Wise Accounts Blog

Things to consider when running a home business

Thu, 17 May 2012 00:00:00 +1000

Renting business premises is an expense you could do without. What are the pitfalls to avoid?

If you are turning your abode into a place of business there are 3 stake holders to consider: your spouse, your children, your neighbours.

Being married and raising children together is enough of a challenge. Why would you add to that being partners in an enterprise also? Some marriages have exploded in your face over that issue but in some cultural backgrounds it is taken for granted as part of the territory. For instance a French baker works all night to have the famous baguettes and croissants ready at dawn for the town to consume. His wife is expected to run the shop in the morning and sell the day's supply.

The dynamics of a relationship can be skewed if your spouse becomes your employee. Intelligent people can work around that issue but consider how you would feel if you are in a job where work and home activities are not clearly defined. Further working from home gives you an insight as to how your partner/spouse spends his/her time. What hourly rate should you pay? Would you require timesheets? Is it volunteer work? Do you get a kiss for that?

Children come crashing home mid-afternoon after school and will be noisy and boisterous. Do you want that sound effect in the background when you are conducting an important phone call with a prospective client? Do you have a home office set aside where you can conduct business meetings? Is there parking available for visitors?

Neighbours can be wonderful folks to challenge you at honing your best people skills. They can also be nosey, jealous or downright obnoxious to make their presence felt. If your part of town is zoned as residential they can blow the whistle on you if you use trade tools or if they suspect you run a mortician business in your garage.

What about the internet connection? How far away is the telephone exchange? How early is your mail being delivered? Should you have a post office box? If you sell stuff on Ebay would you have time to fulfil customer orders the same day?

We have become so intransigent and set in our ways where everything is measured, timed and documented. Our ancestors didn't have any other choice. In the village each house was a business with the work done downstairs and the living quarters upstairs. You knew all your customers by name and they brought you the town news as well as their patronage. Maybe there will be a resurgence of the cottage industry if more banks go belly up.

For an online cash flow forecast and bookkeeping service check out http://wiseaccounts.biz

For a time billing and invoicing online system check out http://logbook.biz

Budgeting for a Balanced Financial Future

Thu, 10 May 2012 00:00:00 +1000

A budget sounds very professional to some while others dismiss it as a crystal ball exercise. Is it yesterday's method still taught at school and totally irrelevant in today's world?

A budget is better than no budget at all - but don't be fooled, it will invite challenge from all angles.

The assumption is that you can plan the next twelve months ahead with a statement of expected income and expenses and stick to it no matter what. The old rule was to glance at last year's profit and loss statement and bump everything by 10% if you were conservative or by 20% if you were part of the upcoming new wave of management. Of course if last year's was a loss you would be fired if planning to increase that loss next year also...

Budgeting completely lack any value in charting ahead your future cash flow. It simply assumes things will merrily roll on as usual.

A slight improvement would be to compare last year's performance with the year before that. Coming up with some sensible explanation of what happened would help identify the areas of strength and the areas of risk.

Unfortunately what happened 12 and 24 months ago is too far behind in some industries to be any gauge of what to expect in the future.

There are two things you can do to remedy this situation: 1- change your timeframe, 2- use a dynamic approach.

If you use a monthly trial balance you will see that both income streams and expenses are not well behaved monthly averages but come in bumps and flats. If you can pick a trend developing then incorporate that into your budget.

Instead of comparing 12 months at a time, what about making a budget for the next 6 or 3 months only? Chances are it will be more realistic and you can save your credibility by offering a revision at the end of that timeframe. Then the latter part of the year will take care of itself when we get there.

The dynamic approach requires some spreadsheet work. You need to work out a calendar and tally all weekly, monthly and quarterly expenses and receipts and log them into the future. For each date in the future you can calculate what the cash flow will be like. Will you need some bridging loan or will you have extra cash to set aside for a rainy day?

For an oline cash flow and bookkeeping service click here

For a time billing and invoicing online system click here

Behind the Figures

Thu, 03 May 2012 00:00:00 +1000

Some people think that accounting is best left alone to accountants. I disagree. Your financial position says a lot about where you are heading. It works the same for an individual or a corporation. In fact astute, financially minded people consider their estate like a business.

The subtle equilibrium in your finances between what you owe and what you own may not be changing day after day in a striking fashion. Looking at it in the right timeframe though will expose some trends you need to be aware of.

In money matters, ignorance is no excuse. These things have a way to spring back on you at the worst possible time.

Financial matters have the knack of creeping up on you in discreet ways. If you fail to pick up the trend early enough it can be quite overwhelming to correct the situation.

You think you are cruising nicely on your way to financial independence when unknown to you something behind the scene is eating away at your savings. There are scores of deceitful hidden costs lurking behind various transactions which over time will rob you of your hard earned cash. Other times you are the culprit by indulging in items you could do without for the sake of convenience and impatience.

The only way you will be able to find out early enough is by keeping your personal accounts up to date. Don't wait for the end of the financial year to realise if you made a profit or a loss this year - you need to know that today!

Accounting for non-accountants - what you need to know

Thu, 26 Apr 2012 00:00:00 +1000

Accounting is a drudgery, a dirty word for some - yet others have chosen to make it their profession. Beyond the pain of regular data entry, the benefits of having an accurate dashboard of where your finances are heading is well worth the effort.

Knowing where the money comes from and where it is being siphoned out is in itself useful. But the prize lies in the fact that you can now see things not only in proportion to each other but also how they have evolved over recent times.

In business you have to wear several hats to survive. You have to be the visionary to be able to see beyond your marketing horizon. You have to be the engineer to come up with a better gizmo your firm is renowned for. Finally you have to be the accountant so that you don't run out of gas (money) half way through your corporate journey.

This also applies to personal finances because you should treat your estate like a business. Sound accounting information will help you handle the thousand decisions that confront you regarding the use of money, the lifeblood of business.

Should you buy an asset outright or lease it? Don't take your accountant word for it. That's the wrong person to ask especially if getting a commission from the leasing company... (same goes with superannuation and investment funds...) Bear in mind that there are leasing companies out there whose goal in life is to return a profit for their investors. If that profit comes from you then it better bring an outstanding benefit. Otherwise be your own leasing company or buy something second hand at an auction. That's not the talk you will hear often from an accountant. That's why you can't play dumb when your money is at stake.

Another concept to grasp is depreciation, a fictitious expense to represent the decrease in value of the stuff you own due to wear, tear and obsolescence. Check out how much you could get on Ebay for the gear you bought 3 years ago. That will be a reality check. Again an accountant with their arcane art will fog you with mumbo jumbo rather than give useful information.

Now for the good part - do a cash flow forecast. Put into a calendar (spreadsheet) all your expenses at their proper due dates in the future and similarly enter all your expected earnings. See what the running total looks like. Plot it as a graph. Will you need bridging finance to see yourself through a dark patch?

For an online cash flow forecast and bookkeeping service check out http://wiseaccounts.biz

For a time billing and invoicing online system check out http://logbook.biz

Accounting - The Profit and Loss Statement

Thu, 19 Apr 2012 00:00:00 +1000

Counting your dough is not a pastime for Uncle Scrooge - it is a necessity for all of us in a world where money, not love is the prevailing currency.

