Definition of Accounting for Entrepreneurs
Entrepreneurs are individuals seeking business and investment opportunities through inventions. The ability to manage the business successfully is crucial. Therefore, entrepreneurs must take into account the income and expenses of the business to ascertain the progress of the enterprise.
Entrepreneurial accounting or accounting for entrepreneurs refers to the process of recording financial transactions of a business by entrepreneurs as well as summarizing, analyzing, and presenting the results logically and coherently.
As an individual desiring to make progress in the business world, it is important to keep financial records of income and expenses of the financial standing of the business.
many entrepreneurs are carried away by the euphoria of setting up a business and developing products without learning basic accounting for entrepreneurs or keeping important financial statements to determine the success of the business.
inventing an idea and transforming that idea into great investment opportunities and ensuring that the business succeeds are two different things. it is good for an entrepreneur to acquire some essential skills in accounting, to be able to finance the purchase of commodities, pay bills, and save for future financial responsibilities.
having a good financial statement as an entrepreneur is necessary for the expansion and development of an organization as well as to determine the financial strength of the organization.
Read Also: Top 7 Contributions of Entrepreneurs to National Development That You Are Not Aware of.
Reasons Why Entrepreneurs Need To Acquire Accounting Skills.
New entrepreneurs may not have all the resources to hire an accountant as they are trying to build the business from the beginning.
It is, therefore, necessary that entrepreneurs should acquire accounting skills so that they can keep good financial records of their business. some of the reasons why entrepreneurs need to acquire accounting skills are:
Monitor the Changes in the Price of the Commodities
Acquiring accounting skills enables an entrepreneur to monitor the changes in the price of the goods or products purchased and sold by the business.
The prices of goods and services are not always the same, due to season, fashion, and taste. an entrepreneur needs an appropriate financial record to constantly monitor the changes in the price of the products and determine his products accordingly.
Determines the Financial Weakness or Strength of the Business
Good financial record keeping will help an entrepreneur to know the financial weakness or strength of the business to determine the rate of financial expenditure in the organization.
many entrepreneurs do not keep account of financial transactions in the organization and they do not know the financial strength of the organization.
What most entrepreneurs know is that they are making a profit without the full knowledge of the financial basis of the business.
Determines the Business Profit or Loss
Every organization big or small carries out some level of expenditure as well as the sales of the products to get income, these expenditures and sales need to be properly accounted for to enable the owners of the organization to know whether they are making a profit or loss.
Detect Fraudulent Practices
As the organization expands many workers or employees will be needed to help in performing one job or another, and finance will be involved, some workers will be financially productive while others will be reckless with finances.
so the knowledge of good financial skills can help entrepreneurs detect fraudulent practices in the organization.
Make Serious Management Decisions
The decision concerning the success of an organization is built on a good record, decision-making is based on evidence, and therefore having a good financial record will enable an entrepreneur to make appropriate management decisions that will increase the organization’s growth.
Serve as Good Financial Security For Loan
Financial houses and other sources of finance for entrepreneurs usually demand for collateral security to serve as a guarantor for the loan they source.
Good financial records can be used as collateral security for loans.
Determination of Annual Tax
Some entrepreneurs pay arbitrary taxes without having the basic knowledge of the monthly or yearly profit of the enterprise due to a lack of good financial statements.
Taxes in an organization are usually paid from the profit of the organization and not from the main capital of the organization.
Whenever entrepreneurs are not keeping records they are bound to pay arbitrary taxes.
Determine the Actual Worth of the Business
A good financial record for an entrepreneur is essential for the business owner to determine the real worth of his business for a given purpose.
The entrepreneur should keep the financial statement of the organization to understand the real worth of the business.
Types of Accounting for Entrepreneurs
The following are the types of accounts that an entrepreneur should keep in the enterprise:
Profit and Loss Account for Entrepreneurs.
A profit and loss account refers to a financial statement of an enterprise that shows the totality of financial involvement, the overhead, and expenses earned during a specified time usually at the end of the end the year.
For the financial position of a business to be accurate the entrepreneur should have adequate knowledge of profit and loss accounts.
An entrepreneur needs to acquire appropriate skills in profit and loss accounts to enable him to be abreast of the company’s financial strength to generate profit as well as reduce costs.
This type of accounting for entrepreneurs is needed to enable financial institutes and many others who are interested in the organization to know the financial ability of the business and make a decision on whether to invest or not.
An entrepreneur should know that adequate knowledge of balance sheets, and cash flow statements is needed to enable him to have an in-depth knowledge of the organization’s financial performance.
| S/no | Items | Amount |
| 1 | The cost of maize seed | 1500.00 |
| 2 | The cost of fertilizers | 1600.00 |
| 3 | The cost of insecticides | 1000.00 |
| 4 | The tractor hiring | 1000.00 |
| 5 | Cost of herbicides used | 1200.00 |
| 6 | The cost of cassava stems | 1300.00 |
| 7 | The sales of maize | 30,000.00 |
| 8 | The sales of cassava stem | 15,000.00 |
| 9 | The sales of yam tuber | 10,000.00 |
| 10 | The cost of processing and purchasing cassava tubers | 2500.00 |
| 11 | The cost of transportation | 1500.00 |
| 12 | The sales of cassava stem | 22,500.00 |
| 13 | the wages of workers | 8000.00 |
| 14 | Miscellaneous expenses on workers | 2000.00 |
| 15 | The maize consumes | 500.00 |
| 16 | The yam consumed | 800.00 |
| 17 | The opening valuation | 45,000.00 |
| 18 | The closing valuation | 15000.00 |
solution
| Dr | Credit | ||
| Purchase and expenses | $ | Sales and receipts | $ |
| Opening valuation | 45000.00 | Closing valuation | 15000.00 |
| The cost of maize seed | 1500.00 | The sales of maize | 30000.00 |
| The cost of insecticides
|
16,000.00 | The sales of cassava tubers | 15000.00 |
| The tractors hiring | 1000.00 | The sales of yam tuber | 10,000.00 |
| Cost of herbicides used | 1200.00 | The sales of cassava stems | 2,200.00 |
| The cost of cassava stem | 1300.00 | The maize consumed | 500.00 |
| The transportation cost | 1500.00
|
The yam consumes | 800.00 |
| The cost of processing cassava tuber | 2500.00 | ||
| The wages of workers | 8000.00 | ||
| Miscellaneous expenses | 20,000.00 | ||
| Total | 66,600.00 | ||
| Net profit | 7400.00 | ||
| Total | 74,000.00 | total | 74000.00 |
Balance Sheet Accounting for Entrepreneurs
A balance sheet is a type of financial statement that shows the assets, liabilities, and worth of a business at a particular time.
