Balance Sheet
The balance sheet report shows the accounting value of business assets, liabilities and equity at a point in time, and is made up of the following items:
Assets
Things that the business owns which have value, for example cash in the bank, accounts receivable waiting for collection, office furniture, computers, buildings, motor vehicles, livestock etc.
Liabilities
Debts owed by the business to others including bank loans, personal loans, accounts payable to suppliers, credit card debts, money owed to the ATO, Superannuation payable etc.
Equity
Equity represents the accounting value of a business at a point in time. Take the assets of the business, subtract liabilities and the result is business Equity. Equity belongs to the business owners, and a business with negative value Equity is referred to as Insolvent.
Assets – Liabilities = Equity
Profit & Loss
The profit and loss report shows business income, cost of sales and expenses over a period of time and is a measure of the profitability of a business.
Income
Income is revenue earned by a business as a result of selling goods or services. Income is normally recorded by producing tax invoices to clients.
Cost of Sales
Cost of sales are expenses incurred which result directly from the sale of goods or services. For example if you sell an apple for $1 but it cost you 50c to buy the apple then this is your cost of sale.
Expenses
These are expenses other than cost of sales, also known as business running expenses. For example office rent, wages, phone, utilities, bank interest etc.
Income – Cost of Sales = Gross Profit (or loss)
Gross Profit – Expenses = Nett Profit (or loss)
Double Entry Accounting
Modern accounting systems work on a double entry basis, where every transaction must affect at least two accounts, and the total debits in a transaction will always equal total credits (the transaction balances). It is important to understand what happens to an account if you debit it, or credit it.
Examples:
You spend petty cash to buy paper: Credit Cash Drawer Debit Printing & Stationary
You pay a Visa bill: Credit Bank Account Debit Visa Card
You issue an invoice for agistment: Credit Agistment Income Debit Trade Debtors
You receive prizemoney for a horse: Debit Bank Account Credit Trade Debtors
You buy a new car: Credit Bank Account Debit Motor Vehicles Purchased
Possible combinations are endless, but the point is that for every transaction you need to know where the debit goes, and where the credit goes. This understanding of basic accounting principles is essential to using the Bulk Journal feature effectively.