The 1, 2, 3 Practice Management Series
from Added Value Corporation Pty Ltd
Introduction
How do you simplify accounting for non-accountants? It is important to convey some key issues, here is a list.
- One question to ask.
Teach non accountants it is OK to say, “I don’t understand this, I am not an accountant, please explain it to me so I can understand it, what does it mean”?
- Two sides to a transaction
In accounting, we start by viewing all transactions. Business is a series of very many transactions. We record two sides to each transaction, a debit and a credit. When there are very many transactions, they are batched to record the debit side and the credit side.
- Three parts of the accounting equation
This is, Assets – Liabilities = Owners/Shareholders Equity. That is the end result of the historical transactions we have recorded, including the Income and Expenditure transactions. The net income or loss is reflected in the Owners/Shareholders Equity.
- Four elements of a financial report
These are the Balance Sheet, the Profit and Loss Statement, the Statement of Cash Flows and finally, the Notes to the accounts. One financial skills trainer I know says, ”if you are only going to look at one number in the financial report of a company, make that the Cash Flow from Operating Activities as shown the Statement of Cash Flows”.
- Five steps to build a budget
It doesn’t matter where you start but consideration of the following is needed when building a budget,
- Production/People
- Sales/Customers/Clients
- Costs and Expenses
- Profit
- Finance
Then, review each, to ensure they all relate appropriately to each other.
- Six authorities for accounting
These are,
Accounting Standard Setters, Government Legislation and Regulation, The Stock Exchange, Professional Accounting Bodies, Corporate/Government Protocols and Accounting Fundamentals.
Numbers 7, 8, 9 and 10 will be included in the 123 series in the For Accountants December ebulletin.
Simple really? It is such a pity that we confuse people, but it is not easy to explain accounting and financial reports. I am however mindful of the person who said to me “If you ask an accountant the time, they tell you how to build a watch”. Hopefully that has not happened here, so far.
- If “Negotiating Price with Clients” Is a Challenge: What are you doing about it? - 16 June 2016
- When Is It Too Late To Sell? - 19 April 2016
- 3 More Misconceptions on Accounting Practice Ownership Changes - 17 March 2016
