FGBMFI Business Meeting

ACCOUNTING FOR NON-ACCOUNTANTS

ROAD MAP

The Bible and Accounting

Importance of Good Records
Budgeting
Basic Accounting Concepts
Who can help

QUICK QUESTIONS

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?

THE BIBLE AND ACCOUNTING

The Bible contains several references, both direct and indirect, on

accounting 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 information

regarding how financial reports should be prepared

or how the accounting system should be set up, but
it provides a motivation for accurate financial
reporting.
In particular, the Bible points out that financial

accounting is necessary to avoid fraud, to monitor

agents, and to reduce misappropriation of business
resources.

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 clear

financial picture.
Am I making money? Are sales increasing? Are expenses
increasing faster than sales? Which expenses are too high
based on my level of sales? Do some appear to be "out of
control?"

THE IMPORTANCE OF GOOD RECORDS

2. Providing information needed to make decisions

Evaluating the financial consequences should be a part of

every business decision you make.
Without accurate records and financial information, it may be
hard for you to know the financial impact of a given course of
action. Will it pay to hire another person? How much will
another employee cost? Is this particular product profitable?

THE IMPORTANCE OF GOOD RECORDS

3. Obtaining bank financing

A banker will usually want to see financial statements: a

balance sheet, income statement, and cash flow budget for
the most current and prior years, as well as your projected
statements showing the impact of the requested loan.
A banker may even want to see some of your bookkeeping
procedures and documents to verify whether you run your
business in a sound, professional manner.

THE IMPORTANCE OF GOOD RECORDS

4. Obtaining other sources of capital

If your business has reached the point where you need to take
in a partner, any prospective partner will want to become
intimately familiar with your financial picture.
If you need capital and are thinking of taking in an outside
investor, you will need to produce a lot of financial
information. Even your suppliers and other creditors may ask
to see certain financial records.
Such information is based on your day-to-day recordkeeping.

THE IMPORTANCE OF GOOD RECORDS

5. Preparing income tax returns

Whether your business is a sole proprietorship, partnership,

or corporation, you must file an income tax return and pay
income taxes.
With good records, preparing an accurate tax return will be
easier and you're more likely to be able to do it on time.
Poor records may result in your underpaying or overpaying
your taxes and/or filing late (and paying penalties).

THE IMPORTANCE OF GOOD RECORDS

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.

THE IMPORTANCE OF GOOD RECORDS

7.

Distributing profit

If your business is a sole proprietorship business, you will need

good records to determine how much you should draw from the
business as dividend.
If your business is a partnership, you will need good records to
determine the correct amount of profits to distribute to each
partner.
If you are operating as a corporation, you must determine the
company profits that you will be paying out as dividends to the
shareholders.

BUDGETING
A budget is a plan for revenues, expenses, and profit over a

certain period of time.

Typically an annual budget is developed and broken down
by quarters, months, or weeks.
A budget is your financial projection of your business
(based on current assumptions) taken as a snapshot at a
point 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.
2.
3.
4.
5.

A budget helps you predict cash flows and avoid

surprises.
A budget shows your banker/investors how you plan
to pay back a future loan.
A budget quickly highlights areas that need
improvement.
A budget helps you keep your operations running
smoothly.
A budget helps you project the future and take
actionable steps.

THINGS TO KEEP IN MIND

Create manageable and meaningful categories of

revenues and expenses; they should mirror how you
currently track income and expense.
Use the category size (% of the total) to decide if you
should 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 industrys

financial information to see if your business is in
line with industry averages; if not, find out why or
make necessary adjustments.

BASIC ACCOUNTING CONCEPTS

Accounting involves keeping record of increases and

decreases in a business assets, liabilities, equity,
revenue, or expense items.

And then
Summarizing these records into:
Balance Sheet
Income Statement
Cash Flow Statement
Statement of Owners Equity

BASIC ACCOUNTING CONCEPTS

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, Office
Equipment, Machinery, Motor Vehicles, Long-term Investments

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

BASIC ACCOUNTING CONCEPTS

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

BASIC ACCOUNTING CONCEPTS

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 services
to 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.

BASIC ACCOUNTING CONCEPTS

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

BASIC ACCOUNTING CONCEPTS

BASIC ACCOUNTING CONCEPTS

What I need
Note books, Note pads, etc.
Pen, Pencil
Ruler

A typical Journal
Journal Name
Date

Invoice

Details

Reference

Amount

BASIC ACCOUNTING CONCEPTS

A typical Cash book
Cash Book

Debit

Date

Details

Ref

Amount

Credit

Date

Details

Ref

Amount

A typical General Journal

General Journal

Date

Details

Ref

Debit

Credit

BASIC ACCOUNTING CONCEPTS

Complete the journals for a period and then transfer

data to the Ledgers using the Double Entry System

A typical Ledger
Ledger Name

Debit

Date

Details

Ref

Amount

Date

Credit

Details

Ref

Amount

BASIC ACCOUNTING CONCEPTS

The Double Entry System
Assets

Liabilities

Equity

Revenue

Expenses

Debit
for
increase

Debit
for
decrease

Debit
for
decrease

Debit
for
decrease

Debit
for
Increase

Credit
for
decrease

Credit
for
increase

Credit
for
increase

Credit
for
increase

Credit
for
decrease

BASIC ACCOUNTING CONCEPTS

Complete the ledgers for a period and balance them

off:

BASIC ACCOUNTING CONCEPTS

Transfer closing balance to the Trial Balance...

BASIC ACCOUNTING CONCEPTS

Prepare the Balance Sheet

BASIC ACCOUNTING CONCEPTS

Prepare the Income Statement

BASIC ACCOUNTING CONCEPTS

Hence, the Accounting Cycle.

BASIC ACCOUNTING CONCEPTS

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 understand

Accounting 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 potential

errors in your financial records, you may hire a

Bookkeeper / Accountant to keep your books

You may also use the services of a Professional

Accounting Firm
accounting needs.

to

meet

your

business

THANK YOU