I used this presentation at a recent workshop of SMME's hosted by SEDA. Purpose was to encourage SMME's to understand the basics of their financial statements and use them as management and decision making tools.

1. www.womeninbusiness.org.za

2. Determine financial performance
› Gross profit
› Net profit
Determine financial position
Close off financial year
Check monthly bookkeeping cycle
Ensure accuracy of transactions (reconciliations)
www.womeninbusiness.org.za

3. Trading account
Profit and Loss
account
Combined into a
statement known as
Income Statement
› reflects financial
performance
Statement of
Financial Position
Better known as
Balance Sheet
› Reflections financial
position
www.womeninbusiness.org.za

4. By sufficiently
preparing for your
annual audit will not
only reduce your audit
fees but will also free
up your
finance/accounting
personnel whilst your
audit is in progress.
The following is some
examples of
information that can
be prepared in
advance.
www.womeninbusiness.org.za

5. Invoices for additions
& disposals of all
fixed assets
Statements for
investments
reflecting their
balance at year
end.
A reconciliation of
movement on
investment accounts
A copy of the
inventory at year
end, reflecting any
necessary notes&
explanations thereto
www.womeninbusiness.org.za

6. A copy of the debtor’s
age analysis at year
end as well as a
summary of what
sundry debtors consist
of.
Statements for bank
accounts & Cash on
Hand reflecting their
balance at year end.
A summary of change
in Capital or Members
interest.
A copy of the creditors
age analysis of year
end as well as a
summary of what
sundry creditors
consist of
www.womeninbusiness.org.za

7. Amortisation
(depreciation)
schedules for all
instalment
agreements and a
summary of
movements on all the
loans
Copies of receipts for
any taxes paid
A separate file can be
done with all creditors
reconciliations at year
end.
www.womeninbusiness.org.za

8. All bank statements
filed with bank
reconciliations
UIF and PAYE
submissions
Cash slips filed with
cash reconciliations
Archive and catalogue
documents
Digital backups filed
Asset register
Statutory returns
www.womeninbusiness.org.za

9. Sort all documents
into categories
File in date order
Capture on a spread
sheet or piece of paper.
Bank and cash
reconciliations
Debtors’ invoices
Debtors’ Statements
Creditors’ invoices
Creditors’ Statements
Inventory list at cost
price
Asset register
www.womeninbusiness.org.za

10. Backup – at least two;
stored in different
places.
Print out all relevant
financial statements
Check through all
general ledger
accounts for errors
Check through all
debtors’ accounts
Check through all
creditors’ accounts
Run data integrity
Run year end
Back up – if you make
use of passwords
ensure they are
recorded somewhere
you can find them
when needed
www.womeninbusiness.org.za

11. Trial Balance
Income Statement
Balance Sheet
Cash Flows
General Ledger
Debtor’s Ledger
Creditors’ Ledger
Age Analysis for
Debtors’ & Creditors’
Budget
Inventory
Stock Take
Ensure end of
financial year Bank &
Cash Reconciliations
printed.
PAYE reconciliations
UIF reconciliation
www.womeninbusiness.org.za

12. Physical Stock Take
Compare to records
Make adjustments
with full account of
any discrepancies and
why.
Carrying too
much/little stock.
Obsolete stock
Damaged stock
Selling of
obsolete/damaged
stock
Write off’s
Trading inventory
deficit’s/excess
www.womeninbusiness.org.za

13. Accruals
› Expenses and incomes relevant to the financial year /
period
Matching principle
› Match expenses to income within the financial period
in which the profit or loss was incurred
Principle of Prudence
› Where the real value of an asset or income is doubtful
one should rather be conservative and
UNDERESTIMATE the true value
› and
› Expenses or Liabilities should be overestimated when
in doubt.
www.womeninbusiness.org.za

14. Should be done at least monthly
› Bank reconciliation
› Debtors reconciliation
› Creditors reconciliation
› VAT (bi-monthly)
› PAYE (bi-annually)
www.womeninbusiness.org.za

15. Profitability ratios
› Gross profit percentage
(Gross Profit ÷ Total Sales) x 100%
The GP % indicates how much gross profit is earned for every R1 of sales.
› Net Profit percentage
(Net Profit ÷ Total Sales) x 100%
The NP & indicates how much net profit is earned for every R1 of sales.
www.womeninbusiness.org.za

16. › Return on average Owner’s Equity
(Net Profit ÷ Average Owner’s Equity) x 100%
Average Owner’s Equity (opening balance + closing balance ÷ 2)
Is it worth the owner’s investment.
www.womeninbusiness.org.za

17. Liquidity ratios
› Current Ratio
Current Assets : Current Liabilities
Indicates how liquid the business is i.e. if the business is able to cover its
short-term liabilities.
› Acid Test Ratio (Quick Ratio)
(Current Assets – Inventory) : Current Liabilities
Indicates liquidity without having to sell stock
www.womeninbusiness.org.za

18. Liquidity ratios continued
› Average Debtors Collection Period
(Average Trade Debtors ÷ Credit Sales) x 365 days
› Average Creditors Settlement Period:
(Average Trade Creditors ÷ Credit Purchases) x 365 days
› Average Inventory Turnover
Cost of Sales ÷ Average Inventory
www.womeninbusiness.org.za

19. Degree of Solvency
› Total Assets : Total Liabilities
Indication that business is not bankrupt.
Leverage
› Debt/Equity ratio
Long-Term debt : Total Equity
Ratio between borrowed capital and own capital. Used to establish credit
worthiness of a business
www.womeninbusiness.org.za

20. Depreciation
› Adjustment at the end of the financial year (or on
sale of asset) where the value of the non-current
asset is adjusted to a realistic value relative to the life
span of the non-current asset. (net realisable value –
realistic trade value)
› The original cost of the asset is adjusted with the
calculated depreciation = carrying value / book
value
› Depreciation is the expense
Two methods of depreciation
› Straight line method
› Diminished balance method
www.womeninbusiness.org.za

21. Shows all important details regarding a
particular non-current asset
Supporting documentation to the general
ledger
Information kept from date of purchase till date
of sale
Pre-requisite of SARS
www.womeninbusiness.org.za

22. Care must be taken when disposing of assets
to be realistic in regards to final calculation of
depreciation
Net realisable value vs market value
Profit or Loss on Sales of the non-current asset
www.womeninbusiness.org.za

23. Why is financial year
end so important?
What can be learned
from financial year
end
Cash Controls?
Management
decisions
Financial decisions
Stock controls
Debtor control
Creditor control
Ensure your costing's
are correct
Successful, vibrant,
encouraging
entrepreneur.
Analysis &
interpretation
www.womeninbusiness.org.za

24. www.womeninbusiness.org.za
The End
Alison Engelbrecht
ceo@womeninbusiness.org.za