Hi, welcome to accounts for all, a way of getting acquainted with accounting knowledge in a simple way. Accounting is complicated, for the right reasons but it is not rocket science. We can't all be accountants but we can get familiar with the subject, to our advantage. 

Why learn Accounts?

Why the fuss: In this age of micro-businesses and entrepreneurship it is important to be financially literate and accounting is the one-way ticket to that concert.

What’s the catch with financial literacy: If you are running a business for profit you would want to know how much you have made, when you have made it, and how you may get more gains.
Also apart from that, you don’t want to be misled by your " not so loving accounting " mind that you are making a profit when in fact you are not. Importantly, some people make the mistake of thinking profit is all the money that is ready for use in the business. They end up confusing some of the capital in the business as profit. If that's the case, the business will fail, and one might find themselves being unable to pay debts and might end up losing their personal belongings if they are running a sole trader business or a partnership.

Most people who really hate accounts, they hire somebody to do the boring work for them. Such that as they are enjoying their drinks at Calypso bar somebody will be staring at numbers on the computer screen all day and punching numbers on a calculator. That’s okay really if you have the money but what if you can't afford to hire somebody, well the key is DIY until you can afford to or until you develop a liking for it that you actually consider getting into an accounting course.

So let’s do simple DIY accounting.

What are Accounts?

Accounts are the financial/monetary records of a business. A proper way of keeping accounting records is called bookkeeping. A business is any economic activity undertaken to make a profit. The basic reason for keeping accounts is to calculate a profit which is basically the gains from the business.

The main aim of operating a business is to get a profit among other important reasons like having financial independence or pursuing your passion etc.

How do we get a profit?
Basically, you take all the money that you have gained from operating an economic activity(income) and subtract all the money you spent on business activities(expenses).

The key word in that statement is economic activity. Let’s take for example Wendy has identified an opportunity she can get scarfs at a low price and sell them at a much higher price. To start, Wendy has $20. The money Wendy uses to start the business is not income, it is  Capital. Capital is your investment in a profit-making business. Once Wendy has the capital and starts to trade, the money that she gets from trading and only trading-related activities will be her income(revenue). 

Revenue pertains to the income she received directly from selling the scarfs or other gains relating to her scarf business. Her expenses pertain to the cost of running her business which includes the money she uses to buy the scarfs, the cost of transporting the scarfs (if there are any), rent( market stall rent), and wages and salaries (if she has any employees). If Wendy decides to reward herself with a holiday trip to the Bahamas because she has worked so hard on the business, the trip to the Bahamas is a cost to herself and her personal account, not the business. However, if you went to the Bahamas for a business-related deal, that will result in more income for the business, then the trip to the Bahamas will be a business expense.

Let’s consider these examples
1. You buy a computer for $200 and you sell it for $300. How much is your profit assuming you didn’t incur any other cost.

2. You run a shop called store electronics, which deals in electric products which you import from Japan. You buy each product at an equivalent of up $5, and you sell them at $10.You incur a shipping cost of $0.50 for each unit of product bought and you acquired 100 products. You have to pay your employee a monthly wage of $250, what is your profit for that month assuming you sell all the units?

For basic DIY accounts the calculations are simple:
Step 1. Determine and calculate all your Income
Step 2. Determine and calculate all your expenses
Step 3. Subtract Expenses from Income to get Profit

NB: Income is basically from sales and expenses are composed of the cost of selling and business running expenses

1. Calculation of profit

Selling Price  - Buying Price = Profit is $300-$200=$100

2. Calculation of profit
Income from selling ($10 x 100units) = $1000
Cost of buying ($5 x 100 units) = $500
Shipping cost ($0.50 x 100 units) = $50
Business expenses = $250 (salary)

Profit = $1000-$500-$50-$200=$250

The profit for the month for store electronics is $250, which may either be good or bad depending on how much profit the owner intended to make. This is the point where accounting comes into play. Accounting entails recording, summarizing, analyzing, and interpreting accounting data (accounts) to be presented in the form of reports and financial statements for decision-making.