Accounting for Non Accountants

ACCOUNTING FOR NON-ACCOUNTANTS

FGBMFI Business Meeting

The Bible and Accounting Importance of Good Records Budgeting Basic Accounting Concepts Who can help

ROAD MAP

Too busy to keep up with your bookkeeping?

Do you continually analyze the success, failure, and progress of your business?

How liquid is your business? Does it have enough current assets to meet current debts? What is your turnover for inventory? receivables?

QUICK QUESTIONS

THE BIBLE AND ACCOUNTING

The Bible contains several references, both direct and indirect, onaccounting and basic accounting concepts………………

Genesis 2:19 “…..The Lord God formed every beast of the field, and every fowl of the air; and brought them unto

Adam to see what he would call them……..”

2 Kings 12:15 / 2Kings 22:7 “No accounts were kept with the men to whom the money was paid over to be spent on

workmen since they were honest in their dealings”

Luke 16:2 “What is this I heard about you? Draw me up an account of your stewardship.’’

Luke 14:28 “For which of you, intending to build a tower, sitteth not down first, and counteth the

cost, whether he have sufficient?”

THE BIBLE AND ACCOUNTING

The Bible does not provide much informationregarding how financial reports should be preparedor how the accounting system should be set up, butit provides a motivation for accurate financialreporting.

In particular, the Bible points out that financialaccounting is necessary to avoid fraud, to monitoragents, and to reduce misappropriation of businessresources.

THE IMPORTANCE OF GOOD RECORDS

1. Monitoring the success or failure of your business

It's hard to know how your business is doing without a clearfinancial picture.

Am I making money? Are sales increasing? Are expensesincreasing faster than sales? Which expenses are too highbased on my level of sales? Do some appear to be "out ofcontrol?"


2. Providing information needed to make decisions

Evaluating the financial consequences should be a part ofevery business decision you make.

Without accurate records and financial information, it may behard for you to know the financial impact of a given course ofaction. Will it pay to hire another person? How much willanother employee cost? Is this particular product profitable?


3. Obtaining bank financing

A banker will usually want to see financial statements: abalance sheet, income statement, and cash flow budget forthe most current and prior years, as well as your projectedstatements showing the impact of the requested loan.

A banker may even want to see some of your bookkeepingprocedures and documents to verify whether you run yourbusiness in a sound, professional manner.


4. Obtaining other sources of capital

If your business has reached the point where you need to takein a partner, any prospective partner will want to becomeintimately familiar with your financial picture.

If you need capital and are thinking of taking in an outsideinvestor, you will need to produce a lot of financialinformation. Even your suppliers and other creditors may askto see certain financial records.

Such information is based on your day-to-day recordkeeping.


5. Preparing income tax returns

Whether your business is a sole proprietorship, partnership,or corporation, you must file an income tax return and payincome taxes.

With good records, preparing an accurate tax return will beeasier and you're more likely to be able to do it on time.

Poor records may result in your underpaying or overpayingyour taxes and/or filing late (and paying penalties).


6. Submitting sales returns

If you collect sales tax from your customers, good records will make it easy for you to compute the tax due and prepare the required reports.


7. Distributing profit

If your business is a sole proprietorship business, you will needgood records to determine how much you should draw from thebusiness as dividend.

If your business is a partnership, you will need good records todetermine the correct amount of profits to distribute to eachpartner.

If you are operating as a corporation, you must determine thecompany profits that you will be paying out as dividends to theshareholders.

BUDGETING

A budget is a plan for revenues, expenses, and profit over acertain period of time.

Typically an annual budget is developed and broken downby quarters, months, or weeks.

A budget is your financial projection of your business(based on current assumptions) taken as a snapshot at apoint in time.

Research has shown that having a budget: Allows you to see if you have problems on the horizon. Gives you a greater sense of control because you can

better deal with financial issues as they arise.

