WEBVTT 1 00:00:00.200 --> 00:00:03.100 Hello and welcome to the first module of 2 00:00:03.100 --> 00:00:06.500 this course, which is devoted to what you need to know 3 00:00:06.500 --> 00:00:09.100 of financial accounting to be able 4 00:00:09.100 --> 00:00:11.100 to properly run a business. 5 00:00:12.100 --> 00:00:16.000 Then it's about adopting an accounting perspective to 6 00:00:15.800 --> 00:00:19.200 efficiently support business operations 7 00:00:18.200 --> 00:00:21.100 and his first module will 8 00:00:21.100 --> 00:00:24.700 show you how to calculate the profit and income 9 00:00:24.700 --> 00:00:27.800 and how it's transformed into cash and 10 00:00:27.800 --> 00:00:28.900 fun flows. 11 00:00:29.700 --> 00:00:32.400 First I will introduce the objectives of 12 00:00:32.400 --> 00:00:35.400 this module. Then I will make the list 13 00:00:35.400 --> 00:00:39.300 of the concepts which will be progressively introduced 14 00:00:38.300 --> 00:00:41.600 and the business context which 15 00:00:41.600 --> 00:00:44.500 I will use to illustrate them as 16 00:00:44.500 --> 00:00:48.800 well as the pedagogical process last and 17 00:00:48.800 --> 00:00:52.400 not least. I will describe the untie structure 18 00:00:51.400 --> 00:00:55.100 of this first accounting module. 19 00:00:55.800 --> 00:00:59.000 Let's start with the objectives of the module. It's 20 00:00:58.600 --> 00:01:01.200 absolutely a fundamental for you 21 00:01:01.200 --> 00:01:04.300 as managers to understand how a profit 22 00:01:04.300 --> 00:01:08.200 is built and calculated then profit 23 00:01:07.200 --> 00:01:10.300 is not cash. This is what it 24 00:01:10.300 --> 00:01:13.800 is also for them until that you understand why cash 25 00:01:13.800 --> 00:01:15.700 differs from profit. 26 00:01:16.500 --> 00:01:19.000 Progressively in this module you are going to 27 00:01:19.300 --> 00:01:22.800 learn how to build the three fundamental financial and 28 00:01:22.800 --> 00:01:24.100 accounting statements. 29 00:01:24.900 --> 00:01:27.900 The first one is about profit profit and 30 00:01:27.900 --> 00:01:31.000 loss. The second one is about cash. I 31 00:01:30.200 --> 00:01:33.100 will give you later the name of 32 00:01:33.100 --> 00:01:36.100 it, but it's about cash movements and the last 33 00:01:36.100 --> 00:01:39.800 one which is very well known as a balanced state. But my 34 00:01:39.800 --> 00:01:42.300 objective is also to introduce the first concept of 35 00:01:42.300 --> 00:01:46.000 financial accounting but introduce financial 36 00:01:45.100 --> 00:01:49.000 analysis. It's absolutely phenomenable 37 00:01:48.300 --> 00:01:52.200 for a manager in business operations. Now, 38 00:01:51.200 --> 00:01:54.300 what about the concept? Obviously, the first 39 00:01:54.300 --> 00:01:57.200 one is going to be about profit but there are 40 00:01:57.200 --> 00:02:00.700 different kinds of profit. You have the gross margin out 41 00:02:00.700 --> 00:02:03.400 of the factory the operating profit the 42 00:02:03.400 --> 00:02:07.100 operating income and the so-called bottom line net earnings. 43 00:02:07.900 --> 00:02:10.200 As it's about transforming profit Into 44 00:02:10.200 --> 00:02:13.400 Cash. I will tell you about cash in a static 45 00:02:13.400 --> 00:02:16.300 perspective. How much do I have in my bank account 46 00:02:16.300 --> 00:02:19.400 and cash flows and funds flows, 47 00:02:19.400 --> 00:02:21.800 which is about the dynamic perspective of cash. 48 00:02:22.800 --> 00:02:25.600 A very important concept is investment made 49 00:02:25.600 --> 00:02:28.700 by shareholders throughout the life of the companies named shareholders 50 00:02:28.700 --> 00:02:31.100 equity and you will see that it's made 51 00:02:31.100 --> 00:02:34.900 of capital and accumulated retained 52 00:02:34.900 --> 00:02:35.300 earnings. 