ACCOUNTING AND ITS RELEVANCE TO YOU AS AN ENTREPRENEUR

Welcome to this new chapter that I will use to take you through the basics of accounting and its importance to your business. Whether you are just deciding on becoming an entrepreneur or you are just starting your business and have no idea of what to do about your accounts. This is for you!! To start off, I will cover the following topics; • Why should you keep books of accounts? • Which books are you supposed to have in place as an entrepreneur? • What are so special about these books?

Perhaps you may not know that you engage in accounting activities during your daily routine. Why do I say this? We all use accounting methods when we plan on what to do with the money we earn. For example if your monthly salary is 1000 us $, you must have a plan of how much you are going to spend and on what you are going to spend it on. Of course most of us stray away from the plan and give way to a habit known as impulsive buying that is driven by what we see rather than what we planned. You should write it down on a piece of paper and carry it with you on your way to the mall. A simple paper that contains a list of what you want to buy marks the beginning of the process of accounting.Why would you want to keep books of accounts as an entrepreneur/ businessman or woman?

I. To determine whether your business is making a profit or a loss. For example if you are dealing in an online shoe shop and you purchased your stock of shoes at 50,000 $ and other expenses incurred while making the purchases amounted to 10,000 $. If your total sales of your shoes amounted to 80,000 $, then you are then able to calculate and see whether you made a profit or a loss. In this case it would be a profit of 20,000 $. This is very important to determine because it will help you decide whether you want to continue with the business or not.

II. Evaluation of assets and liabilities; All businesses must have assets and liabilities. What are Assets? Assets simply mean the possessions of the business, while liabilities mean those amounts which are due or borrowed from other persons. e.g.; a loan from a bank. These assets and liabilities are used to prepare a statement of financial position or in other words a balance sheet. A balance sheet or a financial position is always required by banks and other financial institutions before they approve your loan application. The government also uses it for tax assessment. If you also wish to sell your business, then the prospective buyers also request for this document.

III. A tool of control; it enables you to control various expenses. You can analyze the books of accounts and eliminate unnecessary expenses hence your profit is maximize.

IV. To facilitate the credit transactions; as the business grows, you will see such a rapid increase in transactions such that you cannot master them all in your mind hence the need for accountancy.