Accounting for what goes in and out of your purse has reached new levels of sophistication in this computer age and some have fallen behind for not keeping up the pace.

The profit and loss statement is one of several documents together with the balance sheet which describe your financial position.

We have to start first with the concept of an account. In accounting it is simply a fictitious bucket or container where money is identified. Yes you can think of your bank account - the amount held in custody for you by a financial institution. You could also have the petty cash account, the "under the mattress" account and the toll coins accounts for the change you keep in your car.

The art of accounting is to track the movement of money from one account to another. You go to an ATM machine and withdraw $100. Your bank account decreases by $100, while your petty cash account (your wallet) increases by $100. That is called a transaction and you log it into a bookkeeping program with today's date. What you do with these fresh one hundred dollars will lead to more transactions. You may spend $30 on petrol, $20 on food, and $50 on paying your phone bill. So now we have a travel account, a groceries account and a telephone account.

Accounts are listed in groups such as income, expenses, assets, liabilities and equity. Assets are things you own like your clothes, appliances, house, car and things that can readily convert to cash like bank accounts or investments. Liabilities are things that you owe like credit cards, mortgage and car loans. Equity is your net worth when everything is said and done.

Now are you ready for the punch line? The profit and loss statement is simply a listing for the current financial year of all your income accounts (your wages, the rent you collect from your tenants, the copyrights paid to you for the songs you wrote 10 years ago, etc...), followed by a listing of all your expenses (petrol, food, water and electricity bills, etc...). Finally the difference between the totals of those two groups is - wait for it - your profit or loss for that period!

But why stop there? The next thing after the profit and loss is the balance sheet. Again quite simply we group all your assets (the things you own) and all your liabilities (the things you owe) and the difference is your equity or net worth.

What Are Debits and Credits in Accounts?

Thu, 12 Apr 2012 00:00:00 +1000

Remember the mnemonic phrase: "Accountants are credited for being afraid of negative amounts."

Accountants have confused the daylight out of most of us with their obscure ways of counting somebody else's monies.

The profession is rooted in depths of tradition dating back to the Renaissance. After the Dark Ages, science, arts and commerce blossomed. Christopher Columbus stumbled upon the American continent; Leonardo Da Vinci painted the Mona Lisa and the merchants of Venice invented the double entry accounting ledger in expectation of great returns for sailing boats to The New World.

Debit and credit is a vernacular that only makes sense once you consider the double entry system. Remember in those days there were no calculators - maybe just an abacus (Did you learn how to use one of these at school? What about a slide ruler?)

It just happened that to double check (mind the pun) their books the merchants of Venice had the practice of recording and adding transactions twice. Once on the page of the account where the money originated from and a second time on the page of the account where the money was assigned to. So five gold coins of one lira each left my velvet purse and five liras was the cost of the cargo shipped overseas and paid to the producer.

The beauty of such a system was that all pages in the book had to total to zero. If not you had to hunt for the mistake. If you did this exercise each evening at close of business - the error had to be in today's transactions. A relief if the book had over 200 pages to cater for a whole year of trading.

But wait a minute how can a bunch of numbers all add up to zero? That's the magic of it of course. Some figures are positive and some are negative. But the trick was to call the positive numbers debits and the negative ones credits!

So for the book to be balanced some pages had to have a positive total and others a negative total. So far so good.. Introducing the concept of an account. Don't think of a bank account right now, please. An account might be money earned for lifting some cargo from the pier onto the boat. That's your income account. It has a negative total (a credit balance). The second entry in the book is positive - coins accumulate in your purse. But you might have been paid in kind (a pig and two chicken worth half a lira). Then the page titled "pantry" might read two entries: one pig a quarter of a lira and two chicken a quarter of a lira also for a positive total - a debit balance.

So people go for a bookkeeping course to complicate an otherwise quite simple and efficient system which can be done by hand or on a computer. By hand you have to understand what you are doing - on a computer you just fill-in the form but never get to understand the underlying principle unless you stumble on an article like this.

For an oline cash flow and bookkeeping service click here

For a time billing and invoicing online system click here

Invest Your Tax Refund Wisely

Thu, 05 Apr 2012 00:00:00 +1000

Keeping your refund in the bank for a rainy day sounds like wisdom but it's bad for two reasons: first the interest paid on savings accounts is lousy, second because it is the obvious thing to do it does not challenge your gray matter.

There are times in life where you have to behave like a business person and this is one of those times. If you can be trusted in small things, you will be trusted in bigger things. This biblical truth can be taught to young and older adults alike. It means that you bear the responsibility for the stewardship of your resources.

The way you are going to discharge yourself of that responsibility will ultimately determine your future. It has to do with your values. People send their time and energy (meaning resources, aka money) around the issues that are dear to them.

Values are often out of your immediate reach and that is where goal setting comes to play. You don't stumble randomly by accident onto a goal - you strive hard to get there because whatever is a worthwhile endeavour will attract opposition.

Unlike time which has to be consumed in the now, money can be stored for a later day. Just like water flowing into and draining out of a pool, money goes in and out of your hands and it takes some scrutiny to figure out if you are better off (making a profit) or worse off (making a loss) at the end of the week, month or year...

One tool to keep this in check is the cash flow report. By collating all your regular expenses on one hand and all your earnings on the other hand you can project into the future what your bank balance might look like, a month, 6 months or a year from now.

Knowing what your saving ability is today will have an impact on how to invest your tax refund. Some investments will lock you in for a given period of time (six months, a year, 5 years...) Some investments take care of themselves while others require hands on supervision. The basic law is: the higher the return, the higher the risk.

The way you cope with risk depends on your age (ability to replace what was lost - whether you are working or not) and your level of involvement (sleep on it until redemption time, versus daily check of your stocks in the share market). If the stock market interests you check out Trading Pal an automated trading system which you can use to compare against your own performance.

How To Sort Out Your Out Of Money Experience

Thu, 29 Mar 2012 00:00:00 +1100

Getting into unchartered waters with debt has a surreal feeling to it. Yet several millionaires will tell you they went broke before reaching the level of success where they are now. What can we learn from a financial crisis?

Risk is part of life. You can never protect yourself totally from some unexpected mishap. In essence it's not what happens to you that matters - it's the way you handle it. If you are in debt the honourable way is to set in motion a recovery plan so that you can repay the money you owe. If it means loosing your car or your home - so be it. There is one thing people can never take away from you: your self-esteem and your good ideas.

If you have lived on credit cards and mortgaged your future to keep up an unaffordable lifestyle then things have a way to catch up with you.

The most important thing is to forgive yourself. You took a risk. It backfired. Let it be so. You are all the wiser out of the experience. There are positive outcomes to a fall. What doesn't kill you will make you stronger.

Maybe you will be forced to take a sabbatical and check your values, the people and things that matter to you. Are you the breadwinner for your family? Do you feel you have left them down? Do they still look up to you? Are they prepared to tighten their belts with you or do they still live in utopia? Are they running away from a sinking ship? Some people have lost everything: wife, children, home, car, career and yet continue to praise God despite the adversity.

