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