WHY BUDGET IS CRITICAL TO SUCCESS

A budget is critical for five primary reasons: 1. A budget helps you predict cash flows and avoid

surprises.2. A budget shows your banker/investors how you plan

to pay back a future loan.3. A budget quickly highlights areas that need

improvement.4. A budget helps you keep your operations running

smoothly.5. A budget helps you project the future and take

actionable steps.

THINGS TO KEEP IN MIND

Create manageable and meaningful categories ofrevenues and expenses; they should mirror how youcurrently track income and expense.

Use the category size (% of the total) to decide if youshould break the category down further.– Categories that are more than 50% of the total should be

broken down.– Categories that are less than 2% of the total should be

combined with similar revenues or expenses. Check your budget against your industry’s

financial information to see if your business is inline with industry averages; if not, find out why ormake necessary adjustments.

BASIC ACCOUNTING CONCEPTS

Accounting involves keeping record of increases anddecreases in a business assets, liabilities, equity,revenue, or expense items.

And then Summarizing these records into:Balance Sheet Income StatementCash Flow StatementStatement of Owners’ Equity


Assets Valuable resources that are owned by a business. They represent probable future economic benefits and arise as

a result of past transactions or events.May be………….

Fixed Assets:Land and Buildings, Premises, Furniture & Fittings, OfficeEquipment, Machinery, Motor Vehicles, Long-term Investments

Current Assets:Stock, Debtors, Current Investments, Prepaid Expenses, BillsReceivable, Accrued Income, Bank Balance/Cash


Liabilities Present obligations of the business to third parties. They are probable future sacrifices of economic benefits which

arise as a result of past transactions or events.

May be………….

Long term liabilities:Debentures, Bank Loans, Loans from Others

Current Liabilities:Creditors, Accrued Expenses, Prepaid Income, Bank Overdrafts


Equity Represents the owners' residual interest in the assets of

the business.

Revenue Revenues are inflows of assets (or reductions in

liabilities) in exchange for providing goods and servicesto customers.

Expenses Expenses occur when resources are consumed in order to

generate revenue. They are the cost of doing business.Examples include rent, salaries and wages, insurance, electricity, utilities, and the likes.


The records are maintained in:Journals Cash Book Sales Journal Purchases Journal General Journal

Ledgers Sales Ledger Purchases Ledger General Ledger – Assets, Liabilities, Income , Expenses,

Equity



What I need……………………Note books, Note pads, etc.Pen, PencilRuler

A typical Journal

Date Invoice Details Reference Amount

Journal Name


A typical Cash book

A typical General Journal

Date Details Ref Amount

Cash Book


General Journal

Date Details Ref Debit Credit

Debit Credit


Complete the journals for a period and then transferdata to the Ledgers using the Double Entry System

A typical Ledger


Ledger Name


Debit Credit


The Double Entry System

Assets Liabilities Equity Revenue Expenses= + + -

Debit for

increase

Credit for

decrease

Debit for

decrease

Credit for

increase

Debit for

decrease

Credit for

increase

Debit for

decrease

Credit for

increase

Debit for

Increase

Credit for

decrease


Complete the ledgers for a period and balance themoff:


Transfer closing balance to the Trial Balance…...


Prepare the Balance Sheet


Prepare the Income Statement


Hence, the Accounting Cycle……….


The Entity Assumption

The entity assumption dictates that business records must be kept separate and distinct from the personal records of the owners. If a person owns more than one business, then each business

must have its own set of records.

WHO CAN HELP

Business record keeping and Accounting can be very technical and tedious.o You may invest in an Accounting Software to simplify the

bookkeeping and accounting for you but you must understandAccounting Principles in order to appreciate the use of the Software

You would rather spend your time selling your product or service.

WHO CAN HELP

To eliminate the stress, mishaps, and potentialerrors in your financial records, you may hire aBookkeeper / Accountant to keep your books

You may also use the services of a ProfessionalAccounting Firm to meet your businessaccounting needs.

THANK YOU

Documents

Accounting for Non Accountants