53 00:02:36.500 --> 00:02:40.100 Of course, you will need to know about taxes and dividends 54 00:02:39.100 --> 00:02:42.800 which is a cash return to the shareholders 55 00:02:42.800 --> 00:02:45.600 and two very important Concepts to 56 00:02:45.600 --> 00:02:49.000 end the module the working capital requirement. 57 00:02:48.700 --> 00:02:51.100 You all heard of which is 58 00:02:51.100 --> 00:02:54.700 about inventories and accounts receivable net of 59 00:02:54.700 --> 00:02:55.300 accounts payable. 60 00:02:55.900 --> 00:02:58.500 But transforming profit Into Cash 61 00:02:58.500 --> 00:03:01.400 is very well explained in the funds from 62 00:03:01.400 --> 00:03:04.400 operations the quality of execution how you 63 00:03:04.400 --> 00:03:07.100 progressively generate a profit which you can 64 00:03:07.100 --> 00:03:10.400 transform into cash flows and cash in 65 00:03:10.400 --> 00:03:10.800 the bank account. 66 00:03:11.600 --> 00:03:14.400 Now what about the business context? I will 67 00:03:14.400 --> 00:03:17.200 create a business in this first module. I 68 00:03:17.200 --> 00:03:20.400 don't manufacturer. I just purchase and I sell 69 00:03:20.400 --> 00:03:24.000 through two distribution channels business 70 00:03:23.300 --> 00:03:27.100 to customers direct to customer first, 71 00:03:26.100 --> 00:03:29.800 and then there will be a B2B distribution 72 00:03:29.800 --> 00:03:31.900 channel was different characteristics. 73 00:03:32.900 --> 00:03:35.300 As there is some complexity in accounting. 74 00:03:35.300 --> 00:03:39.700 I will progressively introduce complexity step 75 00:03:38.700 --> 00:03:41.300 by step so that 76 00:03:41.300 --> 00:03:43.600 you are not lost in this complexity. 77 00:03:44.300 --> 00:03:47.700 There will be five sessions. Why because 78 00:03:47.700 --> 00:03:50.600 we are going to build the three statements during 79 00:03:50.600 --> 00:03:53.700 five months August to December. 80 00:03:53.700 --> 00:03:56.300 And in December. We are going to make the 81 00:03:56.300 --> 00:03:59.600 first accounting closing of the 82 00:03:59.600 --> 00:04:01.000 company, which we create. 83 00:04:01.900 --> 00:04:04.300 At the end of each month, I will go back 84 00:04:04.300 --> 00:04:07.800 to the concept in a knowledge session 85 00:04:07.800 --> 00:04:10.800 and it will be a total complete wrap-up 86 00:04:10.800 --> 00:04:13.300 session at the end of the module to catch 87 00:04:13.300 --> 00:04:16.000 up all the concepts and tools. 88 00:04:16.900 --> 00:04:19.600 A few words about the very simplified 89 00:04:19.600 --> 00:04:22.600 business model. I observe my young 90 00:04:22.600 --> 00:04:25.900 child who enjoys playing with wooden 91 00:04:25.900 --> 00:04:28.300 puzzles. That's great for is 92 00:04:28.300 --> 00:04:31.700 education. And that's nice as a family activity. Now, 93 00:04:31.700 --> 00:04:34.600 I observe that the public selling price 94 00:04:34.600 --> 00:04:37.300 of these puzzles is about 30 dollars. 95 00:04:38.300 --> 00:04:41.400 I can I identify a supplier who is ready 96 00:04:41.400 --> 00:04:44.700 to surprise these same wooden puzzles 97 00:04:44.700 --> 00:04:47.200 at a price which is only $20 98 00:04:47.200 --> 00:04:51.000 including delivery to the customer. Then 99 00:04:50.400 --> 00:04:53.700 I can start a b2c activity 100 00:04:53.700 --> 00:04:56.400 and in my living room. I work hard to design 101 00:04:56.400 --> 00:04:59.400 an e-commerce site. I can 102 00:04:59.400 --> 00:05:02.600 start running the business. But before that I have 103 00:05:02.600 --> 00:05:06.000 to put the business in legal entity as 104 00:05:05.300 --> 00:05:08.500 I have some ambition