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Canada-Indonesia Private Sector Enterprise Development [ CIPSED ] Project CIPSED Project State University of Gorontalo [UNG] Entrepreneurship ToT Program.

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Presentation on theme: "Canada-Indonesia Private Sector Enterprise Development [ CIPSED ] Project CIPSED Project State University of Gorontalo [UNG] Entrepreneurship ToT Program."— Presentation transcript:

1 Canada-Indonesia Private Sector Enterprise Development [ CIPSED ] Project CIPSED Project State University of Gorontalo [UNG] Entrepreneurship ToT Program Revised: Basic Bookkeeping Techniques Module 9 16/2/11

2 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Contents of this Module: PURPOSE of this MODULE The BENEFITS of ACCURATE BOOKKEEPING INCOME STATEMENTS and BALANCE SHEETS The SYNOPTIC JOURNAL or LEDGER 2 What is Bookkeeping? Bookkeeping is defined as the recording and documentation of the financial transactions of a business.

3 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Purpose of this Bookkeeping Module: To understand where Bookkeeping fits into the process of creating Financial Statements. To understand how accurate records can be utilized as a management tool leading to sound business decisions. To create an understanding of the mechanics of a maintaining a SYNOPTIC LEDGER. 3 …Most retail, wholesale and service businesses make sales and receive and spend money every day. They should keep records like Daily Cash Sheets, Accounts Receivable, and Accounts Payable. A SYNOPTIC JOURNAL, or LEDGER, combines all of the aforementioned records into one comprehensive record keeping resource.

4 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Why Does a Business Keep Financial Records? To manage the money of the business, particularly if there is a significant amount of cash flow on a day-to-day basis. To track the daily, weekly and monthly financial performance of the business. Is the business making money? To identify and address problems at an early stage. To provide the bookkeeper or accountant for the business with all critical financial information. To make INFORMED DECISIONS! 4

5 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Management by Numbers ‘Telephones, hotels, insurance – it’s all the same. If you know the numbers inside out, you know the company inside out.’ - Harold Geenen, CEO of ITT Corp 5

6 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheet #1: Data-driven Decision- making REVIEW THE INFORMATION IN WORKSHEET #1 HOW WOULD YOU ANSWER THE QUESTIONS, GIVEN THE INFORMATION AVAILABLE? ◦ Make any additional calculations that you think might be helpful ◦ What other information would you like to have in order to make a decision? 6

7 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Your Bookkeeping Friends TOOLS YOU CAN USE TO MAKE BOOKKEEPING EASIER 7

8 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Keys to Effective Bookkeeping ESTABLISH A SYSTEM THAT IS: ◦ Uncomplicated, logical, and user-friendly ◦ Thorough and accurate ◦ Easily accessible ◦ Consistent with the size and nature of your business ◦ Integrated into your daily business routine 8

9 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Process 9 Capture Transactions Receipt Invoice Cheque book Bank account Cash register Note book Calendar Record Synoptic Ledger Report Income Statement Balance Sheet

10 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Financial Statements: The Income Statement and the Balance Sheet are the two principal documents that, together, are called the financial statements. They are intertwined with the Cash Flow Statement and together complete the financial picture of the business. They enable you to understand what is going on with the business and make decisions accordingly. The information for all 3 documents begins with the Synoptic Ledger. 10

11 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Financial Statements: 11 INCOME STATEMENT: -Income -Expenses -Profit BALANCE SHEET: -Assets -Liabilities -Equity CASH FLOW STATEMENT: -Cash In -Cash Out -Cash Balance SYNOPTIC LEDGER: -Transactions -Adjusting entries Key Financial Statements

12 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program The Income Statement: Identifies all Revenue and Expenses over a specified time (usually a month or year) to show Profit or Loss for the period. Expenses are incurred to create revenue, and are not always cash expenditures. (Example: depreciation.) Not every cash expenditure by the business is an expense, and those that are not expenses will not appear on the Income Statement. (Example: payment of loan principal to a bank.) 12

13 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheet #2: The Income Statement 13 Please go to Worksheet #2 … to review the Income Statement:

14 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program The Balance Sheet: Shows the exact financial position of the business at a specific date, usually the end of a month/year. Identifies: ◦ Assets - what the business owns ◦ Liabilities - what the business owes ◦ Owner’s Equity - the net capital available to the owner. Represents the COST of the Assets, Liabilities and Equity, NOT their VALUE. The Balance sheet must always balance: ASSETS = LIABILITIES + OWNER‘S EQUITY 14

