Keeping Financial Records In Business

Business Skills Workshop

June 2016

Facilitators: Mofe Binitie & Oluwatomisin Amu

Welcome

Facilitators

Mofe Binitie Oluwatomisin Amu

WEF Global shaper and Transactions Advisory

Consultant with EY Nigeria

Consultant with EY Nigeria and Chartered Accountant

Accounting packages4

Introduction1

Accounting basics2

Practical examples3

04

09

16

24

CONTENTS?

Questions5 27

Introduction01

Objectives of this WorkshopAn understanding of the importance of financial records

An understanding of basic accounting principles

An understanding of how to record basic transactions

An introduction to accounting software packages

What are financial records?Financial records are historical accounts of financial transactions. Accounting is the recording of financial transactions - storing, sorting, retrieving, summarizing, and presenting the information in various reports and analyses

Introduction

Accounting is defined as: "The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.” - The American Accounting Association. -

Why do we need Financial records?1. Financial health.2. Financial planning.3. Budgeting.4. Calculating tax liability.5. Financial reporting.6. Need for financing.

Accounting basics02

The Elements of accounting

Assets: (Generator, Building, Cash, Patents, Licenses, Receivables)

Liabilities: (Bank loans and overdrafts, payables) Owners equity: Residual of 1 and 2 above) These elements lead to sub elements:– Income – Expenses

The golden equation

ASSETS LIABILITIES OWNER’S EQUITY- ⁼

ALWAYS!!!!!!!!

The Accounting Definitions

Transaction: A transaction is any activity that changes the value of a firm’s assets, liabilities, or owner’s equity

Account: summary record of an entity’s asset, liability, and owner’s equity transaction over defined period; annually, quarterly etc.

Double-entry accounting: means that there will be at least two (2) accounts affected by each transaction.

The Accounting Definitions Journal: diary of information of day-to-day transactions.

Ledger: individual accounts that help summarize activity and obtain balances of accounts.

Trial Balance: a statement listing on a certain date that shows all accounts and their balances.

Accrual concept: Recognise income when they are earned and recognize expenses when they are incurred regardless of whether cash has come in or gone out.

The Accounting Cycle1. Analyze transactions. (What do I debit, what do I credit!)

2. Record in a journal.(Record)

3. Post from the journal to the ledger.(Summarize)

4. Prepare a trial balance.

5. Prepare Financial Statements.

Analyzing Transactions Assets and Expenses: An increase is recorded as debit (left side)

while a decrease is recorded as credit (right side)

Liabilities, Equities and Revenues: An increase is recorded as

credit (right side) while a decrease is recorded as debit (left side)

Practical examples03

Practical Examples You put money from your personal savings into the business

Dr:Cr:

Dual Printer and scanning machine is purchased on creditDr:Cr:

Stationeries and printing ink is purchased outright(not credit)Dr:Cr:

Practical Examples Payment of staff salaries

Dr: Cr:

Sold goods to customer who promised to pay next month

Dr: Cr:

Practical ExamplesSambo Makeup studios was incorporated on the 1st of April 2016 with an initial capital of 400,000 which was a start up grant received from Lagos Global shapers. During its first month in operation, the company engaged in the following transactions:

S/N Transaction Date1 received 400,000 startup grant from Lagos Global shapers 2nd April2 paid 100,000 as Rent for business space 3rd April 3 Paid 75,000 for furniture and décor 6th April4 Bought a small generator to power the studio costing 20,000 on credit 9th April5 Bought new set of Makeup materials (brushes, concealer, foundation, lipsticks)for 20,00010th April6 paid 6,500 as utilities for the first the first month 13th April 7 paid 5,000 as fuel for generator 15th April 8 Did first makeup job for Titi Ojo's red carpet event for 20,000 but she promised to pay in the next month 16th April 9 paid 25,000 for website and hosting 19th April

