To watch our video coverage now, visit: http://www.welchllp.com/resource-centre/videos/events/ This year, Welch LLP & MaRS partnered up to give a three-hour workshop/presentation dedicated to demystifying the principles of accountancy – specifically designed for start-ups! Managing your cash flow, understanding financial statements and choosing your accounting software are just some of the subjects addressed.

1. DEMYSTIFYING ACCOUNTING
A MaRS Presentation

2. What we will cover today…
• Key Terms (30 min)
• Bookkeeping & Financial Statements (55min)
• Break (15 min)
• Cash Flows Strategy & Maintaining (30 min)
• How & When to engage an accountant (20 min)
• Questions (30 min)

3. Key Terms – “Pop Quiz”

4. Bookkeeping
+
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ACCRUAL
LEDGER

5. What is Bookkeeping?
1. Gathering the source documents
2. Entering information from the source documents into
journals & accounts
3. Performing end of period procedures
4. Closing the books for that period

6. Goals of good bookkeeping
• Understandable data, cross
referenced & easy access to
supporting documents for:
o internal analysis and
review purposes
o support for possible
audits
o Support for financing and
investment sources

7. Bookkeeping Software
• Wave Accounting
• Sage 50 Accounting
(formerly Simply Accounting)
•
•
•
•
QuickBooks
QuickBooks online
Freshbooks
Sage 300
(formerly Accpac)
• …

8. “Bookkeeping
in the Cloud”
There are pro’s and con’s and you
need to consider your company’s
unique situation and risk
appetite!

9. Bookkeeping VS. Accounting
• Bookkeeping is record
keeping/ data entry.
• Accounting is can include
bookkeeping, but also
infers tasks such as
preparing financial
statements from the
bookkeeping records, tax
planning, advisory and
assurance work.

10. Financial Statements
NOTES TO THE FINANCIAL
STATEMENTS
ANNUAL FINANCIAL STATEMENTS
IFRS

11. Financial Statements
Financial Statements are a tool to analyze your
company’s performance.

12. FS – Internal VS. External
o Internal reporting is flexible and you can create
reports in the format that best suits your needs.
They can be weekly, monthly, quarterly or annually
o External reporting is more structured and there are
rules that govern their preparation and
presentation, to increase the comparability
between companies.

13. FS – External
• External users may include CRA, bank/ other
lenders, investors, potential lenders/ investors…
• They tend to be annually although may also be quarterly
(required quarterly for public companies).
• You might have an external accountant or auditor report
on the statements (usually only for the annual
statements).
• You have to choose one set of accounting standards
(ASPE, IFRS, Accrual/ tax basis).

14. FS - Components
• Financial statements always include:
– A balance sheet
– An income statement and statement of
retained earnings.
• But can also include:
o A statement of cash flows,
o A report on the statements (by external
accountant)
o Notes to the financial statements.

15. Balance Sheet
Critical “what do we have” statement.
Assets = Liabilities + Equity
(hence “balance” sheet)

16. Assets
o Definition of ‘Asset’?
• Generally intuitive
• Assets can be valued at cost or at FMV and GAAP
provides rules as to which value can be used and when.
This is one of your Accounting Policy Choices.

17. Liability
o Definition of ‘Liability’?
• Also generally instinctive
• Like assets, what is considered a liability by GAAP is
generally the same as what you would instinctively
consider a liability.

18. GAAP based variances
o Certain items may have value to you, but you may not be
allowed to record them as an asset.
o Intangible assets are an example of this. They must meet the
following criteria in order to be recorded as an asset. They must
be
o Identifiable,
o The company must control them, and
o There must be a future economic benefit.
Is it Eligible?
Patent Workforce Know-how -

19. GAAP based variances
o A finance lease is another good example of a
GAAP based variance.
o Here although there is no obligation to pay the balance of the
lease currently,
o The underlying reality of the finance lease arrangement is that
you have purchased the asset and the seller is financing the
purchase.
o Therefore GAAP requires you to record the asset & liability at
the present value of the minimum lease payments.

20. Equity
• What is equity?
o Capital stock
o Retained earnings
o Other

21. Income Statement
• The “what did we do” statement.
o Income – expenses = net income.
o Some different presentations possibilities

22. Retained Earnings
• Sometimes this statement is part of the Income Statement,
• Sometimes it is an entirely separate statement (for IFRS it is
required to be separate).
• The closing retained earnings is a cumulative tally of all
previous years’ income, less any dividends paid out of the
earnings and any adjustments, since the inception of the
company – hence its name.

23. Accountant’s Report
• For general purpose Financial Statements an accountant can
issue:
– An Independent auditor’s report,
– A review engagement report, or
– A notice to reader.
• The report will state the accounting standards applied (IFRS/
ASPE/ accrual/ cash…)
• The report will also state any qualifications & what they mean.

24. Financial Statements: Notes
• Purpose:
o To give background & added disclosure which is not required (or would
be too cumbersome) in the statements themselves. The notes are a
required part of GAAP.
o This includes disclose the accounting policies, Related Party
Transactions and their impact, loans payable details, capital
assets, income taxes, capital stock, commitments…
o Without the notes, there can be a great amount of interpretation to
some the details. The notes help to provide context to increase
comparability between one set of financial statements and another.

25. Break – 15 min

26. Cash Flows
Strategy & Maintenance
Demands for cash means you need to plan &
manage it to a high degree to make it effective.
o Too much cash is a waste as you will not be earning
anything with it and could be earning if it is invested.
o Too little cash and you won’t be able to pay your bills as
they come due and will incur interest and penalties.
o Consider maintaining rolling cash flow projection

27. Cash Flows
Strategy & Maintenance
What do these statements tell you for budgeting
and cash flow management purposes?
• Cash flow statement
• Balance sheet

28. Prioritizing Cash Flows Step 1:
Set out a hierarchy of payment streams.
Items to consider:
o Interest rates
o Penalties for late payments
o Any borrowing covenants

29. Prioritizing Cash Flows Step 2:
Review the payment terms:
o If there is a discount period, consider if it is worth taking
advantage of.
o If not, consider the payment period and plan when you are
going to pay (i.e. at the end of the period).

30. Prioritizing Cash Flows Step 3:
Consider other
non-monetary
factors

31. Weekly Rolling Cash Flow
Template
o 45 days; 60 days; 90 days
o Update weekly (Monday morning?)
o Excellent Management Tool; Reflects the best
guess of actual cash available
o Shows you when a “cash crunch” is coming

32. Accountants:
How & When to Engage
Who is your accountant to you?
o A service provider or
o A strategic partner

33. A Few Notes of Caution…
The old adage: a penny wise pound foolish.
• Some tax planning may not be possible if you wait
too long or it may be significantly more costly to
restructure.
o QSBC (Qualifying Small Business Corporation) – sale of
business – up to 200K in tax savings, but some of the
steps need to be in place 2 years in advance!
o Holding corporation and share structure that is beneficial
to you as well as your investors.

34. A Few Notes of Caution…
Be clear what role you want your accountant to play.
• It can be beneficial to have someone who can grow
with you and becomes a key partner in your
business.

35. A Few Notes of Caution…
You don’t know what you don’t know.
o GST/ HST – If I make a sale to someone in Manitoba
what rate do I charge?
o GST/ HST – Am I eligible for the quick method?
• Generally a fair bit of savings if you do, but only if you elect
ahead of time.
o Tax credits – SRED (Scientific Research & Experimental
Development), ODMTC (Ontario Digital Media Tax
Credits), Apprenticeship Tax Credits, …

36. Video
http://www.youtube.com/watch?v=UfzUB85ms-s

37. Questions?