15 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program The BALANCE Sheet ASSETS = LIABILITIES + EQUITY 15 Equity Assets Liabilities

16 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheet #3: The Balance Sheet Look at the Worksheet #3 Balance Sheet: 16

17 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Double-Entry Bookkeeping EACH BOOKKEEPING ENTRY: ◦ Involves a minimum of 2 accounts ◦ DEBITS must = CREDITS 17 Debit Credit

18 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program 5 Types of Accounts 18 Account TypeExampleDRCR AssetCash LiabilityLoan EquityOwner’s investment RevenueSales ExpenseWages ‘DOUBLE-ENTRY’ ACCOUNTING: ◦ 2 sides to every bookkeeping entry! ◦ Increase in ‘Debit’ matched by increase in ‘Credit’ B.S. I.S.

19 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Debit & Credit Balances 19 Equity Assets Liabilities Expenses Revenue Credit balance Debit balance

20 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program The Synoptic Ledger: 20 Accounts across the top ◦ Debit column on left, Credit column on right Line by line recording of all business transactions. Can be considered the ‘finished product’ of Bookkeeping. ◦ May be turned over to an accountant to develop the Financial Statements.

21 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Using The Synoptic Ledger The amount of every transaction is entered in the Synoptic Ledger TWICE. (Double Entry Bookkeeping.) Each entry has a Debit [Dr] and a Credit [Cr]. Sum of Debits = Sum of Credits 21

22 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program ACCOUNTS COMMONLY INVOLVED IN LEDGER ENTRIES: Synoptic Ledger Transactions 22 ASSET LIABILITY ASSETEQUITY ASSETREVENUE ASSETEXPENSE LIABILITY EQUITY

23 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Example: Asset Asset MOVING ASSETS FROM ONE ACCOUNT TO ANOTHER ◦ Paying out cash is a CREDIT ◦ Deposit in bank is a DEBIT 23

24 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Example: Asset Revenue RECEIVING CASH FOR SALES OF DIFFERENT PRODUCTS ◦ Cash in is a DEBIT ◦ Sales revenue in is a CREDIT 24 Asset Revenue

25 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Example: Asset Liability PURCHASING MATERIALS ON CREDIT FROM SUPPLIER ◦ Material in is a DEBIT ◦ Increase in money owed is a CREDIT 25 Asset Liability

26 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Example: Asset Expense PAYING A SUPPLIER WITH A BANK CHEQUE ◦ Money out is a CREDIT ◦ Paying an expense is a DEBIT 26 I understand!! Asset Expense

27 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheet #4 & 5: Synoptic Journal – Jan-11 REVIEW THE TRANSACTIONS LISTED IN WORKSHEET #4 ADD THESE TRANSACTIONS TO THE SYNOPTIC JOURNAL ◦ Use either Worksheet #5 or electronic version 27

28 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheets #6 & 7: Financial Statements – Jan-11 HOW HAVE FINANCIAL STATEMENTS CHANGED AS A RESULT OF SYNOPTIC LEDGER ENTRIES? 28

29 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheet #8 & 9: Synoptic Journal – Feb-11 FOR EACH TRANSACTION LISTED IN WORKSHEET #8: 1.Review the transaction description 2.Find the transaction on Worksheet #9: Synoptic Ledger. 3.Determine whether or not the transaction entry in the Synoptic Ledger is correct. 4.If it is incorrect, change it to a correct entry. HINTS: ◦ Some entries are in the wrong accounts. ◦ Some are the right accounts, but wrong numbers. ◦ Some are wrong accounts and wrong numbers. ◦ Some are correct. 29

30 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Worksheets #10 & 11: Financial Statements – Feb-11 HOW HAVE FINANCIAL STATEMENTS CHANGED AS A RESULT OF SYNOPTIC LEDGER ENTRIES? WHAT ASPECTS OF THE BUSINESS APPEAR TO REQUIRE ATTENTION? ◦ What decisions would you make based on the available information? 30

31 CIPSED Project & State University of Gorontalo [UNG] Entrepreneurship ToT Program Wrap Up: Bookkeeping is a powerful tool for managing a business. The owner/manager of a business should know how much money the business has, how much it is owed and how much it owes. Bookkeeping provides this information. Keep records up to date and easily accessible. Remember Bookkeeping is just simple arithmetic. Business owners/managers can do it by themselves without requiring the help of an accountant. 31


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