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