Accounting for Entrepreneurs

V1.2 anim
IN-DBL2001
Lars Monrad-Krohn, IFI, UIO

9 August 2001 IN-DBL2001, Lars Monrad-Krohn, 1

 Why accounting?
• Not really nesseccary as long as you only run a kiosk on a cash basis with a
good healthy profit each day, buy for the money you have in the purse, and sell the goods for cash. You will need
to count the money in the purse though.

• Like blood test for the doctor

• Can you tune an engine for lowest fuel
consumption without measurements of
fuel flow?
• Would you like to know when you are
broke?

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 Why learn about accounting?
• Not to become a hostage of the accountants
• You should be able to read and discuss the
results of your enterprise
• You should be able to make a complete plan for
your activities including a budget
• You should be able to evaluate the work of your
accountant and CFO
• You should be able to understand the financing
of you company
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 What is accounting?
• Accounting is the measurements of the blood streams
in our organization
• Accounting can make a company look good or bad
depending on how it is done (on the usual superficial
level)
• Accounting is according to its purpose:
– A) Pay minimum tax (Governmental rules)
– B) Make good decisions (Best accounting practise)
– C) Make the company look good (more or less innovative)
• (Companies may thus have 3 sets of books)

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 What is accounting? 2
• Accounting has developed over many hundres
years and have certain “traditions”
• Basic elements:
– Payments (utbetalinger)
– Costs (kostnader)
– Income (inntekter)
– Incoming payments (innbetalinger)
– Assets (eiendeler)
– Liabilities (gjeld)
– Equity (formue)
– Account number (kontonummer)
– Set of account numbers (kontoplan)

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 What is accounting? 3
• The companys activities are moneywise
contained in a set of accounts (konti) that
have two sides, left and right, debet and
credit, use and source :(they have a number and a name)
• Two accounts are fundamental
– A) “Profit and Loss” (Tap og vinning)
– B) “Balance” (Balanse)
• Which is the most important?

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 “Profit and Loss”
• Covering a time period
• Showing what was the company’s profit
over the time period
• Telling in more or less detail what parts
contributed to or diminshed the profit

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 “Balance”
• Lists in more or less detail all the
company’s assets on th “left side” and on
the “right side” liabilities and equity i.e list
of the “owners” of the assets, i.e. “where
the money came from”
• Norwegian government decided in 1999 to
reverse the sequence of the budget items to be
presented in the yearly report requiret to be sent to
Brønnøysund. For these lectures we will follow the
US-standard used internationally.

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 Other accounts
• You can set up accounts for almost anything
you want to measure moneywise in the
company. Popular accounts are:
• Each customer, payment status at a certain time (kunde-
reskontro)
• Income from all customers over the period (very
interesting)
• All various expenses
• Each creditor, payment status at a certain time
(leverandør-reskontro)
• What other accounts ?
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 Cost accounts
• Usual primitive book keeping wants to put “a counter”,
i.e. an acount for each type of cost: telephone, heat,
stamps etc.(Usually this is not useful for anything
except when checking for abuse of resources)
• Also costs are associated with a department in the
company
• Sometimes you might want to associate a cost with a
type of income stream that should cover the expense
• Also you might want to associate cost to a project
running for some limited time, to measure the
profitability of the project
• Task: 1.For which of these could you also associate
income? 2. Why should anyone want this? Hint:
Benchmarking
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 The accounting process
– Set up: Decide on account number set
• Use Norsk Standard
• What special needs should be cared for?
– Income and expences
– Tracking special assets or assets type
– For every happening involving values, create a a slip of
paper (“bilag”), or get one from the transaction
• Decide which account (number) should be credited and which should
be debeted, mark it on the papreslip (“bilag”) (Sometimes several
lines)
• Input to the accounting program: Text, amount,
debetaccountnumber,creditaccountnumber, vat-code and other
codes required

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 The accounting program
• In priciple a very simple program, just summing
the various entries to each account
• But: It should refuse any editing!
• It should be able to print various reports and
have a good report format specifyer
• Out of pure tradition from old time expence
book-keeping, the ordinary item (expence) is
given a (normal) “+”-sign and income and profit
is given a “-”. I might look confusing when you
see “Result” given as a negative number when
there is a positive profit.

