revenue of previous cohort
Total contract value / total number of contracts
Total revenue generated / total number of users or customers
Total revenue generated from upsells or cross-sells - previous revenue from existing customers
Previous revenue from existing customers - total revenue generated from downgrades or cancellations
N/A
Beginning active users + new - churned users
N/A
N/A
N/A

Total revenue - variable costs

Average yearly revenue * customer lifetime (in years)
Total value of opportunities in the sales pipeline * probability of closing each deal
Cost of acquiring a customer / (revenue generated per customer * gross margin)
Actual sales / sales quota
Actual spend / budgeted spend
((Number of customers at end of period - Number of customers acquired during period) / Number of customers at start of per
Lifetime value of a customer / cost to acquire that customer
 Example
0.41
91%
12%
0.15
0.07

0.34

ustomers at start of period) x 100