Guidance On Setting Up Accounts

[Shelldon]

I need a bit of advice/help. I started a side business a few years ago that's been slowly but surely growing. I now find myself at a point where it's getting busy enough for me to start needing to set up an accounting system of sorts. This I have done. But here's where I need some accounting help.

I purchase raw material (in this case leather). This I believe is recorded as an asset (raw materials). So bank gets debited and assets gets credited.

Now when I sell something, say a belt. My bank balance gets credited, but does my assets account get debited?

Not I must also buy stains to color the leather, would that also be an asset or would that now be an expense?

I apologise in advance if I got the terms mixed up, I'm no accountant but I really want to learn and understand this stuff rather than just handing it all off to someone else.

Thanks

 

[Stefanmuller]

All I can say is keep a spreadsheet of all your transactions, like summarise all your bank transactions. A simple spreadsheet with the top side having all your money coming in (income/sales), and the bottom half with all your expenses (money going out). The first column you use for your bank account, so opening bank balance plus income, less your expenses equals your bank balance at any given time. Next to each expense transaction you will have various expense categories that you allocate each expense to. For example, if you purchase R1000 worth of leather, you will have R1000 under the expense part in the bank column, decreasing your bank balance, and then also allocate it under the "materials" column in the same spreadsheet line. Have running totals at the bottom. This way you will be able to keep track of your transactions and where your money goes to.

Then get an accountant/bookkeeper.

 

[cyberbob1979]

Hi

Stock is an asset and Bank is an Asset (Cash)

When you buy stock, Cash goes down and Stock goes up so your Balance Sheet remains the same
When you then sell the item your stock goes down and your bank goes up (from the cash sale) and the Sale is recorded in the Income Statement.
For the items to colour the belt (or stain it) - you will have to identiy if it is held in stock or purchased (like toilet paper) and used as an expense. If it is used as an expense, then the expense is debited and your bank (cash) is credited and the expense goes onto your income statement (against the sale).
At the end of the day - that difference between the Sale and the Expense is your profit. At the end of the year (after paying tax) - the next profit is written back to the balance sheet as capital (reserves) and can be used in the following year



This is of course very basic. Keep all your slippies and record income and expenses and keep your bank statements and hand it over to a bookkeeper who can do the daily book keeping (or montly). Then that will need to go to an accountant for sign off and for filing tax etc. A lot of little bookeeping home businesses thrive on the small business market who don't have the infrastructure to employ a bookkeeper all the time

Of course the above example is super simplistic but gets the message across