Accounting for In-House Counsel. May 10, Presented By: Roger J. Brothers Managing Partner of Buchman Provine Brothers Smith LLP

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2 Accounting for In-House Counsel May 10, 2016 Presented By: Roger J. Brothers Managing Partner of Buchman Provine Brothers Smith LLP

3 Today s Program is Sponsored by The International Society of Primerus Law Firms Primerus is an interna,onal society of the world s finest small to midsize law firms. Membership in Primerus is by invita,on only, and all Primerus law firms are pre- screened before accepted, and audited annually for their con,nued commitment to providing excellent work product and superior client service at reasonable rates. Currently, there are nearly 3,000 Primerus lawyers in over 180 Primerus firms located in 45+ countries. If you would like to learn more about Primerus, please visit the Primerus website at

4 What is the purpose of Financial Statements? Financial statements inform you as to the amount and source of a company s revenues, the nature and extent of its expenses and its current financial condi,on.

5 Overview Types of Financial Statements: 1. Balance Sheets; 2. Income Statements; 3. Cash Flow Statements; and 4. Statements of Shareholders Equity.

6 Balance Sheets Represents the financial condi,on of a company as of a given date (e.g., December 31, 2015). It is intended to provide a picture of what a company owns and what it owes as of that date.

7 Income Statements Shows how much money a company earned and spent over a specific period of,me (e.g., in a given month, fiscal quarter or year). It is intended to show whether and to what extent a company either made or lost money for that period.

8 Cash Flow Statement Iden,fies the changes in a company s cash resul,ng from business ac,vi,es over a specific period of,me.

9 Statement of Shareholders Equity Shows the changes over a specific period of,me in each shareholder s equity account, i.e., the value of each shareholder s stock holdings.

10 Up Close and Personal with Financial Statements Many companies consolidate the informa,on contained in the Cash Flow Statement and Statement of Shareholder s Equity into the Balance Sheet and Income Statement. Therefore, for the purposes of this presenta,on, we will focus primarily on those two statements.

11 Balance Sheet Provides detailed informa,on concerning a company s assets, liabili,es and shareholders equity.

12 Balance Sheet (con$nued) It is called a balance sheet because the value of the company s assets must equal (or balance ) the combined value of the company s liabili,es and shareholders equi,es. The balance sheet is divided into two sec,ons (either lez and right or top and bo[om). On the lez (or top) are listed the liabili,es and shareholders equity. On the right (or bo[om) are listed the liabili,es and shareholders equity.

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14 Balance Sheet (con$nued) Assets. Anything that provides value to the company, including: Fixed assets consis,ng of physical personal property (e.g., equipment, machinery vehicles, etc.); Real estate; Intangible property (e.g., patents, copyrights, trademarks, licenses, etc.); Inventory; Cash; Accounts receivables; and Investments.

15 Balance Sheet (con$nued) Liabili,es Money that the company owes to third par,es, including: Bank loans; Credit debt to vendors/suppliers; Rent (for real or personal property); Payroll; Taxes; Obliga,on to provide goods/services in the future; and Debts to shareholders.

16 Balance Sheet (con$nued) Shareholders Equity The excess of the value of the company s assets over its liabili,es, which value would belong to the company s shareholders.

17 Balance Sheet (con$nued) Typically, current assets which are assets that are expected to convert to cash within one year (e.g., inventory, accounts receivables, etc.) are listed first. Followed by noncurrent assets, which are assets that are not expected to convert to cash within one year or that would take longer than one year to sell (e.g., equipment, machinery, vehicles, real estate, etc.). Typically liabili,es are listed based on whether they are considered to be current (i.e., expected to be paid off within one year or long term (i.e., debts and obliga,ons that are due in excess of one year.

18 Income Statements

19 Income Statements (con$nued) Sets forth the amount of revenue generated (i.e., money earned) by a company over a specific month, quarter, year, etc. and the costs and expenses incurred by a company over that same period. The last line (or bo[om line ) of the income statement iden,fies the company s net profits or net losses over the specific period of,me reflected in the income statement.

20 Income Statements (con$nued) At the beginning of the income statement is the total amount of money received by the company from the sale of its products or services over the period in ques,on. This amount is ozen referred to as the gross revenue. Below the gross revenue number are listed the revenues that the company does not expect to collect (e.g., discounts, returns, bad debt., etc.) Subtrac,ng the returns and allowances from the gross revenues reveals the company s net revenues.

21 Income Statements (con$nued) Listed azer the revenues are the company s costs of sales or costs of goods sold (ozen abbreviated as COGS ), which represent the money spent by the company to produce the goods or services during the relevant period. The next line iden,fies the company s gross profit, which reflects the amount lez azer subtrac,ng the COGS from the net revenues.

22 Income Statements (con$nued) The next selec,on of the statement typically lists and iden,fies the company s opera,ng expenses over the,me period in ques,on (e.g. salaries, research and development costs, marke,ng and adver,sing expenses, rent, etc.). This category of expenses is listed separately from the COGS category because these expenses are not related directly to the produc,on of goods or provision of services.

23 Income Statements (con$nued) Also deducted from gross profit and reflected on the income statement is deprecia,on. Deprecia5on- represents the wear and tear on certain fixed assets, including machinery, equipment, furniture, etc. These costs are spread over the life of the assets in accordance with certain tax laws. For example, the most typical deprecia,on period is fizeen years, meaning that you deduct 1/15 th of the cost of the asset each year for fizeen years.

24 Income Statements (con$nued) AZer deduc,ng the opera,ng expenses and deprecia,on from the gross profit, you are lez with the opera,ng profit before interest and income tax expense (or income from opera,ons ). Next, the company must account for and iden,fy its interest income and interest expense. Interest income money that the company earns from bank accounts, money market funds, etc.

25 Income Statements (con$nued) Interest Expense money that a company pays in interest on money that it borrows. AZer adding the interest income and subtrac,ng the interest expense, the company can determine its opera,ng profit before income tax or pre- tax profit. Finally, the company s income tax expense is deducted from its pre- tax profit in order to determine the company s net profits or net losses, which determines whether the company made money or lost money during the relevant,me period.

26 Ques,ons?

27 To Contact the Speaker: Roger J. Brothers, Esq. Managing Partner Buchman Provine Brothers Smith LLP Walnut Creek, California