Basic Accounting For Aspiring Startup Founders— Startup Analytics

  • In brief terms, the goal here is to capture, the incremental performance of the business. Think of this as the change in the state of affairs.
  • One analogy with personal financials could be the combination of your salary and credit card statements.
  • Balance Sheet: Basically reflects the current state of affairs for the company, it’s basically the assets and the liabilities of a company.
  • The analogy of personal finance would be wealth. This is basically a reflection of all assets you own and any debts you owe.
  • Your equity is basically the difference between Assets and Debts (Liabilities). A balance sheet tries to balance the equation Assets = Liabilities + Shareholder’s Equity
  • Cashflow Statement: This is further divided into operating, financial and investing parts.
  • Operational reflects cash generated by the business, financial reflects cash from shares issuance or raising of debt.
  • Investing in cash generated from any investment activities, think interest or bond payments etc.
  • Depreciation: All tangible assets owned by a company, in our context office furniture, laptops, devices and office buildings if owned by the firm etc can be depreciated over a period of time.
  • Unlike individuals, assets are used by companies over a period of time.
  • If my office furniture is worth 1000$ and I plan to use it for 5 years. I can depreciate the assets over 5 years period as 200$ expense every year. This allows me to lower my net income and taxes but then I need to reduce my asset value by a similar amount every year as well.
  • Amortisation: Very similar to depreciation but for intangible assets. Let’s say, a company has a certain license/patent and a company has attributed certain goodwill to the same.
  • The company would like to amortise the value of the patent over its entire period until expiry. e.g. A pharmaceutical company amortising its patent value over the remaining patent time.
  • This can also include any kind of debt payments, instead of expensing entire interest payments in chunks, the company will spread the amount similar to an EMI over the repayment period.

Conclusion

Besides the above, as the business scales and especially for firms with operational aspects like Amazon, Flipkart etc. The accounting gets more complicated and aspects like operational expenses vs capital expenditure have an impact on how these numbers treat the EBITDA calculation. Operational expenses are one time and CAPEX is spread across a period. This might help understand Flipkart/Amazon vs Income Tax Department. Hope you were able to gain some information on how to go understand accounting for startups.

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