Success in life is to find something people need and give it to them. There must be something out there you are passionate about. You can't really put your finger to it but as you walk through the valley of the shadow of death you will fear no evil. Comfort will come from above. If that's all it takes for God to get your attention - so be it. Others have found their bearing nailed to a hospital bed, staring at the ceiling all day long. At least you have the freedom to move about (until the sheriff catches up with you...)

There are seasons in life. You can't expect to have an easy ride all the time. Money and riches can sprout wings and fly off. Invest your efforts on the things that will remain with you - like integrity, a good reputation, a caring attitude. Is there someone else worse than you that you can help in the meantime? Do to others as you would like it done onto you.

Count Your Money Before It's Gone

Thu, 22 Mar 2012 00:00:00 +1100

Are you living in denial to the fact that you might have too much month at the end of the money? If you're not in the habit of driving your car until you stall on the highway with an empty tank - help is at hand!

Yes some recurring issues are more than annoying - but ignoring the problem will not make it go away. Furthermore, knowing exactly how far you are from the abyss might in fact be your saving grace. Better walking carefully with your eyes opened rather than falling into a ditch.

Introducing the concept of a cash flow forecast: As opposed to a budget where you arbitrarily decide what must happen financially next year, the cash flow forecast plays out into the future a list of earnings and expenses each at their appropriate due dates.

You can refine your juggling act by being able to pinpoint a shortfall into the future. You can avoid the wrath of banks and creditors by judiciously moving certain payments if possible.

Could you drive a cheaper car? Could you live in a more affordable suburb? Could you save on transport? Could you quit smoking? Like the proverbial glass of water you can see it as half empty or half full. If you lack imagination you cannot dream of where you would like to be, say next year. If things are bad now, they can get better in the future - only you hold the key to that. If nobody believes in you, you have to be the first one to believe in yourself!

You are embarking on a journey but as any traveller knows you will not reach your destination unless you know precisely where you are right now. You may not solve all you problems overnight (welcome to the real world!) but you might make just enough of a move each day to pull yourself out of that hole that wants to eat you alive.

Project your mind into the future. Imagine the powerful testimony you could have if you reach your goal and become qualified to help others too! Think of the people who depend on you if they are still around. If they have left you already consider the chances of reconciliation. Life is not a walk in the park. We need some achievers down here. There is a higher reason why you were allowed to fall into this situation. Pull yourself out to victory and show the way to other to follow through. That's what leaders are for!

Don't just wish for things. Make them happen. Wise Accounts is an online bookkeeping tool to manage your finances and forecast your cash flow while Goal Setter is another online tool to document and track your progress towards your goals. Take advantage of these resources.

The Dangers of Not Keeping a Budget

Thu, 15 Mar 2012 00:00:00 +1100

You have heard the expression "spending like a drunken sailor". The fact is that freedom requires some virtue to be managed. For the rest of us we need to set boundaries. That is just what a budget does.

You have heard a couple at the shopping mall arguing "We can't afford this!" so then, how do you set what's in and what's out? It all depends on your goals.

Your goals will determine your priorities in life. In order to reach each milestone along the way you will need resources - time and money. What hasn't been planned is left for a better day. What has been planned is negotiated for the best price/quality.

The danger of not having a budget is that you are being tossed about like a cork on the ocean. Whatever clamours the loudest will get your attention. Advertising is aimed at those who do not have a budget and can get enticed to change direction. They are being influence by the fashion of the moment and believe the lie that to be successful, loved and respected they need to buy the item advertised to gain all its instant benefits...

Sound like a fairytale, huh? Sadly a whole industry on Madison Avenue feeds on that lack of discipline.

So how do you make a budget? You have to monitor your spending pattern for say a month or so. Take all the expenses that went through your credit card(s) and your bank account(s) and sort them out by category: food, clothing, petrol, transport, eating-out, entertainment (movies, sport fixtures), insurance, phone/internet, utilities, rent, etc... Some expenses show up only yearly or quarterly. Then divide the yearly total by 12 for a monthly figure.

Then assign some priorities: One for things you can't do without: food, rent, transport. Two for nice to have things but where there is room to trim down. Three for things that really matter to you, like an overseas trip, some further education, some share trading or business capital.

The moment of reckoning comes when you line-up all your anticipated expenses with your current income. You can bet there will be too much month left at the end of the money.

Something will have to give. But now instead of being pushed along by whatever shines the brightest you are led by the decisions you have made and the goals you have set out to reach. The freedom of doing as you please with your money is not a matter of what feels good - it's a matter of what lines up with your goals and your budget.

Don't just wish for things. Make them happen. Wise Accounts is an online bookkeeping tool to manage your finances while Goal Setter is another online tool to document and track your progress towards your goals. Take advantage of these resources.

Strategic Budgeting - Getting Ready For the Future

Thu, 08 Mar 2012 00:00:00 +1100

Do you control what the price of oil will be tomorrow? Can you secure your future income? Will the people who use your labour or expertise be around tomorrow, and the day after?

Sorry to disappoint you but the only people who do not have to take any risk are those who have passed away...

By the same token it is quite wise to save for a rainy day - but how long do you think the deluge will last? Noah was prepared to stick it out for forty days. Yet he and the passengers on his boat were the only ones to survive.

If a profit/loss and balance sheet are financial statements to account for what occurred in the past, a budget is a financial assumption of what you would like to achieve in the future.

You might ask yourself what is the difference between faith, presumption and wishful thinking? Unless you have some deep insight into your market and the dynamics of your industry you have no business claiming you will achieve this or that. Yet shareholders and creditors demand to see how prepared you are for the next 12 months ahead...

Just like a hot tip from a person too close to the action is considered insider trading - bragging about your future plans may alert your competitors to make their pre-emptive move and cut you in on your lofty plan.

Some people have the view that by and large things will continue to roll-on as usual. To them preparing a budget consist of taking last year's results and slapping 10% onto everything - claiming we are aiming at a 10% growth this year... nobody got fired for that! So they think.

A smarter approach is divide and conquer. Instead of aiming at 12 months ahead just look at what might happened for the next 3 or 6 months and repeat the process 4 times or twice a year. People get paid fortnightly or monthly - not yearly. Why should you be held to make a fool of yourself with a crystal ball when a smaller time span limits the risk of being out of touch?

Unless your company is a one pony show chances are different divisions perform independently. Why not create a strategic budget for each and then consolidate the whole? More work? Yes. Why do you think spreadsheets were invented?

Finally you could dynamically project into the future your regular income and expenses and come up with a cash flow forecast graph - plotting your future cash position for the next 90 days.

Basics of a General Ledger in Accounting

Thu, 01 Mar 2012 00:00:00 +1100

A general ledger is a book where people record their accounting information according to the bookkeeping principle of double-entry. Fear not, it is not as complicated as it sounds...

Counting your beans is made easier with computers but we can also lose track of the underlying idea. The reason for writing entries twice is primarily for error checking and also because a transaction can be looked at in two possible ways: where the money comes from or where it goes to.

If you depreciate your car by say 10% annually (the car is deemed to become worthless after 10 years) then you would decrease the car's value by 10% in the fixed assets account. That's the first entry for that transaction. The second (balancing) entry would be to increase the depreciation expense account by the same (opposite) amount.

Accounts are arranged into groups such as revenue, cost of income, expenses, current assets (cash, bank accounts, tradable investments), current liabilities (credit cards, personal loans), fixed assets (car, furniture, property), long-term liabilities (mortgage).