10 Did makeup for a bridal train of 8 ladies and was paid 100,000 23rd April11 paid 60,000 as fees for two staff 29th April

Recording in Journal DR CR

Transactions N NReceived 400,000 startup grant from Lagos Global shapersCash 400,000 Capital 400,000 Paid 125,000 as Rent for business spaceRent 100,000 Cash 100,000 Paid 75,000 for furniture and décorFurniture and fittings 75,000 Cash 75,000 Bought a small generator to power the studio costing 20,000 on credit Generator set 20,000 Cash 20,000 Bought new set of Makeup materials (brushes, concealer, foundation, lipsticks)for 50,000Makeup expenses 20,000 Cash 20,000 Paid 12,000 as utilities for the first the first month Utilities 6,500 Cash 6,500 Paid 5,000 as fuel for generatorFuel 5,000 Cash 5,000 Did first makeup job for Titi Ojo's red carpet event for 20,000 but she promised to pay in the next month Receivables: Titi Ojo 20,000 Sales: Titi Ojo 20,000 Paid 25,000 for website and hostingWebsite cost 25,000 Cash 25,000 Did makeup for a bridal train of 8 ladies and was paid 100,000Cash 100,000 Sales: Funmi Oreola 100,000 Paid 60,000 as fees for two staff 60,000 Salaries and wages 60,000 Cash

Post from the journal to the ledger(Summarize)

CASH LEDGERDR CRGrant from Lagos global shapers 400,000 Rent 100,000 Funmi Oreola 100,000 Furniture and fittings 75,000

Makeup materials 20,000 Utilities 6,500 Fuel costs 5,000 Website costs 25,000 Salaries and wages 60,000

Balance c/d500,000 291,500

Balance b/d 208,500

SALES LEDGERDR CR

Titi Ojo 20,000 Funmi Oreola 100,000

- 120,000

EXPENSES LEDGERDR CRMakeup materials 20,000 Utilities 6,500 Fuel costs 5,000 Rent costs 100,000 Website costs 25,000 Salaries and wages 60,000

216,500

RECEIVABLES LEDGERDR CRTiti Ojo 20,000

20,000 -

PAYABLES LEDGERDR CR

Generator set 20,000

FIXED ASSETS LEDGERDR CRFurniture and fittings 75,000 Generator set 20,000

95,000

CAPITAL LEDGERDR CR

Grant from Lagos global shapers 400,000

Prepare a trial balanceDR CR

Decription N NCash 208,500 Sales 120,000 Expenses 216,500 Capital 400,000 Fixed assets 95,000 Receivables 20,000 Payables 20,000 Total 540,000 540,000

Prepare Financial Statements.

BALANCE SHEET

Furniture and fittings 75000 Payables (gen set) 20,000 Generator set 20000 Capital 400,000 Receivables (Funmi) 20,000 Net loss (96,500) Cash 208,500

Total 323500 Total 323500

ASSETS LIABILITIES AND EQUITY

PROFIT OR LOSS STATEMENT DR CRSales 120,000 Less Expenses:Makeup materials 20,000 Utilities 6,500 Fuel costs 5,000 Rent costs 100,000 Website costs 25,000 Salaries and wages 60,000

216,500 Net loss (96,500)

Accounting software04

Accounting softwareAccounting softwares are applications that function as accounting information systems that record and process accounting transactions within functional modules such as accounts payable, accounts receivable, payroll, and trial balance. They allow detailed tracking of financial transactions and near instantaneous reporting and analysis. Accounting software allows for the automation of the financial reporting process.They may be: Personal finance accounting software Small business accounting software Mid market accounting software Large scale enterprise resource planning softwareMajor vendors include: Intuit Sage SAP Oracle Microsoft

Free accounting software packages TAS software by SAGE GNU cash NCH Express invoice Xtuple postbooks VT Cash book Freshbooks Zoho invoice Billing boss Intuit billing manager Outright Wave accounting

Questions?

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