accounting for small business finance

8/8/2019 Accounting for Small Business Finance

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Why ACCOUNTING?

yFor individuals

y

For the FamilyyFor Business Owners

yFor Partners in a Business

yFor Shareholders

yFor Governments and its Agencies

y

For Not for Profit Organizations


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Accounting is for ALL persons

and organizations who need to

understand financial records forbetter and improved

financial/economic decisions.

In summary


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Managing without Measurement

There is no management without measurement

Order and Success are synonymous

Measurement is the basis of Management

A lack of attention to records (paperwork) is a

condition for mismanagement

There has never been a successful venture

without planning

And planning your finances is dependent on

measurement


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Recall our FIVE FINGER quest

Can any of them be

achieved withoutMEASUREMENT?


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Clearly the AccountingRecords

are theoil wells that provides

the barrels of informationthat gives us the worth of

the company


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Setting up an AccountingSystem

The Fundamentals

yAssess your needs

yWhat services do you really want

yDo you have the proper

equipment to handle the job?

yWhat is the impact on your

budget?


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AccountingServices Payroll , including PAYE tax filing

Accounts payable and vendor files

Accounts receivable and billing services General Ledger and financial

statements

Cash flow management

Tax preparation


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BookkeepingServices

yGeneral Ledger services

y

Accounts receivable servicesyBank reconciliation services

y

Inventory (stock) services


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A bookkeeper records business transactions;

While an accountant analyzes and interprets

the transactions for planning, control,

decision making , forecastingetc


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Financial StatementsyFinancial Statements are the essential

documents of a business

y

For small companies, the following F.S. areindispensable

A. BALANCE SHEET

B. INCOME STATEMENT-PROFITANDLOSS

C. CASH FLOW STATEMENT

D. SALES STATEMENT


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BalanceSheety A Balance Sheet takes a snapshot of your small business

and gives an estimate of its worth (in monetary terms)

on a particular day.

yBalance Sheets are usually prepared on the last day of themonth/year

y The Balance Sheet is prepared on the simple arithmetic;

ASSETS (your companys resources)=LIABILITIES (what

your company owes others)+OWNERS EQUITY(thecapital brought by the owner(s));

ASSETS=LIABILITIES+C

APITAL


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Profit and Loss AccountyAlso Known as INCOME STATEMENT

yCompares your business expenses

against revenue over a certain periodof time (usually monthly/yearly)

yThe resulting difference is the

companys profit or lossyGives your BOTTOM LINE


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TheProfit and Loss Account

for the period ending 31/12/2009Sales xxx

Cost ofSales (xx)

Gross Profit xxxOperating expenses (xx)

NETPROFIT XXX

*Sales is the same thing asTOPLINE

*Net profit is the same thing as BOTTOM LINE


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Cash Flow Statementy

Shows how the amount ofcash and cash equivalentchanged during an accounting period

y Reflects all changes in cash as affected by OPERATING,

INVESTMENT and FINANCING activities

y Is like a BANK STATEMENT, but it tells you further,how

y Much cash was on hand at the BEGINNING of the

period, and how

y Much was on hand at the END

y Describes how your company acquired cash and spent

cash in a particular period

y It is a measure of your companys liquidity/solvency


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Cash Flow Arithmetic

Cash flow from profit

+ Other sources ofcash Uses of

cash=Change in Cash


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Cash Flow: some basic rules

yMake sure you have enough cash on hand at

all times

y

Make sure you know where your cash isgoing

yHold on to your cash for as long as possible

yCollect all of the cash that is due to you

y Spread your cash around your business as it

is needed

yOnly pay your debts when they are due!


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Sales Statement

yThis F.S. shows you at a

glance where your company

stands with regards to

SalesSales projections


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Working Capitaly Is the difference between current assets and

current liabilities

y

It naturally expands and contracts with salesactivities

yToo little working capital is dangerous

yExcess working capital reduces profitability


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Leveraging

Is achange

in profitsdue to a

changein sales


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Dimensions of Leverage

Financial Leverage

Occurs when a company borrows funds.

Operating Leverage

Is the use of fixed costs in a companysoperations.


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Financial Leverage

Excess debts in thecompanys B.S. whencompared with Owners

funds

High

Gearing

Not much borrowing by a

company

Low

Gearing


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And hoping you now have a

better understanding of the

need for Accounting and

Financial record keeping!

THANK YOU FOR LISTENINING

accounting for small business finance

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