Accounting for Dummies - Part 2

Accounting for Dummies - Part 2

by Bernard Reber

It's all very well to keep your documents in boxes and envelopes and stuff but hey, this is the 21^st century and maybe it's time to get a little more up-to-date. If you are put off by the complexity of accounting software, you are not alone. On the other hand, you do e-mail, you do texting, you do surf the net, so you're not entirely without electronic experience.

With that in mind, I have devised a very simple spreadsheet that will allow you to record your income and expenses without having to know anything about accounting. It's called Simple Accounting and it couldn't be easier to use. A spreadsheet is a panel divided into columns and rows, like a grid. This creates boxes (called cells) into which you can type text, dates or numbers. It is a simple way of making sense of your finances. On this spreadsheet you record every financial transaction that has actually taken place - bills you paid, things you were charged for and money you received. Along the way you add a date on which each happened, a little bit of information so you can find this later and, of course, the amounts paid or received. The spreadsheet does a bit of summarizing and analyzing for you and suddenly you are getting clued up on your finances. Yes, even accounting dummies can do this.

Despite its simplicity, there are a number of features that make this application better than just a spreadsheet. The first of these is automatic analyses of your income and expenses. It will summarize these by category, by month, by quarter and for the whole year. This means you can see at a glance if you made a profit in any month or quarter or for the entire year. All this without any further input from you. Simply click on the Summary page and there it is. It will also extract your tax liability (tax you collect from customers on behalf of the taxman) and show separately the tax you paid on your purchases.

There's one more interesting feature: the application will automatically show you what each customer has bought from you year-to-date, and what you have bought from each of your vendors for the same period. All that is required is that you enter their names on a lookup list. Then, when you enter transactions, you pick your customer or vendor from a dropdown that is based on that list.

So, let's get started. First, order the spreadsheet for only $14.95 and if you really don't like it inside ten days, I'll give you your money back, no questions asked. You will need MS Excel 2003 or later to ensure all functions run properly.

After the credit card payment, you'll receive a download link by e-mail and a password. Click to download this small application and install on your computer. A desktop icon will appear called "Simple Accounting" which will launch the spreadsheet. Enter the password you received. You will need this every time you work with it.

The package consists of three spreadsheets - one for this year, one for next year and one containing samples. To save on buying another set every two years, make copies of the first one and name it for future years. The package also includes a manual for those who are not much familiar with Excel spreadsheets. It is written in plain language and describes each of these tabs in easy to follow language.

When the spreadsheet first opens, look at the bottom where you see a series of tabs, which are known as worksheets. From left, there are twelve worksheets for each month of the year. Next is a summary page and finally three setup worksheets called Clients, Vendors and Ledgers. We'll look at these setup worksheets first up.

Ledgers. These are the categories of income and expense that you might want to use for your business. Each business is a little different, so feel free to change any of the ones you see, delete those you don't need and add any that aren't included. On a worksheet each cell is referred to by its co-ordinates, using the columns (which are marked by a letter at top) and the rows (which are marked by a number at left). For example, to find cell F3, look for column F at the top then look down in that column to row 3.

While we are at that cell, enter the tax rate that mostly applies in your locality. This could be state tax, or value-added tax. Click on the cell, then type the rate without % sign. For example to enter 6%, type 6 and hit Enter key. This will be used to work out taxes paid or received but can easily be changed by you on each transaction. The spreadsheet supports only a single tax rate but those who are familiar with Excel can make modifications like adding additional tax columns. This is recommended for experienced users only.

Vendors. These are the people or businesses from whom you purchase goods or services that your business requires. It's everyone who charges you for stuff they supply to your company or services they provide. Your first 20 vendors have been pre-set so all you have to do is enter their names and contact details (entries in columns B-E are optional). Do not enter anything in column F. That column will eventually show amounts which represent the total you spent with that company or person. This is done automatically - you don't have to do anything.

Clients. These are not only the people or businesses that buy from you and generate your business income. It may also include the likes of your bank who pay you interest on deposits or dividends on investments, rental income and so on. Your first 40 clients have been pre-set so all you have to do is enter their names and contact details (entries in columns B-E are optional). Do not enter anything in column F. That column will eventually show amounts which represent the total they have spent with you. This is done automatically - you don't have to do anything.

