Accounting Basics

Accounting BasicsNovember 17, 2006

Denver Metro Chamber of Commerce

Why Are You Here? To Get a Basic Understanding of

Accounting To Get an In-Depth Understanding

of Accounting as Practiced by the Chamber

How Does She Know This Stuff? BS Finance 8 Years Chamber Controller 15 Years Controller for

Membership Organizations 18 Years Accountant for Not for

Profits 200 Years Accounting Experience

What Are We Going to Cover?

Accounting – Basic Rules and Concepts

How Those Rules and Concepts Apply to the Chamber

How YOU Ensure Good Financial Reporting

Why Accounting?

It’s the Language of Business

It’s How Activities are Measured

It’s How Results are Communicated

Accounting – Basic Rules and Concepts I GAAP

Generally Accepted Accounting Principles

Entities Proprietorship, Partnership,

Corporation Tax Status

Cash v. Accrual Accounting

Accounting – Basic Rules and Concepts II

Objectivity Conservatism Consistency

These are the CARDINAL RULES of Accounting.

Accounting – Basic Rules and Concepts II

Objectivity “there must be reasonable and

verifiable evidence to support any transaction”

Conservatism “when in doubt, be conservative”

Consistency “in order to know where we are, we

have to know where we were before”

Accounting – Basic Rules and Concepts III Financial Statements

Balance Sheet

Income Statement

Accounting – Basic Rules and Concepts III

Assets (what you own)

- Liabilities (what you owe)

= Equity (what you’re worth)

Financial Statements - Balance Sheet

Historical, Long Term Document

These always have to balance - double entry bookkeeping

Denver Metro Chamber Of Commerce and Metro Denver EDCBalance SheetAugust 31, 2006

Audited831/2006 8/31/05

EDC DMCC TOTAL TOTALASSETSCurrent AssetsCash and Short Term Savings 3,038,117 1,820,627 4,858,744 2,957,578Long Term Investments 0 1,006,681 1,006,681 699,205Building Reserve 0 254,146 254,146 253,792 Total Cash and Investments 3,038,117 3,081,454 6,119,571 3,910,575

Receivables Membership Dues (net of Allowance) 0 159,923 159,923 386,882 Related Entities 0 16,179 16,179 (200,490) Other 0 33,576 33,576 16,974 Total Receivables 0 209,678 209,678 203,366

Other AssetsNotes Receivable 0 7,000 7,000 64,336Prepaid Expenses 0 417,895 417,895 145,200 Total Other Assets 0 424,895 424,895 209,536

Property & Equipment less Acc. Depr. 54,642 2,687,290 2,741,932 2,692,561

TOTAL ASSETS 3,092,759 6,403,317 9,496,077 7,016,038

LIABILITIES AND NET ASSETSCurrent LiabilitiesAccounts Payable 0 125,648 125,648 173,086Payroll Liabilities 0 627,545 627,545 520,216Advances/Other 0 0 0 10,562 Total Current Liabilities 0 753,193 753,193 703,864

Other Current LiabilitiesDeferred Dues less Deferred Commissions 0 1,058,320 1,058,320 1,488,096Other Deferred Income 1,700,000 231,843 1,931,843 109,745DMCC/EDC Intercompany 0 0 Total Other Current Liabilities 1,700,000 1,290,163 2,990,163 1,597,841

Total Liabilities 1,700,000 2,043,355 3,743,355 2,301,705

Net AssetsFund Equity - Prior Years 567,501 4,145,632 4,713,132 3,950,691Net Profit / (Loss) 412,373 627,216 1,039,589 763,642 Total Net Assets 979,874 4,772,848 5,752,721 4,714,333

TOTAL LIABILITIES & NET ASSETS 2,679,874 6,816,203 9,496,076 7,016,038

Accounting – Basic Rules and Concepts III

Revenue or Income ($ IN)

- Expenses ($ OUT)

= Net Income (the Bottom Line)

Financial Statements - Income Statement

Dynamic, Short Term Document

Links with the Balance Sheet - Net Income is Equity

Denver Metro Chamber Of CommerceIncome Statement - Executive Summary

For the Twelve Months Ending August 31, 2006

Curr. Period Curr. Period YTD YTD (Over)/Under(Over)/Under AnnualActual Budget Actual Budget Year to Date % Budget

REVENUEMembership Dues 368,198.38 311,536.00 4,060,709.35 3,744,000.00 (316,709.35) -8% 3,744,000.00Administrative Income 284,644.31 255,950.00 380,283.43 322,110.00 (58,173.43) -18% 322,110.00Member Services Income 470.00 0.00 66,220.00 62,345.00 (3,875.00) -6% 62,345.00Corporate Communications 13,066.66 200.00 27,276.66 18,500.00 (8,776.66) -47% 18,500.00Events Income 20,752.06 31,000.00 459,381.62 402,825.00 (56,556.62) -14% 402,825.00Metro Denver EDC Income 0.00 320,600.00 242,825.21 525,600.00 282,774.79 54% 525,600.00Marketing Sales & Service 37,855.66 8,620.00 237,364.47 189,650.00 (47,714.47) -25% 189,650.00Business Resource Ctr Income 27,280.42 3,000.00 67,284.43 38,000.00 (29,284.43) -77% 38,000.00Public Affairs Income 129,710.00 46,150.00 300,592.97 416,825.00 116,232.03 28% 416,825.00