Here is a free tip: to spot a data entry error, check if your general ledger is out of balance by a multiple of nine. Then you know someone swapped two digits when typing an amount. For instance you types 43 on one side of the ledger but 34 on the other side. The difference is 43 - 34 = 9. Your ledger would be out of wack by an amount of 9 dollars!

Accounts are again separated into 4 main groups: income and expenses which make up the profit and loss statement. Assets and liabilities make up the balance sheet. What is so clever about that? Income and expenses accounts are reset every period (month, year, whatever your accounting period is) while assets and liabilities are carried over from period to period. The idea here is that we want to compare period by period whether you are generating more cash that you are burning cash. But your net worth (the difference between what you own and what you owe) compounds from period to period.

As far as revenues and outgoings you get a new clean slate each period. On the other hand your wealth today is the result of what you accumulated less what you borrowed since you've been in business.

There are also other ledgers like the sales ledger (accounts receivable), the purchasing ledger (accounts payable), the branch ledger (accounting for each subsidiary and then consolidation into the head office as a group), the payroll ledger (wages plus payment made on behalf of workers).

The lighter side of accounting

Thu, 23 Feb 2012 00:00:00 +1100

In a volatile market you want to make sure your liquid assets don't go down the drain.

My daughter wants to run a mud-cake business. When I enquired she said she wanted to become filthy rich!

My duck farm went bankrupt because I had too many bills.

A debt collector summons a customer about a one year old unpaid bill. "What have you got to say for yourself?" The customer sheepishly replies: "Happy birthday?"

Were you nervous about asking the paymaster for an advance on your wages? "No, I was calm and collected."

The deceased millionaire rewarded Santa by putting a Claus in his will.

The new accountant got fired because he thought Dun & Bradstreet was a downtown intersection!

Husband: "The bank rang me to say the new check account I opened for you is overdrawn!"
Wife: "Can't be - I still have another 24 blank checks in my book!"

Husband: "The check you wrote to the department store came back!"
Wife: "Great! What can we spend it on this time?"

A banker is considered a good artist when she can draw interest.

Bill: Australia is a land of untold wealth!
Tom: Why, have you been peeking at my tax return?

Bill: I made a bet with the guy who does our laundry and won a bundle.
Tom: I guess you're not hard pressed for cash!

Bill: I never worry about money!
Tom: Why not?
Bill: What's the point of worrying about something you don't have?

Bill: I plan to beat the inheritance tax!
Tom: How?
Bill: I'm going to die broke.

Wife: Let's go to sleep honey - it's late.
Husband: Sorry, I'll stay up a bit longer. I'm reading a mystery.
Wife: That looks like our tax return.
Husband: it is.

Jackie Paulson commented:
We all need to laugh There are two guarantees in Life- DEATH TAXES

Are you all accounted for?

Thu, 09 Feb 2012 00:00:00 +1100

The first uses of the early computers were various accounting systems for banks, insurance companies and mutual funds. Imagine running one of these businesses today without computers... Yet the awkward situation is that young people don't seem to care about keeping a tab on their finances.

Life has a way of catching up with you if you live carelessly - especially in the domain of finances. Few people grasp the concept of compounded interest (interest paid on interest). It works wonders for those who save and it spells disaster on those who borrow.

Little streams make big rivers. People at large do not grasp that small changes in the management of your money can trigger sizeable consequences over time.

The modern mantra is "whatever feels good - just do it!" self-gratification is everywhere and it's all about lack of discipline. "Today let us drink and be merry for tomorrow we die."

Why should only the taxman be privy to your state of affairs when you have to lodge your tax return? There is much valuable information to be found in poring over your personal finances. You might be disappointed with your job, frustrated with the neighbourhood you live in, jealous of your friends' lifestyle - but still the buck stops with you.

The way you handle your finances says a lot about the direction you're taking for your life. If you set goals it will channel your resources and you will have to make some strategic decisions about where to spend and where not to spend.

Unlike time which flies through your hands, money can be saved for a rainy day. The ability to store up cash for a worthwhile goal is the mark of a determined person who is prepared to hold on to achieve something worthwhile.

A cash flow forecast is a great tool for planning where you want to be financially this time next year. And guess what? If you don't plan to reach a given financial target you are very unlikely to bump there by accident.

James Barrett commented:
Agree, young people want what their parents could not afford. They want everything now and do not know the concept of saving up for your goals. Bank accounts pay next to no interest, so the incentive to save has been removed of late. We live in the buy now, pay later motto.

Does the bank own you?

Thu, 26 Jan 2012 00:00:00 +1100

In medieval times people would sell themselves as slaves to avoid poverty and dying of hunger.

Today people mortgage their lives for an ever so elusive lifestyle. All because of marketing propaganda which indoctrinates the weak that unless they have this, that and the other they are nobody on the status scales.

If the cost of housing and cars doubles every ten years while your purchasing power goes backwards because of inflation and competitive foreign labour something will snap.

In past generations people would save for 20 years to buy a house or a car or both. In that time they had plenty of time to decide whether they really wanted it, whether the sacrifice was worth it, whether they would indeed reach their goal or whether they should make other arrangements.

Today the popular wisdom is: I want it and I want it now. Here comes the age of credit; how to enslave your future for the glitter of the ephemeral.

Because all people can see are the monthly payments (never mind how many payments there are...) as long as it fits in the monthly budget - let's go and buy it!

This is the very thing that fans inflation because in a world where people pay cash for everything there is a limit to much people are willing to pay and can pay for everything from houses to cars and clothing, etc...

In a world where everybody has access to credit that limit is lifted. What then takes place is a race for greed on the part of suppliers who can charge more and more as long as the new model supersedes the current model because of (useless) new features. Furthermore appliances are designed to break down within five years when they could last twenty years - just avoid saturating the market.

People were told it's OK to buy on credit if what you buy increases in value - that is housing... yet in the last 5 years we have seen that there is a limit to this also. A housing bubble is about to burst or at least deflate like a lead balloon.

You have situations where the collateral value of an asset is less that the amount of the loan. If you borrowed to buy shares that calls for a margin call. In residential real estate the banks are feeling a bit fidgety. No wonder they are not using the cash recently printed by reserve banks to offer more loans but rebuild their balance sheet instead...

Bert C commented:
This is kind of scary. Should I keep my cash under the mattress and a gun under the pillow?

Cruising along just not good enough

Thu, 19 Jan 2012 00:00:00 +1100

A trademark of insanity is repeating the same things over and over again expecting a different (better?) result...

You are not going to get ahead financially until you have a good hard look at your spending habits. What percentage of your income disappears in rent? What proportion vanishes in food, transport, entertainment, etc... ?

Unless you know where you are starting from you will never pull yourself out of your situation - simply because you have no way to measure your progress - or worse detect if you are actually falling further behind...

This is where Wise Accounts can make a big difference. Tracking where your money disappears will put you in control because that knowledge will draw the line between what is essential from what is discretionary.

Another benefit of counting your dough is that it will give you confidence that saving up for a worthwhile goal is both achievable and rewarding. It all boils down to self-esteem. Once you feel good about yourself and just trust in your abilities you are empowering yourself to get where you want to be.

