Accounting for Entrepreneurs V 1 2 anim IN-DBL

Accounting for Entrepreneurs V 1. 2 anim IN-DBL 2001 Lars Monrad-Krohn, IFI, UIO 1 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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? 2 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 3 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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) 4 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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) 5 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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” – B) “Balance” (Tap og vinning) (Balanse) • Which is the most important? 6 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

“Profit and Loss” • Covering a time period • Showing what was the company’s profit over the time period • Telling in more or less detail what parts contributed to or diminshed the profit 7 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

“Balance” • Lists in more or less detail all the company’s 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. 8 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 (kundereskontro) • 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 ? 9 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 10 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 11 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 bookkeeping, 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. 12 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 negative sign for income use 13 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 14 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

The accounting program 4 Report 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 15 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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. 3 rd 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 6 th in the following month, commented and sent to the Board by the 7 th for the board meeting on the 12 th. 16 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

Jail, fine, and damages, consequences for BOD, CEO, CFO • Str. l. par. 283 a 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 17 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

Cash management • Accountants usually don’t bother untill it is too late, they don’t 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 18 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 19 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 20 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 21 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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) 22 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

List of some accounting companies in Oslo, Norway • • Sentrum Regnskapskontor, Majorstua Byrået i Son Siw Ødegaard AS (Se gulesider) 23 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 24 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 25 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,

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 26 9 August 2001 IN-DBL 2001, Lars Monrad-Krohn,