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 The accounting program 2
• Output from the accountng program may be
difficult to read because of many details
• Pitfalls:
– Due to a spcial local norwegian accounting rule (for
presenting the yearly report to Brønnøysund) a loss
can be used for tax deduction and thus represents a
kind of asset for the sax.saving amount (in the normal
case). The future tax saving is thus reorted as an
asset, givng a false value for the loss (if this is the
case)
– Look out for for negative sign for income use

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 The accounting program 3
• You should be able to give the program your monthly
budget for all major accounts or sub-sum of accounts,
(Possibly calculating by itself 1/12 of the early budget)
• The standard report often gives
– This period (month)
– Accumulated since january
– Budget for the period (month)
– Budget since january
– Last years same month
– Last years sum sinnce january

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 The accounting program 4
Report according to the Business
Plan
• In the Business Plan you are budgeting on a
strategic level
• Is is usually a challenge to make the accounting
program produce reports corresponding with
you budget.
• Manually prepared reports are easier to read
and make conform to your Business Plan

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 Practical considerations
• Invoices covering deliveries during the month may be
sent by snail-mail just before the end of the month and
may be received some days into the next month.
• All invoiced for the month are not ready before approx.
3rd in next month
• Your accountant will need 1-2 days (negotiate!!) to
finish the books for the month.
• Your monthly statemnt should be finished by the 6th in
the following month, commented and sent to the
Board by the 7th for the board meeting on the 12th.

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 Jail, fine, and damages,
consequences for BOD, CEO, CFO
• Str.l. par. 283a gives punishment to those that
should have acted on a “broke” condition of a
company, if they fail to take action.
• Also according to “Regnskapsloven” there is
punishment for not keeping the books
• BOD member can be sued by shareholders,
creditors and others experiencing a loss if the
job is neglected
– BOD-insurance may be available form the ordinary
insurance company

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 Cash management
• Accountants usually don’t bother untill it is too
late, they don’t see you plans and orders (If
accounting is outsourced, as the case usually is
for an upstart)
• Make a system for registering every single
commitment of payments, i.e. orders given out,
promises made, agreements made etc.
• Make these registrations as input to the cash
prognosis

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 The cash prognosis
• Is not usually produced by the accountants (who onlo gets the
paper slips, and does not know what orders you have received
or given out
• Format:
• For each period (column) the following lines:
– Cash at the beginning
– Payments from customers incl. Vat
– Other payments, like loans or payments for stock
– Sum of incoming cash
– Payments ot employees incl tax withheld
– Payments to creditors incl vat
– VAT- payments, feb, april, june, august, oct and des
– Employment tax: jan,mar,may, july, sep, nov
– Other payments like repayment of loans, rent, financial costs
– Sum of payments to be made
– Cash increase for the period
– Cash in coffer at end of period (same as next periods “Cash at he beginning”
• Usually made for a 6-8 month future with “month” as the column

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 Some advice in case of missing
cash
• Inform the creditors at all times of the
situation and get their consent if payments
have to be deferred
• Never forget to transfer the payroll tax
amounts to be withheld to the special
account when salaries are paid Why?
• Change from monthly to weekly (some
times even daily) liquidity prognosis and
reports

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 The yearly report
• Law requires companies to register a yearly report
with formal requirements on format and content.
• Make a “project plan” for finishing the report and
getting it registered before end of july to prevent a fine
for the Chairman.
– Ordinary december report by jan 12 for operating disussions
– First administative proposal for the written annual report
from BOD
– First administrative proposal for annual accounting for
presentation purposes

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 The yearly report 2
– BOD-meeting with accountant for decition on
written report and accounts,
– possible negotiations with the auditor for a
“clean” auditors report
– When the auditor sees the proof for printing,
he will release (sign) his hopefully clean
report
– Send annual report to shareholdes with notice
of General Assemby 8 days later, (and by law
before end of June)

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List of some accounting companies
in Oslo, Norway

• Sentrum Regnskapskontor, Majorstua

• Byrået i Son
• Siw Ødegaard AS
• (Se gulesider)

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 Noen revisorbyråer
• Arthur Andersen og Co, internasjonale,
dyre, opplæring for nye revisorer, prestisje
• KPMG, internasjonale,
• Price Waterhouse Coopers & Lybrand,
internasjonale
• Noraudit, kjede i Norge
• Enkeltrevisorer, se gule sider

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 PS
• “Certied Public Accountant” (CPA) finnes ikke i
Norge
• USA har GAAP (General Accepted Accounting
Practice)
• Skifte av regnskapsprinsipper bør unngåes for å
kunne sammenligne regnskaper
• 1 Børskomitee har laget norske regler
• 2 Skatteloven
• 3 Regnskapsloven
• 4 Norsk “normal” praksis

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 Spørsmål
• Hvilke spørsmål av “regnskaps-prinsipiell”
art kan få stor innflytelse på hvordan
regnskapet ser ut?
» Hvor hurtig et aktivum avskrives (eller oppskrives)
» Hvilke kostnader som “aktiveres”
» Når inntekter taes
» Hvordan varelager vurderes
» Om det gjøres avsetninger for dårlige betalere, ukurans og svinn i varelager, garantier gitt
» Avskrivninger av varelager
» Leasingkontrakter

9 August 2001 IN-DBL2001, Lars Monrad-Krohn, 26