Seeing how your resources start to accumulate simply because you have set your mind to it can be a tremendous boost to your ego. It all comes down to a word most rebels love to hate: self-discipline.

If you are still reading on may I suggest to sign-up to Wise Accounts and get yourself underway. You don't need to enter everything since the start of the current financial year. You can do that later if you feel so inclined. It will be useful when you file your tax return.

The bare minimum you need is to enter your current bank balance, your regular income and outgoings (we call these recurring transactions) and immediately you can produce a cash flow forecast.

It will show that either you are spending less that you earn and at what rate - or that your situation is unsustainable and how long it will take you to go broke. Before you jump over a bridge though, just check that you haven't missed anything. As time goes by and you refine your system it will become more and more accurate and you will be able to see your face in the mirror - financially.

You've heard the saying: "little streams make big rivers" or "do not despise the day of small beginnings". One word of caution: do not brag about your new system until you know it works for you. There are plenty of jealous folks out there who don't want you to overtake them on the road to success. It is a path littered with a few casualties. When they see you powering along they might say to themselves: "If this guy can do it, why not me?"

Home business opportunities

Thu, 12 Jan 2012 00:00:00 +1100

Have you ever waited at an intersection and found a business opportunity poster wrapped around the traffic light post and adorned with tear-off "call this number" tags?

What is the stigma about network marketers that they can't own up to disclosing the name of their parent company? Two reasons: they want to get a chance to see you face to face and run past you their presentation. This will hopefully address all objections before you get a chance to think of one. Secondly they are competing against other distributors peddling exactly the same product/opportunity. If they reveal the network's name they are basically wasting their marketing efforts. You will be sent to whichever distributor the head office directs you at the time.

Working from home is a bonus if you have to care for young children and they can have a nap during the day. Bookkeeping comes to mind assuming the business owner doesn't mind you accessing their bank account online. Most of the work will be data entry and bank reconciliation.

Being an artist/copywriter is another home business activity where you produce sales brochures, procedures manuals, technical manuals and other documentation.

Doing research for a legal or marketing firm is something you can do wherever you can connect to the internet. Ideally you would have worked for the company in the past so that they know you and trust you and now you work part-time from home - possibly to care for children or an elderly person.

Bosses have been reluctant to employ home operators because of lack of accountability and lack of communication. The convenience of having an employee at call to join-in for a client briefing meeting is lost and extra time is needed to document exactly what is required from the remote person.

That leaves us with those internet ventures where scores of untold customers will flock to your website and purchase whatever product or service you offer. Bear in mind that Amazon and EBay are already doing that. You would need some really compelling reason for people to come and find you and pull you out of cyber obscurity.

Home craft is another avenue. Are you good and fast at sewing or welding? You may produce a range of clothing or jewellery/accessories before China gets a chance to copy your designs.

What about creating comic strips, recording music, translating documents into a foreign language? Think of writing a book, a screenplay, a series of poems, etc... That would be enjoyable and fulfilling. The painful part is that you will have a hard time finding a publisher who is both honest and interested in your work. But remember the saying: "No pain, no gain."

Joe Bloggs commented:
What about servicing a pool of vending machines around town?

Debits and Credits Explained

Thu, 05 Jan 2012 00:00:00 +1100

Debits and credits are a system of notation used in bookkeeping to determine how and where to record any financial transaction. In bookkeeping, instead of using additions '+' and subtraction '-' symbols, a transaction uses the symbol DR (Debit) or CR (Credit). In double-entry bookkeeping debit is used for asset and expense transactions and credit is used for liability, gain and equity transactions. For bank transactions, money received in is treated as a debit transaction and money paid out is treated as a credit transaction. Traditionally, transactions are recorded in two columns of numbers: debits in the left hand column and credits in the right hand column. Keeping the debits and credits in separate columns allows each to be recorded and totalled independently. Where the total of the debit value amounts is lower than the total of the credit value amounts, a balancing debit value is posted to that nominal ledger account. That nominal ledger account is now "balanced". An account can have either a credit value balance or a debit value balance but not both.

A debit can also be used to reduce the balance on a liability, gain and equity account. This has the effect of reducing a credit balance by the value of the debit transaction. The balance in a nominal that is normally expected to hold a debit balance may change from a debit balance to a credit balance.

A credit can also be used to reduce the balance on an asset or expense account. This has the effect of reducing a debit balance by the value of the credit transaction. The balance in a nominal that is normally expected to hold a credit balance may change from a credit balance to a debit balance.

In some cases such as fixed assets, all debit transactions will be recorded in one nominal account and all credit transactions will be recorded in a contra nominal account, with the exception when an asset is disposed of. The purchase of an asset will be recorded in a fixed asset account (debit transaction) and the depreciation of the fixed asset (credit transaction) will be recorded in a contra nominal ledger account, fixed asset depreciation.

Each transaction consists of debits and credits, and for every transaction they must be equal.

For Every Transaction: The Value of Debits = The Value of Credits

The extended accounting equation must also balance:
A + E = L + OE + R

(where A = Assets, E = Expenses, L = Liabilities,
OE = Owner's Equity and R = Revenues)

So Debit Accounts (A + E) = Credit Accounts (L + R + OE)

Debits are on the left and increase a debit account and reduce a credit account.

Credits are on the right and increase a credit account and decrease a debit account.

TYPE	DEBIT	CREDIT
Asset	+	-
Liability	-	+
Income	-	+
Expense	+	-
Equity	-	+

Therefore, if an Asset account is debited, the Asset amount (value) is increased. Same with an Expense account. If a Liability or an Income account is debited, the numerical figure will decrease, etc. If a particular account is credited, there must be a corresponding Debit in another account in order to balance the transaction.

As used in banking terminology, 'Debits" refer to withdrawals, not necessarily in the same context as discussed here.

So to wrap it all up you can remember all of this with the mnemonic phrase: "Accountants are credited for being afraid of negative numbers."

Suzie Wilson commented:
At last I get it! Thanks for that article...

Free gift - the economy of giving

Thu, 29 Dec 2011 00:00:00 +1100

If some marketers feel the need to stress that their gift to us is free then it implies that some gifts are not free - or at least have some strings attached...

In our consumer society where selfishness abounds we have totally lost touch with the significance of giving. You would remember: "Freely you have received, freely give" and also "It is more blessed to give than to receive".

Hoarding is motivated by fear of lack- thinking we won't have enough for ourselves - let alone to pass around...

In the past a monarch would bestow gifts to his subjects as a token of his good nature. Today well heeded people give gifts to those in power (who already have everything they need) in order to induce favours.

For some who have a pure heart giving is an expression of who they are. Giving of your substance in a way that people can never pay you back for the simple joy of seeing them enjoying your work is a satisfaction and a fulfilment that no money can buy.

In fact the next step is that as you show yourself to be a channel of quality and abundance people will make a path to your doorstep and commission you to do more for them this time in a commercial transaction.

You can think of artists who are a tremendous enablement for our senses letting the world benefit of their expression. One day they get called to do a masterpiece for a well-known event because their reputation goes ahead of them.

Not all givers are artists. You can think of volunteers who tirelessly give of themselves for a cause they believe in. One day they get called to take charge of the organisation they serve - simply because no-one else has demonstrated the passion and the knowledge they have.

