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Canada-Indonesia Private Sector Enterprise Development [CIPSED] Project
CIPSED Project State University of Gorontalo [UNG]Entrepreneurship ToT Program
Revised:
Basic Bookkeeping TechniquesBasic Bookkeeping Techniques
Module 9 16/2/11
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Contents of this Module:Contents of this Module:
• PURPOSE of this MODULE
• The BENEFITS of ACCURATE BOOKKEEPING
• INCOME STATEMENTS and BALANCE SHEETS
• The SYNOPTIC JOURNAL or LEDGER
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What is Bookkeeping? Bookkeeping is defined as the recording and documentation of the financial transactions of a business.
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Purpose of this Bookkeeping Purpose of this Bookkeeping Module: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.
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…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.
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Why Does a Business Keep Financial Records?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!
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Management by NumbersManagement 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
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheet #1: Data-driven Worksheet #1: Data-driven Decision-makingDecision-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?
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Your Bookkeeping FriendsYour Bookkeeping Friends
• TOOLS YOU CAN USE TO MAKE BOOKKEEPING EASIER
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Keys to Effective BookkeepingKeys 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
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Financial Statements: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.
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Financial Statements:Financial Statements:
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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
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
The Income Statement: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.)
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheet #2: The Income StatementWorksheet #2: The Income Statement
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Please go to Worksheet #2 … to review the Income Statement:
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
The Balance Sheet: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
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
The BALANCE SheetThe BALANCE Sheet
• ASSETS = LIABILITIES + EQUITY
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EquityAssets
Liabilities
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheet #3: The Balance SheetWorksheet #3: The Balance Sheet
Look at the Worksheet #3 Balance Sheet:
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Double-Entry BookkeepingDouble-Entry Bookkeeping
• EACH BOOKKEEPING ENTRY:◦Involves a minimum of 2 accounts◦DEBITS must = CREDITS
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Debit Credit
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
5 Types of Accounts5 Types of Accounts
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Account Type Example DR CR
Asset CashLiability LoanEquity Owner’s investmentRevenue SalesExpense Wages
• ‘DOUBLE-ENTRY’ ACCOUNTING:◦2 sides to every bookkeeping entry!◦Increase in ‘Debit’ matched by increase in ‘Credit’
B.S.
I.S.
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Debit & Credit BalancesDebit & Credit Balances
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EquityAssets
Liabilities
Expenses Revenue Creditbalance
Debitbalance
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
The Synoptic Ledger:The Synoptic Ledger:
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• 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.
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Using The Synoptic LedgerUsing 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
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
• ACCOUNTS COMMONLY INVOLVED IN LEDGER ENTRIES:
Synoptic Ledger TransactionsSynoptic Ledger Transactions
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ASSET ASSET
ASSET LIABILITY
ASSET EQUITY
ASSET REVENUE
ASSET EXPENSE
EXPENSE LIABILITY
LIABILITY LIABILITY
EQUITY EQUITY
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Example: Asset <-> AssetExample: Asset <-> Asset
• MOVING ASSETS FROM ONE ACCOUNT TO ANOTHER◦Paying out cash is a CREDIT◦Deposit in bank is a DEBIT
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Example: Asset <-> RevenueExample: Asset <-> Revenue
• RECEIVING CASH FOR SALES OF DIFFERENT PRODUCTS◦Cash in is a DEBIT◦Sales revenue in is a CREDIT
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Asset Revenue
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Example: Asset <-> LiabilityExample: Asset <-> Liability
• PURCHASING MATERIALS ON CREDIT FROM SUPPLIER◦Material in is a DEBIT◦Increase in money owed is a CREDIT
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Asset Liability
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Example: Asset <-> ExpenseExample: Asset <-> Expense
• PAYING A SUPPLIER WITH A BANK CHEQUE◦Money out is a CREDIT◦Paying an expense is a DEBIT
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I understand!!
Asset Expense
CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheet #4 & 5: Synoptic Worksheet #4 & 5: Synoptic Journal – Jan-11Journal – Jan-11• REVIEW THE TRANSACTIONS LISTED IN WORKSHEET #4
• ADD THESE TRANSACTIONS TO THE SYNOPTIC JOURNAL◦Use either Worksheet #5 or electronic version
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheets #6 & 7: Financial Worksheets #6 & 7: Financial Statements – Jan-11Statements – Jan-11• HOW HAVE FINANCIAL STATEMENTS CHANGED AS A RESULT OF SYNOPTIC LEDGER ENTRIES?
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheet #8 & 9: Synoptic Worksheet #8 & 9: Synoptic Journal – Feb-11Journal – 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.
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Worksheets #10 & 11: Financial Worksheets #10 & 11: Financial Statements – Feb-11Statements – 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?
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CIPSED Project & State University of Gorontalo [UNG]Entrepreneurship ToT Program
Wrap Up: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.
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