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For an SME and Start Up, the Accounting System will be made up of two parts. The Operating Statement (Profit & Loss Account) and the Balance Sheet. In turn these comprise several parts, so that the Operating Statement is made up from
Income. That is all the money that flows into the enterprise. This will include income from selling your product or service and other cash that you might receive from time to time which is related to the operation of the business but would not include cash received for investment
Costs. That is all the money that is spent on creating your product or service to the point that it can be sold. This will include parts and materials, labour costs for those who work directly on providing the product or service and where applicable, the costs of packaging and delivery that relates to individual products
Expenses. Those additional outgoings that support the enterprise such as rent for premises, communications, selling expenses, banking expenses, office expenses and any others that are necessary to keep the enterprise going whether or not you are selling anything
Earnings. The difference between the Income and the total of the Costs and Expenses. Sometimes known as Nett Profit before Tax (NPBT)
The Operating Statement is a record of all of the above transactions that are carried out during the period concerned, generally during a month and also the running total of all tranactions carried out during the current fiscal year
The Balance Sheet is a view of the financial position of the enterprise at a specific point in time, usually at the end of each month, but especially at the end of the financial year, and has the following parts
Assets. Which will be made up from those items purchased for the purpose of supporting the business activities such as production equipment, office equipment and Computers, known as Fixed Assets, and those made up from inventory items such as unsold parts and materials, cash on hand and accounts receivable known as Current Assets
Liabilities. Made up from the financial committments outstanding at the time. This too is divided into those short term commitments such as accounts payable, bank overdrafts and other short term loans and called Current Liabilities. Long Term Liabilities are generally those that are not due for repayment for more that a year
Equity. Which is the difference between the assets and liabilities plus the total of all earnings up to the time and the investment owned by the owner(s) of the enterprise. It is, in fact, the value of the enterprise at that point in time
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Last Update 28-Feb-2010
Date first published 07-Nov-2005