Summary. This powerful analyses page is fully automatic. There is nothing to do but look at (or print) the information you see. The manual will show you how you co-ordinate the list of ledgers on the summary page with that from the Ledgers page. It is something you do just once during the initial setup.

Here is the long list of information you get from this page:

• Total Income by category for every month of the year
• Total Income by category for every quarter of the year
• Total Income by category for the year
• Total Expenditure by category for every month of the year
• Total Expenditure by category for every quarter of the year
• Total Expenditure by category for the year
• Gross profit for every month of the year
• Gross profit for every quarter of the year
• Gross profit for the year
• Tax collected for each month, quarter and the whole year (your tax liability)
• Tax paid for each month, quarter and the whole year. In value-added tax countries this is your input tax; elsewhere it is a cost of doing business.

This is comprehensive information about your business - the more you know about your business, the better decisions you can make.

Monthly pages JAN - DEC. These are the monthly worksheets where you enter the details for each month of the year. If it happened in May, click on MAY and enter it.

Here are a couple of quick examples on how easily you can enter your finances. Letters shown refer to the column on the monthly page.

Example 1: You just paid your monthly phone bill by check.

Select the worksheet of the current month and move to next empty row. Enter details in green and red columns only.

A - Enter date (use Ctrl + ; to enter today's date automatically)
B - Select the "phone" ledger from the dropdown
C - Put some detail about this payment (for example "APR phone bill")
D - Select the vendor from the dropdown (your phone company, which is set up in the Vendors section)
E - Enter the check number you used (leave blank if not paid by check)
F - Enter total amount paid
Columns G and H will automatically fill in. Change if no tax was included, or if rate is different from Ledger setup page.

Example 2: you just received payment for invoice #4567 by direct credit

Select the worksheet of the current month and move to next empty row. Enter details in green and blue columns only.

A - Enter date (use Ctrl + ; to enter today's date automatically)
B - Select the "receipts" ledger from the dropdown   -  skip the next six columns...
I - Select the customer from the dropdown (who were set up in the Clients section)
J - Enter the invoice number paid (4567)
K - Enter total amount received
Columns L and M will automatically fill in. Change if no tax was charged, or if rate is different from Ledger setup page.

Now look in the summary page. In the current month column you will see your amounts next to "phone" and "receipts", and these are totalled across (for the year and quarter) and down (for the month). When you look up the client you will see the payment recorded next to their name (in column F) and when you look up the phone company in the Vendors section, your payment is recorded next to their name.

The secrets to keeping good records are simple:

• keep all your receipts and copies of invoices you send out in their boxes or folders
• Set aside a time on the same day every week to make these recordings - a couple of hours a week should be all that is needed in many instances. Stick to this time and you will not get behind.
• Record everything you paid and everything you received

You'll need the boxes we talked about in part 1 of this series, or your check book, credit card receipts, bills you paid and statements from your bank and credit card company. Check each document or line on your statements when they have been recorded.

At first it might take a little longer until you get used to everything, but you will soon get the hang of it. Yet, when it's all done, your accountant or financial person will be amazed how you managed to emerge from the wilderness and presented him with figures he or she can actually work with. In the process you have saved yourself the cost of hiring someone to sort through your paper jungle, you have learned what goes on in your business and that makes you clever.

End of year.  Grab your boxes or folders and throw in your bank and credit card statements and your check book. Your accountant charges should have reduced significantly because you have done much of their work.

Cash flow. Included in the application is a cash flow spreadsheet which lets you enter forecasts of income and expenses, to see if you are making enough to meet your obligations. 

This is accounting for non accountants, so make a start in getting to know your finances NOW. Order the spreadsheet for just $14.95 and if you really don't like it inside ten days, I'll give you your money back, no questions asked. You will need MS Excel 2003 or later to ensure all functions run properly.

In the final episode we will progress to a simple accounting software system. So simple, you wonder why you haven't done this earlier. So stay tuned...

Bernard is founder and CEO of The Scrambled Card Company, based in New Zealand. His software invoiceit! includes easy accounting and has been sold across the US and Canada (and more than 70 other countries) since 1999. You can contact him at info@invoiceit.com, or visit his website www.scrambled-card.com to get more information about invoiceit! and download the software for a free 30-day trial.