You can think of multi-level marketing operatives who could have retired in their forties but continue tirelessly to build their network. Why? For the simple joy of building up people with a business opportunity of their own and see them reach financial independence.

Too good to be true? No this is a biblical principle. If you have the right motives and are found to be a channel to bless others God will see to it that your well never runs dry. In fact the amazing thing is that it works the same for those who know Christ and those who don't...

Year of jubilee

Thu, 22 Dec 2011 00:00:00 +1100

What about if we were to cancel all debts every 50 years? Wouldn't you love to take up a huge mortgage just a couple of years before? Could you get away with it?

In biblical times the flip side of the jubilee was also that everyone had to return to the original property of his clan. So buying a field just seven years before the jubilee was cheap because you could only get seven harvests before having to hand it back as opposed to say buying it twenty years before the jubilee. In the Middle East people have an attachment to the land.

The concept of usury exploded when the Reformation broke away from Roman Catholicism. More broadly you lend money freely to your family members (whom you trust or at least have means of recourse) but you charge interest to strangers (who present a risk).

Inflation is an incentive to borrow. Buy a house today on borrowed money while ten years later it may have doubled in value.

Inflation is a way to rob workers of a recent rise in wages. As the cost of goods rise their purchasing power is back to where it was before or worse.

Too much inflation creates shortages of staple supplies as people are hoarding in fear.

Hyperinflation in Zimbabwe began in the early 2000s, shortly after Zimbabwe's confiscation of white-owned farmland and its repudiation of debts to the International Monetary Fund.

The opposite - deflation is quite interesting. People stop buying; thinking goods will fall in price as time goes by.

A similar setup is for electronic goods which decrease in price due to advances in technology. The early nerds pay a premium to show-off their new gadget while the masses are waiting for prices to come down to embrace the new lifestyle.

There is some concern that the USA might follow the path of Japan into the deflationary abyss.

The Japanese asset price bubble was an economic bubble in Japan from 1986 to 1991, in which real estate and stock prices greatly inflated. The bubble's collapse lasted for more than a decade with stock prices bottoming in 2003, until hitting an even lower low amidst the current global crisis in 2008. The Japanese asset price bubble contributed to what the Japanese refer to as the Lost Decade.

Sales of existing homes in the US plummeted 27 per cent in July, to their lowest level in a decade.

As you know history has a habit of repeating itself. So count your blessings while they last.

Who has a license to print money?

Thu, 15 Dec 2011 00:00:00 +1100

While you are bursting your guts to make a quid others are just printing money to make ends meet... Are we about to see the days of barter if we don't have any trust in our currency?

Not so long ago the US dollar was pegged to its value in gold according to the piles kept in Fort Knox. But of course Richard Nixon in 1971 thought that was a stupid idea and decided we could do away with that requirement.

The US budget deficit is forecast to swell to $US1.7 trillion. Now US Federal Reserve chairman Ben Bernanke has announced his answer: the central bank itself will buy $US300 billion of US Treasury bonds and pay for them by electronically printing the money. That in turns brings the interest rate to an all time low.

China is worried about its $US740 billion holding of US Treasury securities. I think they should.

Banks find it un-economical to lend money at such low interest rates and prefer to use the government help to rebuild their balance sheet rather than lending again. In the meantime non-banking lenders have been decimated by the CDO debacle. The net result is that while the governments think they can push a few buttons to get the economy rolling again - credit is much more difficult to find.

In the meantime forgery of currency has hit an all time high when in 2004, French police seized fake 10 euro and 20 euro notes worth a total of around €1.8 million.

But you say, we are an advanced society now and most transactions are done electronically...

Between July 2005 and mid-January 2007 a breach of systems at TJX Companies exposed data from more than 45.6 million credit cards. Albert Gonzalez is accused of being the ringleader of the group responsible for the thefts. In August 2009 Gonzalez was also indicted for the biggest known credit card theft to date - information from more than 130 million credit and debit cards was stolen at Heartland Payment Systems, retailers 7-Eleven and Hannaford Brothers, and two unidentified companies.

In Sydney some enterprising folks had the idea of injecting acetylene gas from a welding cylinder into an ATM in the wee hours of the morning. After ignition and a shattered retail banking outlet they helped themselves to the cash. They were professionals and repeated their deed 3 times in 8 days.

How long will this merry-go-round last? Will you find a chair to sit on when the music stops?

Should we return to the gold standard?

Thu, 08 Dec 2011 00:00:00 +1100

Buying and selling would not be possible if we didn't have a reference mechanism to trade goods and services against a token value.

Since biblical times gold was used for that very purpose. In 1968 in the US you had the assurance you could swap your dollars at the rate of $35 per ounce of gold.

Gold and silver coins were the common means of exchange all the way to the 20th century. It's only very recently that the Bretton-Woods accord was dismantled

Credit cards are so widespread because of the convenience of not carrying cash wherever you go plus the appeal of having a permanent unsecured line of credit.

It is such a boon for banks who collect their commission along the way that they absorb and manage all fraudulent transactions themselves.

With the advent of the internet the question arose as to how one could send money via email. The answer was PayPal.

It seems each time the integrity of money is at risk - convenience wins. If enough people jump in the pool then those who sit on the side line are missing out on all the fun (sorry, I meant profit).

For a web merchant the choice is bleak. Either you make the sale on EBay or the buyer will find a click away someone else who gladly will. And so the system gathers momentum.

The global economy has been a bonanza for exporters in Third World countries who can flood the market with cheap goods produced by enslaved labour. It also means that western democracies have forgotten how to make staple goods which are now deemed cheaper to import. Talk about sovereignty and financial independence.

Only ten years after the introduction of the euro, the Greek debt crisis has shown countries the dangers of relinquishing their national currency.

Things are so interconnected and leveraged that one hiccup in one place can cause havoc at the other end of the globe.

Nowhere on the face of the earth can you pretend you are immune to this turmoil.

You now see the emergence of Gold Buyers stands in every shopping centre. Obviously someone thinks it is important to buy gold from private holders.

When the monetary system collapses (not in my lifetime, thanks) what will you sell to buy your next meal? Your dog? Your wife? Your children? What about having some gold or silver in reserve hidden in a hollow...

Opening balances

Thu, 01 Dec 2011 00:00:00 +1100

Why do some accounts start with zero and others don't? As you start a new accounting system you may indeed have not earned or spent a cent yet but it doesn't mean you are worth nothing.

Since you were not born overnight in a cabbage patch a new set of accounts has to reflect your personal worth. There are things that trail us from year to year and accounting is concerned with what we own and what we owe.

Sleeping on it does not make a debt disappear. If anything it costs you more in interest at best, at worst it can get the lender irate and claim all his money back all at once.

So we find there is a tight relationship between time and money. Knowing how much you spent or earned in of itself doesn't mean much. What's more interesting is how much you spent and earned within a given amount of time (a week, a month or a year) so that we can compare with the same period (last week, last month, last year) and see if things are improving or getting worse.

Accountants segregate those two types of accounts into two reports.

The profit & loss report shows earnings and expenses that get reset each time period.