TOTAL REVENUE 881,977.49 977,056.00 5,841,938.14 5,719,855.00 (122,083.14) -2% 5,719,855.00

EXPENSEPayroll Expense 683,911.27 249,822.00 3,213,106.00 2,938,300.00 (274,806.00) -9% 2,938,300.00Administrative Expense 152,085.37 125,599.99 838,049.31 804,465.00 (33,584.31) -4% 804,465.00Member Services Expense 2,089.27 775.00 23,383.77 23,500.00 116.23 0% 23,500.00Corporate Communications 5,552.30 2,500.00 75,381.45 81,152.07 5,770.62 7% 81,152.07Events Expense 16,602.36 2,700.00 181,581.49 159,600.00 (21,981.49) -14% 159,600.00Metro Denver EDC Support 82,442.91 264,600.00 644,465.83 942,154.43 297,688.60 32% 942,154.43Marketing Sales & Service 74,051.00 61,500.00 189,226.07 183,100.00 (6,126.07) -3% 183,100.00Business Resource Ctr Expense 21,000.66 1,600.00 29,105.71 20,000.00 (9,105.71) -46% 20,000.00Public Affairs Expense 56,054.74 98,125.00 272,787.28 513,301.48 240,514.20 47% 513,301.48

TOTAL EXPENSE 1,093,789.88 807,221.99 5,467,086.91 5,665,572.98 198,486.07 4% 5,665,572.98

NET INCOME FROM OPERATIONS (211,812.39) 169,834.01 374,851.23 54,282.02 (320,569.21) -591% 54,282.02

1445 Market Street Dividend 150,000.00 150,000.00 252,364.49 150,000.00 (102,364.49) -68% 150,000.00

NET INCOME (LOSS) (61,812.39) 319,834.01 627,215.72 204,282.02 (422,933.70) -207% 204,282.02

How Those Rules and Concepts Apply to the Chamber

GAAP Annual Audit

Cash v. Accrual Accounting Match Income with

Expense Match Income with

Period

How Those Rules and Concepts Apply to the Chamber Entities

Proprietorship, Partnership, Corporation

Tax Status

THE CHAMBER, THE FOUNDATION AND 1445 MARKET STREETS ARE NOT-FOR-PROFIT CORPORATIONS

Tax Status• Federal Income Tax

501 (c) 6 – DMCC501 (c) 3 – DMCF501 (c) 2 – 1445

• State and Local Sales TaxOnly 501 (c) 3 is exempt

• Property Taxes

How Those Rules and Concepts Apply to the Chamber

THE CHAMBER IS A MEMBERSHIP ORGANIZATION.

As a Membership Organization, we have a Fiduciary Responsibility to our Members.

fiduciary - “a person to whom property is entrusted for the benefit of others”

responsibility – “answerability or accountability”

How Those Rules and Concepts Apply to the Chamber

Objectivity There must be documentation for

everything we do The documentation has to be accurate

Conservatism Accounting people will not make

assumptions on your behalf Accounting people abhor, detest and

despise emergencies

How YOU Make Accounting Happen

INCOME (REVENUE) Create an invoice in

database When it’s paid,

accounting records the income (Income Statement)

Income might be deferred (Balance Sheet)

EXPENSE Order something

(supplies, catering, pencils)

Write up a PO When the bill is

ready to be paid,accounting records the expense (Income Statement)

How Accounting Rules Make Your Life Miserable

Purchase Orders There must be

documentation for everything we do

The documentation has to be accurate

Objectivity

How Accounting Rules Make Your Life Miserable

Purchase Orders Accounting people

will not make assumptions on your behalf

Accounting people abhor, detest and despise emergencies

Conservatism

How Accounting Rules Make Your Life Miserable

Cash Receipts All Cash Receipts

and Credit Card payments must have a Account Number written on them

Objectivity

Account Numbers!!

The list is called the Chart of Accounts

There are three sections1. Department

2. Account

3. Extension

More about Account Numbers!

Departments

1. 000 through 900

2. You can only code stuff to your own department

3. To get detailed reports, we ask for specific departments

Accounts

1. The most important one!

2. 4xxx = Revenue

3. 5xxx-9xxx = Expense

4. Get this wrong and we kick it back to you!

Two Additional Very Important Concepts

TIMELINESS The “pay up bum”

issue

Two Additional Very Important Concepts

ACCURACY The

Corporate Concepts mistake

How YOU Ensure Good Financial Reporting Bottom-Up Approach Budgeting

Departments create their own budget Departments are accountable based on those

budgets Purchase Orders

Departments write up their own POs Financial Reports are based on those POs

One More Thing…

Only Joe Blake, Robert Blankenship, or Tom Clark can sign contracts for the Chamber

Authority is delegated this way:

Members > Board > Executive

What Are Accountants Like?

We like Order and Organization

We enjoy Processes We like Schedules We don’t like Surprises We can’t really be

Creative

How to Make Accounting Happy Fill out those POs completely and accurately

Objectivity, Conservatism Use the correct account numbers

Accuracy Turn in your POs and cash receipts promptly

Timeliness

How to Make Accounting Happy

Use the forms on the Infomall

Ask us if you aren’t sure

When you ASSUME, you make an

ASS out of U and ME

Maintain the records you need to stay on top of your budget

Accounting information is Historical information

What Accounting Will Do For YOU Pay your vendors on time Jump in if you have problems with

vendors or members Get you timely and accurate

information Encourage to be creative in everything

except our stuff Celebrate your successes!

Bottom-Up Approach – It’s Up to You

The Chamber, EDC, Foundation and Market Street staff are an exceptionally talented group of people. We are proud to be working with you.

Please understand that the accounting department has constraints you may not see.

Your cooperation is vital to the “accountability” of the organization.

Thank you so much for your concern, efforts and consideration.

Questions

All Questions are Good Questions!

Comments and Rebuttals are also Welcome (kind of)