Accounting for Entrepreneurs V1'2 anim

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Accounting for EntrepreneursV1.2 anim

• IN-DBL2001
• Lars Monrad-Krohn, IFI, UIO

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Why accounting?

• Not really nesseccary as long as you only run a
  kiosk on a cash basis with a good healthy profit
  each day, buy for the money you have in the
  purse, and sell the goods for cash. You will need
  to count the money in the purse though.
• Like blood test for the doctor
• Can you tune an engine for lowest fuel
  consumption without measurements of fuel flow?
• Would you like to know when you are broke?

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Why learn about accounting?

• Not to become a hostage of the accountants
• You should be able to read and discuss the
  results of your enterprise
• You should be able to make a complete plan for
  your activities including a budget
• You should be able to evaluate the work of your
  accountant and CFO
• You should be able to understand the financing of
  you company

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What is accounting?

• Accounting is the measurements of the blood
  streams in our organization
• Accounting can make a company look good or bad
  depending on how it is done (on the usual
  superficial level)
• Accounting is according to its purpose
• A) Pay minimum tax (Governmental rules)
• B) Make good decisions (Best accounting practise)
• C) Make the company look good (more or less
  innovative)
• (Companies may thus have 3 sets of books)

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What is accounting? 2

• Accounting has developed over many hundres years
  and have certain traditions
• Basic elements
• Payments (utbetalinger)
• Costs (kostnader)
• Income (inntekter)
• Incoming payments (innbetalinger)
• Assets (eiendeler)
• Liabilities (gjeld)
• Equity (formue)
• Account number (kontonummer)
• Set of account numbers (kontoplan)

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What is accounting? 3

• The companys activities are moneywise contained
  in a set of accounts (konti) that have two sides,
  left and right, debet and credit, use and source
  (they have a number and a name)
• Two accounts are fundamental
• A) Profit and Loss (Tap og vinning)
• B) Balance (Balanse)
• Which is the most important?

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Profit and Loss

• Covering a time period
• Showing what was the companys profit over the
  time period
• Telling in more or less detail what parts
  contributed to or diminshed the profit

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Balance

• Lists in more or less detail all the companys
  assets on th left side and on the right side
  liabilities and equity i.e list of the owners
  of the assets, i.e. where the money came from
• Norwegian government decided in 1999 to reverse
  the sequence of the budget items to be presented
  in the yearly report requiret to be sent to
  Brønnøysund. For these lectures we will follow
  the US-standard used internationally.

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Other accounts

• You can set up accounts for almost anything you
  want to measure moneywise in the company. Popular
  accounts are
• Each customer, payment status at a certain time
  (kunde-reskontro)
• Income from all customers over the period (very
  interesting)
• All various expenses
• Each creditor, payment status at a certain time
  (leverandør-reskontro)
• What other accounts ?

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Cost accounts

• Usual primitive book keeping wants to put a
  counter, i.e. an acount for each type of cost
  telephone, heat, stamps etc.(Usually this is not
  useful for anything except when checking for
  abuse of resources)
• Also costs are associated with a department in
  the company
• Sometimes you might want to associate a cost with
  a type of income stream that should cover the
  expense
• Also you might want to associate cost to a
  project running for some limited time, to measure
  the profitability of the project
• Task 1.For which of these could you also
  associate income? 2. Why should anyone want
  this? Hint Benchmarking

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The accounting process

• Set up Decide on account number set
• Use Norsk Standard
• What special needs should be cared for?
• Income and expences
• Tracking special assets or assets type
• For every happening involving values, create a a
  slip of paper (bilag), or get one from the
  transaction
• Decide which account (number) should be credited
  and which should be debeted, mark it on the
  papreslip (bilag) (Sometimes several lines)
• Input to the accounting program Text, amount,
  debetaccountnumber,creditaccountnumber, vat-code
  and other codes required

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The accounting program

• In priciple a very simple program, just summing
  the various entries to each account
• But It should refuse any editing!
• It should be able to print various reports and
  have a good report format specifyer
• Out of pure tradition from old time expence
  book-keeping, the ordinary item (expence) is
  given a (normal) -sign and income and profit
  is given a -. I might look confusing when you
  see Result given as a negative number when
  there is a positive profit.