The balance sheet shows what you own and what you owe. These things get passed on from period to period. You don't get off the hook with your borrowing if a new financial year starts. Likewise you'll be happy to know you don't loose your house or car just because a new financial year starts either!

So what is the best accounting period for you? If you are a wage earner then the period by which your income comes in is the obvious period to choose.

If you run a business and major regular outgoings fall due at regular intervals then that might be the time measure to use. You first have to clear off your expenses before you hit the profit zone. How soon in the period you can achieve that is a great motivator all by itself.

Is there a connection though between the two reports? Remember the first report was called profit & loss. (it should really be called profit OR loss - or just either PROFIT if you are gaining ahead or LOSS if you are falling behind).

If the first report is reset to zero at the start of each new period then the profit (or the loss) is passed on to your net worth (also called equity) into the second report (the balance sheet).

Uploading your data into wise accounts

Thu, 24 Nov 2011 00:00:00 +1100

The bane of accounting programs is that one you used one your data is pretty much tied up to it. It is probably by design from the part of the software vendor to make sure you can't walk away from their product easily and use a competitor.

It shouldn't be that way and this article will explain how you can save yourself a lot of typing if you managed to save your data into a text file.

The quickest way to get you on your way is to reverse engineer what Wise Accounts does with the backup/reload (these menus appear once you have a paid subscription).

The idea is that if you use the backup file from the Smith&Co or John Citizen demo as a template you can reload your own data in one hit.

accounts
id name type memo recipient subject last year balance checkbal
4 Petrol 3 28726.40 5863

postings
id p_date reconciled account checkno dissection comment amount
1 01 Jul 2009 0 6 0 Opening Balance 11327.5

There are only two tables to worry about: the accounts table and the postings table. Each field is separated by a TAB. (The Tab key is above the Caps Lock key on the left of your keyboard. Like a space it is an invisible character but some program can render it with a marker.) For the accounts table the only fields to worry about are the id (that's the account number), the name, the type (income, expense, bank account - they are listed in the types table - you can always change that later in Wise Accounts once you data has been uploaded.). Make sure you have the right number of TABs on each line otherwise you will get an error.

For the postings table the fields are id (an incremental counter), p_date (posting date), reconciled (0 = no, 1 = yes), account (the account number as per the accounts table above), checkno (leave it blank), dissection (leave it at 0), the comment (a good practice is to put the name of the matching double-entry account) and a signed amount. Simple isn't it?

If this is too daunting send us an email and we will try to do it for you.

If you are using MYOB there is a procedure to automate this.

Housing affordability

Thu, 17 Nov 2011 00:00:00 +1100

Young adults are delaying leaving their parents home because it is their only option to save enough for a deposit on a dwelling of their own.

If your rent or mortgage repayment exceeds 30% of your household income that housing is deemed unaffordable.

Unfortunately real-estate unlike the stock market does not crash down to reality very often. Even though house prices are roughly double what they ought to be there is no sign of a drop any time soon. The government is guilty of adding to the trouble: interest rates keep rising and the first home buyer's grant was quickly absorbed by the market.

Who profits from the situation?

Realtors The more expensive the property - the higher the commission.

State government The more expensive the property - the higher the stamp duty.

Local councils The more expensive the property - the more rates they can levy.

Land owners By releasing housing land on a drip-feed you can keep the prices up just like OPEC manipulates the price of crude oil by reducing production.

Residents of leafy suburbs Banning medium density housing maintains the prices high by keeping out tenants, migrants and other undesirable citizens.

Sollicitors Conveyancing is kept complicated so that only a profession of experts can benefit from a service which does not provide real value to anybody.

Banks The higher the property value during the course of the loan - the higher the collateral is case of foreclosure.

Everybody loves the price of their property going up until they have to sell and buy to relocate. Then they realise that after taxes and commissions are paid they would be better off staying where they are. The price of their house has gone up indeed but so have the prices of all the other houses they would like to buy...

One strategy would be to engage in a scare tactic to motivate beachfront residents to sell up in panic because of rising sea levels and coastal erosion.

Another alternative would be not to live on land at all. Have you considered living on a yacht? Changing the view from your window as you travel from place to place. Too bad you can't get a job to suit the lifestyle unless you traffic in drugs or other illegal goods...

What about living in a motorhome? Camping is great for a holiday but as a permanent lifestyle you might want to see how you survive your first winter before you make such a move.

Have you lost your marbles?

Thu, 10 Nov 2011 00:00:00 +1100

Not being able to account for how much you owe and how much your own is a disease that can be cured! Yes the reality of those figures is something you'd rather forget about - but that doesn't make the problem go away. A stiff drink isn't the solution either.

Little streams make big rivers. You may not consider yourself a numbers person but in this world and age everything revolves around money. So be courageous and build yourself a dashboard of where you stand financially.

Wise Accounts is the no-brainer online accounting system to enter your receipts and paychecks. Having this basic information in the system has some significant benefits. By knowing the frequency and the amount of your outgoings and of your income Wise Accounts can forecast your cash flow into the future.

Wouldn't it be nice to know ahead of time if you are heading up or down? Not only that but what about knowing right now how much tweaking in your spending would it take to bring you back to a balanced budget?

It maybe not be that hard to pull yourself out of that financial hole you're in. There is only one way to find out - do the figures! There is no need to be a hero and wait until you have to file for bankruptcy. There might still be something in your power to redress the situation.

As you build your financial records you will keep your finger on your financial pulse. You may have a spark of inspiration and find ways to re-finance things (oh no, not another credit card, thanks!). As you get your grey matter working on the subject you might come across a way to do more with less, to change your consumption, to sell something you don't need, to move to cheaper accommodation, to take on a second job, to burn the candle at both ends... (OK, there is a limit to all that pep talk. But you get the drift. Do nothing and nothing will happen.)

At the end of the day you have to take charge of your own life. The flip side is that coming on top of thinks will empower you to be in control but more importantly to be able to help and guide someone else through the same journey. Wouldn't that make everything worthwhile?

Too much month at the end of the money

Thu, 03 Nov 2011 00:00:00 +1100

"Not enough money at the end of the month" has to do with living freely (carelessly?) not being able to say no to the many solicitations that come past our way. For some spending is a way to make oneself feel good - for others, they never have been taught how to care for their money in the first place.

"Why should I care about something I do not have?" that's precisely the point! Unless you keep tabs on the little money you have it will never grow. So I am going to spring on you another dirty word: budget. "Oh, no I hear." Well, you are budgeting all the time without knowing it.

For instance if you have an apple pie with 5 people around the table you may divide the pie first in half, and in turn each half into 3 pieces giving you a total of 6 pieces. Why 6 pieces instead of 5? That's budgeting in action. First it is much easier to divide a pie into an even number of slices. Second a latecomer may show up or you may want to offer your guests a second helping.

And that's my point right there. Don't just fly by the seat of your pants but set aside some extra for a rainy day. There are two ways to do a budget:

The static budget is to look at last year's figures, bump everything by 20% and hope for the best. That is obviously a cop-out. An improvement would be to tally all your expenses and prioritize them by order of importance. Obviously if you are faced with an empty bank account way before your next pay comes in then something has to give.

