Len Walczak - E-Zee Bookkeeping: Making Bookkeeping Simple

Copyright 2013 by Len Walczak. 503928-WALC

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

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Limitations of Liability:

While every precaution has been taken in the preparation of this material, the writer cannot anticipate user requirements. For this reason, no warranty is given that the information or advice is appropriate in a particular user environment and no liability is accepted by the writer for any error, omission or reliance upon information or advice.

Rev. date: 07/22/2013

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Contents

Why Do Business Owners
Need Reports?

Who Are the Interested
Parties?

Summary of Accounts Found
in the Accounting Equation of Most Business Structures

Deciphering Debits (Drs) and
Credits (Crs)

How Do We Record Gst Collected
And Gst Paid?

Steps in Transferring
Transactions to Journal

All Transactions in the Journal
Need to be Posted to the Ledger

Additional Information
of Importance

Why another accounting book?

Through my teaching over the years in the accounting field at both certificate and diploma levels and my hands on experience in the business world, it was clear that while business owners had a passion for their business and may have excellent people skills, some business owners had little or no accounting skills. There appears to be a limited amount of material available in the marketplace which provided a simple, easy to understand approach to accounting terms and the accounting process.

I seek to overcome this shortfall by leading the reader through a manual system using a practical example and applying the same exercise by using a computer accounting package. My hope is that the reader will obtain a complete understanding by using these simple steps. To quote Lord Macaulay Knowledge advances by steps, not by leaps

I would like to thank my wife Chris for helping me to realize that actions not words is required to complete any project. My daughter Sarah, thanks for teaching the teacher.

The purpose of this publication is to allow people interested in bookkeeping to set up their own business from home using a practical, hands on example to develop their self-confidence.

A good starting point for understanding bookkeeping is to use
the accounting equation:

A = L + E + I E

(Dont worry I will explain what each of the letters stand for)

This formula is used to produce a number of reports for business owners as well other interested parties.

Why Do Business Owners
Need Reports?

Business Owners

Need financial information so they can guide their business ventures in the right direction. For example, if a business is continually conducted at a loss, it may have tax advantages but, on the other hand, it could be confronted with expansion problems.

Imagine a business (lets call it Bobs Business ) running at a loss and the owner (Bob) going to a bank to seek additional funds to expand. In the majority of cases, the application would be rejected because the business would not be able to service the loan (in other words, it would not be able to meet the required repayments).

If the accounting reports of Bobs Business indicate that sales have decreased while expenses have increased, corrective action would be needed.

Who Are the Interested
Parties?

Interested Parties

Would include:

The Australian Taxation Office (ATO) which is concerned with collecting the tax that Bobs Business owes.

The Union Movement, which would be interested in the financial records of Bobs Business , in order to seek better pay and working conditions for Bobs workers/staff.

Suppliers of goods and services to Bobs Business (Trade Creditors) would be interested in getting paid for the goods and services provided.

Businesses around Australia can be classified as sole traders (people working for themselves) partnerships or companies .

Sole Traders

Generally speaking, when a decision is made to start a business as a sole trader, the owner is naturally interested in keeping costs as low as possible. The sole trader business structure allows the set up costs to be kept to a minimum. To register as a sole trader, the business person needs to register the business name with the C orporate A ffairs O ffice in their state. It is also necessary to obtain an Australian Business Number (ABN) from the Taxation Department.

A sole trader will take full responsibility for the financial outcome of his/her business. Whether the business makes a profit or a loss is completely under his/her control. It can be a very exciting time, and with good management and control, dreams can be achieved.

Partnerships

As the business grows, the sole trader may seek further funds to be injected into his/her business for expansion. Although the business may already be registered as a sole trader, the owner may also decide to look for someone else to provide additional expertise and assistance with operating the business. Hence, a partner comes into the equation.

It is advisable for the prospective partners to seek both legal and accounting advice and, as a consequence, additional costs are incurred. It would be highly recommended to set up a partnership agreement so that both parties individual interests are protected. If no partnership agreement is in place, the partners are equally liable for the debts of the partnership.

It is also possible to seek partners in a business who play a silent role. For example, a partner may contribute funds into the partnership and seek only a monetary return for their investment, playing no active role in the business. In this case, it would be strongly advisable to seek legal advice on the terms of the partnership agreement to prevent future conflict. Additionally, accurate accounting records need to be maintained for both internal use and external use.

Companies

As the partnership grows, it may be necessary and beneficial to form a Proprietary Limited Company (Pty Ltd) for tax advantages. Consequently, more costs are incurred, but, the benefits could far outweigh the expenditure.

The Proprietary Company expands further and it soon becomes apparent that the time is right for the company to become a Public Company . The structure for creating a Public Company is more complex and costly than the structures mentioned above. A Public Company issues shares and these are floated on the Stock Exchange and can be purchased by the general public. We now have a situation where the business is also accountable to its shareholders as well as the entities discussed in the abovementioned section on Interested Parties .

Regardless of the type of Business Structure adopted, it is important that the entity is able to operate profitably and generate a sufficient cash flow.

We now return to the accounting equation mentioned at the beginning of this paper and the impact it has on all Business Structures .

Accounting Equation:

A = L + E + I - E

A = ASSETS

Assets are things that a business owns or is likely to own.