forces business. I 105 00:05:08.500 --> 00:05:12.200 create a joint stock company. The capital initially 106 00:05:11.200 --> 00:05:14.800 will be 10,000. I will 107 00:05:14.800 --> 00:05:17.400 go back to this figure a little bit later, but I have 108 00:05:17.400 --> 00:05:20.400 to create stocks shares for example, 109 00:05:20.400 --> 00:05:23.100 1,000 shares and if I have 110 00:05:23.100 --> 00:05:26.500 a capital which is 10,000 shares the power value 111 00:05:26.500 --> 00:05:29.900 per share is going to be ten dollars. I 112 00:05:29.900 --> 00:05:32.600 could have created 100 shares who's 113 00:05:32.600 --> 00:05:35.500 a Paul value of $100 and raise the 114 00:05:35.500 --> 00:05:37.200 same capital I prefer. 115 00:05:37.900 --> 00:05:40.700 For liquidity reasons, which I will tell 116 00:05:40.700 --> 00:05:41.900 you a little bit later. 117 00:05:43.200 --> 00:05:46.900 Now what about the structure of this module each and 118 00:05:46.900 --> 00:05:49.600 every month? I will describe the business activity 119 00:05:49.600 --> 00:05:52.800 the decisions which I have to take and the 120 00:05:52.800 --> 00:05:56.200 New Concept which are going to appear one 121 00:05:55.200 --> 00:05:56.800 after the other. 122 00:05:57.600 --> 00:06:00.900 August is quite simple because I am going to create the 123 00:06:00.900 --> 00:06:03.800 cooperation. The concept would be about capital. 124 00:06:04.800 --> 00:06:07.500 As I start my activity in September, 125 00:06:07.500 --> 00:06:10.800 I will show you how profits come from 126 00:06:10.800 --> 00:06:12.900 transactions sales. 127 00:06:13.800 --> 00:06:17.600 October will be a very important months in 128 00:06:17.600 --> 00:06:20.900 terms of pedagogy because the commercial development 129 00:06:20.900 --> 00:06:23.400 will introduce accounts receivable 130 00:06:23.400 --> 00:06:26.300 accounts payable the very first reasons why 131 00:06:26.300 --> 00:06:29.700 profits and cash are absolutely different 132 00:06:29.700 --> 00:06:30.800 in the short run. 133 00:06:31.800 --> 00:06:34.400 I will prepare the firm for growth in 134 00:06:34.400 --> 00:06:38.200 November and then I will have to buy more than 135 00:06:37.200 --> 00:06:41.000 what I sell creating inventories. 136 00:06:41.700 --> 00:06:44.700 In December taxes and dividends are 137 00:06:44.700 --> 00:06:47.400 going to be the consequence of closing the 138 00:06:47.400 --> 00:06:47.800 accounts. 139 00:06:48.800 --> 00:06:51.700 The last session will be as I told you a 140 00:06:51.700 --> 00:06:55.000 wrap up which formula the working capital requirement 141 00:06:54.500 --> 00:06:58.700 and is so important indicator funds 142 00:06:57.700 --> 00:06:59.300 from operations. 143 00:07:00.400 --> 00:07:03.400 Now there are a few tools at your disposal first 144 00:07:03.400 --> 00:07:06.900 a presentation slides and audio exactly 145 00:07:06.900 --> 00:07:08.700 the same as this introduction. 146 00:07:09.700 --> 00:07:12.200 But as a very useful complement, which you 147 00:07:12.200 --> 00:07:15.700 have to use in parallel of these presentations, there is 148 00:07:15.700 --> 00:07:18.800 a spreadsheet with all the calculations and 149 00:07:18.800 --> 00:07:19.700 formulas. 150 00:07:20.400 --> 00:07:23.100 A test of the end of the module will give 151 00:07:23.100 --> 00:07:26.600 you the opportunity to understand if you really master all 152 00:07:26.600 --> 00:07:29.600 these Concepts which I am going to introduce in 153 00:07:29.600 --> 00:07:31.000 these five months. 154 00:07:31.700 --> 00:07:34.200 Now this is the end of the introduction we can 155 00:07:34.200 --> 00:07:37.200 immediately start in August. We create the 156 00:07:37.200 --> 00:07:38.800 company with capital.