Can you go cold turkey on cigarettes, alcohol, new clothes, electronic gadgets or movies? Your lifestyle and your finances are inexorably linked. Setting goals and monitoring them might be the way to get you out of that hole.

The dynamic budget is a tool that Wise Accounts offers. It takes into account all your recurring transactions with the periods at which they come due. Wise Accounts then goes away and produces a cash flow forecast as a report or a graph to show you whether you are heading up or down with your bank balance 3 months, 6 months, 12 months from now.

Now get to work and start tweaking those expenses, run the report again and see the impact of a seemingly small change over time... you will be impressed! That will give you the motivation to hold your course through what may come. Because you have your mind set on some agreed outcome in the foreseeable future you have gained the justification and the resolve to stick to your plan. You know that the result is well worth it.

Follow the money, honey

Thu, 27 Oct 2011 00:00:00 +1100

For the accounting profession there must be checks and balances to make sure people can't fudge the books. For the business proprietor the ability to correct mistakes and re-allocate monies to their proper accounts is paramount.

Wise Accounts takes the view that it is your money that you are accounting for and that you should have the freedom to revamp things the way you want them to look.

Sometimes it is not obvious to figure out the perfect chart of accounts to suit your business until you are 3 or 6 months down into the financial year. Does it mean you should make your ledger unintelligible by having rafts of correcting entries just to show a proper audit trail? Hogwash! Let the bean counters muck around with their arcane arts - while you the business owner only want to get things straight.

Besides as history has shown time and time again - if people want to cheat - it's not a bullet-proof accounting package that is going to keep them on the straight and narrow.

So there you have it - two incompatible requirements. The accountant on one hand wants to safeguard his expertise and show things the way the Tax Office wants to see them. You, the business proprietor on the other hand who wants a clear dashboard of where things are going and how fast...

That conflict of interest has many ramifications. The way you account for a business reflects your bias about that business. As a business owner you should not let someone else bully you on the way you want to look at your own figures for goodness sake!

Some tax rulings about depreciation are quite devoid of the reality of market resale value. You end-up carrying two sets of books. One to keep the taxman and the accountant happy and another to reflect to yourself and your trusted shareholders about the real value of the business as it stands.

With Wise Accounts you can do your own thing all year around and let the accountant reload it into MYOB to perform their accounting magic at year end. Everybody is happy!

Accounting explained

Thu, 20 Oct 2011 00:00:00 +1100

Have you ever got your knickers in a knot about debit and credit? Which one is left and which one is right? Which one is positive and which one is negative? I'm not a qualified accountant so I won't try to answer those questions but it's remarkable that the profession has kept that confusion going for over 500 years.

Wise accounts is in the business of providing a web enabled bookkeeping system to whoever sees the benefits of updating their accounting information online. In that context I'll explain a few basic things.

In order to catch errors in the days before computers or calculators people had once the bright idea of recording accounting information twice. If the two sides didn't match then you knew an error was lurking there and you would go searching for it. (It's called balancing the books.)

Today we still follow that practice and the same amount is entered once where the money is coming from and twice where the money is going to. That's called a double-entry ledger but you won't get points bragging about that at dinner parties.

Where the money is coming from is a category, a grouping, a bucket - well the accounting term is - wait for it - an account! Those accounts are called income accounts. Where the money is siphoned out is called expenses. If on the other hand you store that money for a rainy day it's called an asset for instance a pension fund, an investment or your bank (account). If it's something that can be exchanged for cash over the counter it's called a liquid asset. If it's something that needs to be sold it's called a fixed asset like a car, a house, a painting, a stamp collection, some antique furniture, etc... If you are spending money you do not owe (credit card, loan) it's called a liability.

If you reduce each year the value of your possessions to reflect wear and tear it's called depreciation. If you increase the value of your possessions (shares, real-estate) to reflect market prices it's called capital gain. The taxman is lurking around to grab his share the moment you make the sale.

If you are a celebrity and sell your car with an autograph on the dashboard for a higher price than you bought it - that's called a capital gain. For the rest of us we always loose money when we sell our cars - that's why we depreciate them.

When money goes out of one account and into another it's called a transaction. It's simply a record with the date, the amount, an optional description and the names of the account-in and the account-out.

When you tally all the amounts in all the accounts even though some are positive and some are negative it does not come down to zero. The difference is your net-worth (also called your equity).

From year to year if your net-worth increases you have made a profit for the year. If it goes down you have made a loss. The trick is to be smart enough not to wait for the end of the year to find that out. If you are heading for a loss, pick that trend early enough to remedy the situation. Remember they are only 3 ways to get rich: 1- earn more, 2- spend less, 3- do both at the same time!

End of financial year blues

Thu, 13 Oct 2011 00:00:00 +1100

This is the time of the calendar you approach with mixed feelings. Joy of getting a tax refund or dread of rummaging through your files with your accountant and being hit with a double whammy: the taxman liability and the accountant fees (which are tax deductible - next year that is...)

What would it be like if you lived in a country with enough state revenue as to not levy taxes from its citizens? (Where is that? - you may ask...) Would people actually bother to find out if they are making a profit or a loss?

Most people do not consider that they are in business for themselves. Even if your sole source of income is earning a wage you do have an estate, you do have assets and liabilities and - wait for it - you do have a net-worth! The epitome in financial carelessness is illustrated by the tradesman who walks into his accountant's office once a year, a shoe box full of receipts under his arm and proudly declares: "Do my tax!"

Fun aside, one of the painful experiences of the end-of-financial-year is the stubbornness of some accounting programs in regard to rolling the data over into the new year. For reasons beyond your control you may be prevented from rolling the books into the new year because some superannuation fund is late in providing your statement, some bank maybe not post the interest you earned for a while or some expense incurred has not been finalised.

This can create some distortion and it is a well known trick to minimize a loss in the year just ending at the expense of next year results which are being penalised by carrying this burden over.

Wise Accounts comes to the rescue by providing an elastic timeframe for your accounts. Your ledger does not need to be exactly 12 months long. You and only you decide when it is convenient to chop the current ledger into last year and current year with opening balances to boot. There is actually a screencast on this very subject to take you by the hand and show you how it's done. Enjoy!

What about budgets?

Tue, 09 Mar 2010 00:00:00 +1100

How do you do budgets in Wise Accounts?

Wise Accounts commented:
We use recurring transactions which map out your weekly, fortnightly, monthly or quarterly incomes and expenses. From there a cashflow report and graph are produced.

How do I import an MYOB file?

Tue, 02 Mar 2010 00:00:00 +1100

I don't fancy messing around with spreadsheets just to use this service...

Wise Accounts commented:
Easy: In MYOB go into the menu File|AcountantLink|Others|Ceedata and save the file to your PC. Then go into the Wise Accounts maintenance menu and click Ceedata import to upload that file. Also check out these tutorials.

cheque number

Thu, 11 Feb 2010 00:00:00 +1100

I know that with electronic banking cheques are on the way out - but where do I record a cheque number when I post a transaction?

Wise Accounts commented:
in the comment field

beware of web browsers that remember passwords

Wed, 13 Jan 2010 00:00:00 +1100

If you intend to use this site from various locations don't rely on the browser to remember the password for you. That's the best way to lock yourself out because - guess what - since you don't enter the password anymore you will surely forget it... at the most inconvenient time!