| Before we start on the specific elements of | | | | current - within 1 year - and those that are |
| general ledger software, and where all the | | | | not current - longer than a year - we are not |
| pieces fit, you need to understand the basics | | | | going into that depth - leave that to your |
| of financial statement and how you can read | | | | accountant and worry about it when you have |
| them.There are two main parts to your | | | | mastered everything else)( Note - the trade |
| business's financial statement -The | | | | debtors account is only money that is owed to |
| accounting software will produce a Profit and | | | | us as a result of selling goods on account to |
| Loss, which shows your day to day income | | | | customers of ours. Other monies owed to the |
| reflected against your expenses and therefore | | | | business such as staff loans etc would be |
| shows what your profit, or loss, is.The | | | | shown separately. The same with Trade |
| accounting software will also produce a | | | | Creditors. This is money that we owe to |
| Balance Sheet, which shows your business | | | | people that we purchase from on an ongoing |
| assets against liabilities and the | | | | basis for example - people that we buy goods |
| accumulated earnings of your business over | | | | for resale from, telephone account, petrol |
| the years.Lets first look at how these | | | | account and so on. People that we owe money |
| reports are arrived at -You must first | | | | to on a longer term basis i.e. a bank loan |
| understand, or accept the first main | | | | are shown separately)Regarding the bank |
| principle of double entry bookkeeping before | | | | account - assuming that your bank account |
| we start and that is -For every entry made | | | | mostly has money in it, and, therefore, it |
| there must be an equal and opposite entry | | | | falls under Assets (the money is an asset |
| made somewhere else and when you have | | | | belonging to your business). If the account |
| finished making your entries they must all | | | | is mostly in overdraft then typically it |
| add up to zero. Don't worry most accounting | | | | would fall under the Liabilities section (the |
| software packages will make most of these day | | | | money is a loan from the bank and a business |
| to day entries for you.Sounds weird - not | | | | liability).If it fluctuates between the two |
| really. The whole principal is logical and | | | | simply pick where it mostly is. It's not a |
| goes back to the days when all books where | | | | major issue. Let's say for example you put it |
| done manually, because accounting software | | | | under assets and then it went into overdraft |
| didn't exist, and by making all of the | | | | all that would happen is that it would be |
| entries add up to zero we knew we had | | | | shown with brackets around it.Things to |
| correctly entered our numbers. We may not | | | | regularly check -(like at least once a month |
| have entered them into the right slot but at | | | | - more when you are starting out and going |
| least we had created the basis of being on | | | | through the learning curve) -Your customer's |
| the right track. And even though your | | | | age trial balance (a list of how much your |
| accounting software will, in most cases, make | | | | customers owe you from the receivables |
| most of the entries for you, you must | | | | module) must always equal the Trade Debtors |
| understand the principle behind it.Even if | | | | account in the Ledger.Logical isn't it when |
| you enter something in the wrong 'slot' it is | | | | you think about it. The Receivables module is |
| nearly always a simple process to move it | | | | telling us that the customers owe x amount of |
| where it should be later on.A Profit and Loss | | | | money. This amount must be the same as the |
| report has five main elementsIncome | | | | Ledger is telling us that the customers |
| | | | owe.Your suppliers age trial balance (a list |
| Cost of Sales | | | | of how much you owe your suppliers from the |
| | | | Payables module) must always equal the Trade |
| Gross Profit | | | | Creditors account in the LedgerYour Stock |
| | | | Value report from the Products module should |
| Expenses | | | | always equal the Stock on Hand account in the |
| | | | LedgerYour bank statement should regularly be |
| Net Profit (or loss) - sometimes called the | | | | reconciled back to the balance that the Bank |
| Bottom LineThe Net Profit line is also known | | | | account shows in the ledger.Why should you |
| as The Bottom Line. You sometimes hear the | | | | check these balances regularly - because |
| expression that if we did this or that it | | | | things can go wrong and if you only pick it |
| would go straight to the bottom line. In | | | | up several months later you are only making |
| plain talk what this expression means is | | | | it harder for yourself to find out why they |
| that, say for example, we were able to do | | | | don't balance. At least if you do it often |
| away with motor expenses in the above Profit | | | | you may remember if something unusual |
| and Loss report and incurred no other | | | | happened.If you find something doesn't |
| alternative expense in its place then the | | | | balance - find out why as soon as possible |
| $3000.00 motor expenses would go straight to | | | | and fix it. If you need help get it - ask |
| the bottom line and increase our net profit | | | | your accountant, software trainer or some |
| by $3000.00A balance sheet, in very | | | | other knowledgeable personI have been |
| simplistic terms, has two main elements | | | | involved in all aspects of the accounting |
| -Assets | | | | software industry for over 20 years. I run |
| | | | several websites that specialize in various |
| Liabilities(please note that assets and | | | | subjects including that gives advice on all |
| liabilities are nearly always broken up into | | | | aspects of accounting software from choosing, |
| sub sections - typically those that are | | | | setting up and using it. |