s m a r t b r a i n

Computer Training

BcS Certificate Course

y r
(A division of YuRobe)

Basic Accounting for Business People

(using GnuCash)

1
Objective
The purpose of this course is to:
1. Establish in your mind the fundamental principles of accounting;
2. Get a grasp on the Balance Sheet & Income Statement;
3. Understand the process of accounting;
4. Implement the accounting process on a software package;
5. Obtain insight into financial statements;
6. Use the above to better mange your business
and to make sound tax and investment decisions.

Table of Contents
Objective..........................................................................................................................................2
1.) Definition of Accounting............................................................................................................3
2.) Accounts.....................................................................................................................................3
3.) Debit and Credit..........................................................................................................................3
4.) Flow of Money...........................................................................................................................4
5.) The 5 basic Categories................................................................................................................5
6.) Balance Sheet.............................................................................................................................6
7.) Income Statement ......................................................................................................................6
8.) Typical Layout of Financial Statements:....................................................................................7
Balance Sheet..............................................................................................................................7
Income Statement........................................................................................................................7
Cash Flow Statement...................................................................................................................7
9.) Generic Process:.........................................................................................................................8
10.) Application.............................................................................................................................10
Ratios.........................................................................................................................................10
Industry Benchmarks................................................................................................................10
Tax Planning.............................................................................................................................10

2
1.) Definition of Accounting

Accounting is to KEEP TRACK of the FLOW OF MONEY.

(Where did it come from & Where did it go to)

2.) Accounts
What is an Account ? ______________________________________________________

________________________________________________________________________

3.) Debit and Credit

Debit Credit
go to come from

We give ________________________________
where the money came from
and we
__________________________________
the account where the money went to.

3
4.) Flow of Money
Money flows from 3 categories into a business.

3ways --->>>> in
1)

2) Business

3)

Some of the inflows the business have to give back again. Which are these ?

__________________________________________________________

Some of the inflows the business don't have to give back - the business has earned it. Which are these ?

__________________________________________________________

Money flows in 3 categories out of a business.

3 ways --->>>> out
1)

Business 2)

3)

Some of the outflows the business can get back again. Which are these ?

__________________________________________________________

Some of the outflows are gone forever. Which are these ?

__________________________________________________________

4
5.) The 5 basic Categories

Equity

Balance Sheet
Liabilities

Assets

Income

Income Statement
Expense

3ways --->>>> in 3 ways --->>>> out

Owner's Deposit Equity Buy Stock & Equipment
(have to pay it back again) (can get the money back again)
Assets
Get Loans Liability Pay Back Loans & Equity
(have to pay it back again)

Earn Income Income Expense Expenses for generating income

(business has earned it) (can NOT get the money back again)

5
6.) Balance Sheet

(a snapshot of the balance of interest)

E
L
A

Equity + Liabilities = Assets

All the Assets was bought either with money we got from the Owners or with
borrowed money.

7.) Income Statement

(history of the success of trading)

Profit
Income

Income - Expenses = Profit

Expenses

6
8.) Typical Layout of Financial Statements:
Balance Sheet
Capital Employed 100
Owners 60
Loans 40

Employment of Capital 100

Fixed Assets 55
Equipment 25
Buildings 30

Net Current Assets 45

Current Assets 60
Stock 30
Bank 10
Debtors 20

Current Liabilities 15
Creditors 15

Income Statement
Sales 10
minus Cost Of Sales 6
equal to Gross Profit 4

minus Expenses 3
Rent 1
Salaries 1
Other 1
equal to Net Profit 1

Cash Flow Statement

Total Cash In XXXXXXX
######
######
Total Cash Out XXXXXXX
######
######
Balance XXXXXXXX
(Draw the balance sheet scale and the income statement bars on the left of the statements.)

7
9.) Generic Process:
1. Where did the money come from ?
2. Which category is applicable ? (equity, liability, asset, income, expense)
3. Is there an account for this ?

4. Where did the money go to ?

5. Which category is applicable ? (equity, liability, asset, income, expense)
6. Is there an account for this ?

Start GnuCash and Create the 5 basic top level accounts:

equity, liability, asset, income, expense

Record the following transactions:

Taxi Business:
1. You the owner, are beginning with a Taxi service. You take R 30 000 of your savings and
open up a banking account for the business.
2. You borrow another R 40 000 from Motorfin
3. You buy a second hand taxi for R 60 000.
4. You put in R 200 worth of fuel.
5. You take 10 people to Sun City (they pay you R 120 each).
6. You pay the first payment of R 900 on the taxi (R 600 on interest and R 300 on loan capital).

Retail Business (Cafe)

1. You the owner, are beginning with a Cafe. You take R 5000 of your savings and open up a
banking account for the business.
2. Your Uncle Tom lends you another R 5000.
3. We buy some sweets from Metro to the value of R 6000.
4. We buy a cash register and some display cabinets fro R 3000.
5. During the first month we sell sweets to the value of R 7200 (our mark-up is 50%).
6. Expenses for the first month are: rent R 900, telephone R 150, electricity R 300.
7. We repay Uncle Tom R 500 on the loan.

Questions:
Why is source documents important ? :
_____________________________________________
What type of business has to be audited ?
_____________________________________________
What is the principle of double entry ?
we account for where the money ___________________ and where it _____________

What is the "Snapshot of the balance of interests" ? : _________________________________

What is the "History of the success of trading" ?: ____________________________________

Is VAT an income or an expense ? : _______________________________________________

Do the following two transactions:

1. The owner eats R 100 worth of sweets.
2. The mice eat R 100 worth of sweets.

8
Equity

Liability

Assets

Income

Expense

9
10.) Application
Ratios
What is meant by the following:
Liquidity Ratios (Current Ratio)
Asset Management (Inventory Turnover Ratio)
Debt Management Ratios (Debt Ratio = total debts / total assets.)
Profitability Ratios (Profit Margin on Sales) (Return on Assets) (Return on Equity)
Market Value ratios (Price per Earnings P/E)

Industry Benchmarks
In your type of business, what are the 3 main financial parameters that determines the success
of the business ?
________________________________________________________

________________________________________________________

________________________________________________________

What can you do to measure and manage these ?

________________________________________________________

________________________________________________________

________________________________________________________

Tax Planning
Where (on what) are the following taxes payable:

Income Tax: ___________________________________________________

VAT: ___________________________________________________

District Council Levy: _____________________________________________

Skills Development: ___________________________________________________

Other: ___________________________________________________

How can you minimize the amount of tax that you have to pay ?

________________________________________________________

________________________________________________________

________________________________________________________

10