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The accounting program 2

• Output from the accountng program may be
  difficult to read because of many details
• Pitfalls
• Due to a spcial local norwegian accounting rule
  (for presenting the yearly report to Brønnøysund)
  a loss can be used for tax deduction and thus
  represents a kind of asset for the sax.saving
  amount (in the normal case). The future tax
  saving is thus reorted as an asset, givng a false
  value for the loss (if this is the case)
• Look out for for negative sign for income use

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The accounting program 3

• You should be able to give the program your
  monthly budget for all major accounts or sub-sum
  of accounts, (Possibly calculating by itself 1/12
  of the early budget)
• The standard report often gives
• This period (month)
• Accumulated since january
• Budget for the period (month)
• Budget since january
• Last years same month
• Last years sum sinnce january

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The accounting program 4Report according to the
Business Plan

• In the Business Plan you are budgeting on a
  strategic level
• Is is usually a challenge to make the accounting
  program produce reports corresponding with you
  budget.
• Manually prepared reports are easier to read and
  make conform to your Business Plan

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Practical considerations

• Invoices covering deliveries during the month may
  be sent by snail-mail just before the end of the
  month and may be received some days into the next
  month.
• All invoiced for the month are not ready before
  approx. 3rd in next month
• Your accountant will need 1-2 days (negotiate!!)
  to finish the books for the month.
• Your monthly statemnt should be finished by the
  6th in the following month, commented and sent to
  the Board by the 7th for the board meeting on the
  12th.

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Jail, fine, and damages, consequences for BOD,
CEO, CFO

• Str.l. par. 283a gives punishment to those that
  should have acted on a broke condition of a
  company, if they fail to take action.
• Also according to Regnskapsloven there is
  punishment for not keeping the books
• BOD member can be sued by shareholders, creditors
  and others experiencing a loss if the job is
  neglected
• BOD-insurance may be available form the ordinary
  insurance company

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Cash management

• Accountants usually dont bother untill it is too
  late, they dont see you plans and orders (If
  accounting is outsourced, as the case usually is
  for an upstart)
• Make a system for registering every single
  commitment of payments, i.e. orders given out,
  promises made, agreements made etc.
• Make these registrations as input to the cash
  prognosis

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The cash prognosis

• Is not usually produced by the accountants (who
  onlo gets the paper slips, and does not know what
  orders you have received or given out
• Format
• For each period (column) the following lines
• Cash at the beginning
• Payments from customers incl. Vat
• Other payments, like loans or payments for stock
• Sum of incoming cash
• Payments ot employees incl tax withheld
• Payments to creditors incl vat
• VAT- payments, feb, april, june, august, oct and
  des
• Employment tax jan,mar,may, july, sep, nov
• Other payments like repayment of loans, rent,
  financial costs
• Sum of payments to be made
• Cash increase for the period
• Cash in coffer at end of period (same as next
  periods Cash at he beginning
• Usually made for a 6-8 month future with month
  as the column

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Some advice in case of missing cash

• Inform the creditors at all times of the
  situation and get their consent if payments have
  to be deferred
• Never forget to transfer the payroll tax amounts
  to be withheld to the special account when
  salaries are paid Why?
• Change from monthly to weekly (some times even
  daily) liquidity prognosis and reports

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The yearly report

• Law requires companies to register a yearly
  report with formal requirements on format and
  content.
• Make a project plan for finishing the report
  and getting it registered before end of july to
  prevent a fine for the Chairman.
• Ordinary december report by jan 12 for operating
  disussions
• First administative proposal for the written
  annual report from BOD
• First administrative proposal for annual
  accounting for presentation purposes

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The yearly report 2

• BOD-meeting with accountant for decition on
  written report and accounts,
• possible negotiations with the auditor for a
  clean auditors report
• When the auditor sees the proof for printing, he
  will release (sign) his hopefully clean report
• Send annual report to shareholdes with notice of
  General Assemby 8 days later, (and by law before
  end of June)

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List of some accounting companies in Oslo, Norway

• Sentrum Regnskapskontor, Majorstua
• Byrået i Son
• Siw Ødegaard AS
• (Se gulesider)

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Noen revisorbyråer

• Arthur Andersen og Co, internasjonale, dyre,
  opplæring for nye revisorer, prestisje
• KPMG, internasjonale,
• Price Waterhouse Coopers Lybrand,
  internasjonale
• Noraudit, kjede i Norge
• Enkeltrevisorer, se gule sider

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PS

• Certied Public Accountant (CPA) finnes ikke i
  Norge
• USA har GAAP (General Accepted Accounting
  Practice)
• Skifte av regnskapsprinsipper bør unngåes for å
  kunne sammenligne regnskaper
• 1 Børskomitee har laget norske regler
• 2 Skatteloven
• 3 Regnskapsloven
• 4 Norsk normal praksis

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Spørsmål

• Hvilke spørsmål av regnskaps-prinsipiell art
  kan få stor innflytelse på hvordan regnskapet ser
  ut?
• Hvor hurtig et aktivum avskrives (eller
  oppskrives)
• Hvilke kostnader som aktiveres
• Når inntekter taes
• Hvordan varelager vurderes
• Om det gjøres avsetninger for dårlige betalere,
  ukurans og svinn i varelager, garantier gitt
• Avskrivninger av varelager
• Leasingkontrakter