This is aimed at people keeping the books for a small business. However,
the same principles apply, whatever the size of the business.
The concepts are also very relevant to computerised accounting systems
such as Sage/Tas Books, which assume such knowledge.
For the very smallest business, simply keeping a cash book, with all payments
& receipts recorded can be sufficient. Along with a list of debtors, creditors & closing
stock at the year end, your accountant can produce a set of accounts.
The starting point will be a simple explanation of the concept of double-entry.
All the fundamental areas will be covered leading up to the trial balance at
the year-end, from which a Profit & Loss Account & Balance Sheet are extracted.
The concept of double-entry may seem alien at first, but soon becomes
second nature with a little practice.
As the name suggests, every transaction involves 2 equal & opposite entries
– one Debit (Dr) & one Credit (Cr).
Total Drs should equal Crs, so it provides a built-in error check.
Only misclassifications are missed – that is a Dr or Cr in the wrong place –
or complete omissions of an entry.
We use “T” accounts to record the entries – imagine them as the 2 opposite pages of a book (as typical in a manual system).
Drs go on the left, Crs on the right.
Assets & Liabilities
An asset is something you own (e.g. a car) or the right to receive something in the future (e.g. a trade debtor).
A liability is where you owe something to someone else (e.g. a bank loan or trade creditors).
Assets & liabilities are Balance Sheet items (showing the position you are in), as opposed to income & expenses which are Profit & Loss (P&L) items.
Want to learn more, contact us here or call Carrie on 087 677 2941 to discuss further.