These types of accounting for entrepreneurs provide useful information about the business to allow the owners or those interested in the business to know the financial position of the business.
This financial statement helps the entrepreneurs to assess and evaluate the resources that are available in the organization, the process of sourcing those, resources as well as the assets and liabilities of the organization.
Entrepreneurs need to acquire reasonable skills in balance sheets since it show the nature and the amounts of investments in business resources.
A balance sheet enables the entrepreneur to take appropriate actions to alter the timing and amount of cash flows to respond to unanticipated needs and opportunities.
A Sample of a Balanced Sheet
Balanced sheet showing the financial statement of Johnson Farm Ltd as of December 23rd, 2023 shown below.
| s/no | Expenses | Amount
$ |
| 1 | Cash in the bank | 400,000.00 |
| 2 | Cash at the hand of the entrepreneur | 80,000.00 |
| 3 | Dairy cattle owned | 6000,000.00 |
| 4 | Milk sources | 700,000.00 |
| 5 | Loans from financial houses | 300,000.00 |
| 6 | Initial capital(startup capital) | 4000,000.00 |
| 7 | Interest on loan payables | 600,000.00 |
| 8 | Account on receivables | 1000,000.00 |
| 9 | The amount of taxes payable | 500,000.00 |
| 10 | The amount of milking machines | 1500,000.00 |
| 11 | The amount of animal feed | 100,00.00 |
Solution
Balanced sheet showing the financial statement of Johnson Farm Ltd as of December 23rd, 2023 shown below.
| Liabilities | $ | Assets | $ |
| Interest on all payables loan | 6000,000.00 | Cash in the bank | 400,000.00 |
| Taxes on payable | 500,00.00 | Cash in the hand of the entrepreneur | 80,000.00 |
| Initial capital | 4000,000.00 | Milk sources | 300,000.00 |
| Loan | 3000,000.00 | Account on receivable | 1000,000. |
| Subtotal | 8100,00.00 | Amount of animal feed | 100,000.00 |
| Net worth/net
Capital /owner equity |
70,00.00 | Dairy cattle owned | 6,000,000.00 |
| Amount of milking machine | 1500,000.00 | ||
| Total | 8170,00.00 | Total | 8170,000.00 |
the result from the calculation shows the enterprise is creditworthy because the farm’s liabilities are higher than it’s assessed, therefore stipulating that the farm is creditworthy,
Trading Accounting for Entrepreneurs
Trading accounting for entrepreneurs refers to the types of accounts prepared to show the business’s financial gross profit or gross loss incurred at a particular time.
It is prepared in line with the rules of double entry. The knowledge of trading accounts will help the entrepreneur ascertain the gross profit and loss as well net profit or loss that the organization has incurred over a particular period.
| Trading | Account | ||
| Items | Amount | Items | Amount |
| Opening stock | XXXX | Sales | XXX |
| Add purchases | XXXX | Less return inward | XXX |
| Add carriage inward | XXXX | ||
| Less return outward | XXXX | ||
| Fewer goods withdraw from their own | XXXX | ||
| Cost of goods available for sales | XXXX | ||
| Less closing stock | XXXX | ||
| Cost of goods sold | XXXX | ||
| Gross profit | XXXX |
Manufacturing Accounting for Entrepreneurs
This type of accounting for entrepreneurs is an extension of trading accounts. it is a type of account prepared to enable an entrepreneur to ascertain the cost of the goods produced during the business year.
An entrepreneur should be familiar with this type of account to determine the amount of profit made for the goods manufactured.
| Manufacturing | Account | ||
| Amount | Amount | ||
| Direct materials
Opening stock of raw materials |
XXXX | Closing stock | XXXX |
| Work in progress | XXXX | Raw materials | XXXX |
| Purchases of raw materials | XXXX | Work in progress | XXXX |
| Raw materials | XXXX | Cost of the goods | XXX |
| Work in progress | XXXX | Transferred to the trading account | XXXX |
| Carriage inwards | XXXX | ||
| Direct labor | XXXX | ||
| Wages | XXXX | ||
| Direct expenses
|
XXXX | ||
| Factory rent | XXXX | ||
| Fuel, power, gases, etc | XXXX | ||
| Factory Insurance | XXXX | ||
| Depression on building etc | XXXX | ||
| Manufacturing overhead | XXXX |
In conclusion
Entrepreneurs must possess adequate knowledge of accounting to help manage the business effectively, the success of an entrepreneur is the ability to maximize return from sales.
Some of the accounting that entrepreneurs should be familiar with for effective management are, manufacturing accounting, balance sheet accounting, and profit and loss accounts.