Simple Financial Management.2ckronaldlklaus.weebly.com/uploads/2/5/3/5/25353756/simple...Simple Financial Management 2 The Transactions Form To get started, fill in the identifying

Simple Financial Management—Part 1: Keeping a Simple Transaction

Record

By Ronald and Carolyn Klaus

Simple Financial Management: Part 1: Keeping a Simple Transaction Record

Copyright © 2013 by Ronald L. Klaus

Requests for Information should be addressed to: [email protected], or 574-534-0981 or 1708

West Pike St., Goshen, IN, USA 46526.

All rights reserved. No part of this publication may be translated, reproduced, stored in a

retrieval system, or transmitted in any form or by any means—electronic, mechanical,

photocopy, recording, or any other—except for brief quotations—without the prior permission of

the authors.

Table of Contents

Introduction .............................................................................................................................1

The Transactions Form ............................................................................................................2

Balances Brought Forward ..................................................................................................2

Recording transactions ........................................................................................................3

Money Locations .................................................................................................................4

For example ........................................................................................................................4

Change in Net Assets...........................................................................................................5

Manual Check .....................................................................................................................5

The Accounts Form .................................................................................................................6

Identification .......................................................................................................................6

How to Use the Accounts Form: ..........................................................................................7

Some Slightly More Difficult Transactions ........................................................................ 10

Summing Things Up At the End of the Month ....................................................................... 12

Hand calculations at the end of the month:......................................................................... 12

Summing the Accounts Columns ....................................................................................... 13

Not Enough Room and Moving From Month to Month ..................................................... 13

The Summary Forms ............................................................................................................. 14

Going from Year to Year ....................................................................................................... 17

Conclusion ............................................................................................................................ 18

Appendix: Some Directions for using the Simple Transaction Record Excel Spreadsheet ..... 19

Locked Cells ..................................................................................................................... 19

General Directions ............................................................................................................. 19

Don’t Use Ctrl-X ............................................................................................................... 19

Blank Forms for Your Own Use ............................................................................................ 20

Be sure you know the condition of your flocks; give careful attention to your

herds; for riches do not endure forever, and a crown is not secure for all

generations. Proverbs 27:23

Suppose one of you wants to build a tower. Will he not first sit down and estimate

the cost to see if he has enough money to complete it? For if he lays the

foundation and is not able to finish it everyone who sees it will ridicule him,

saying, “This fellow began to build and was not able to finish.” Luke 14:28-30

Simple Financial Management—Part 1:

Keeping a Financial Transaction Record

Introduction

The simple transaction record described here is a way to keep track of income, expenses, other

kinds of financial transactions, money in hand, money in the bank, and the things you have

which have value. Such record-keeping is the starting point for all business efforts, but you don’t

need to wait until you have a business to begin learning how to do this. If you use a method such

as this one to keep track of your own personal finances over a period of a few months, the skills

you will develop will be enormously helpful when you start a business.

To understand your finances, you need to get answers to the following questions:

1. What do you have? 2. What do you do with what you have? 3. What do you need to do differently?

You cannot make good plans until you have real numbers which answer each of these questions.

This transaction record will help you get those answers.

If you do not have a computer, you can start to keep this transaction record by printing out copies

of the forms at the end of this manual and filling them out by hand. There are three such forms,

the Transactions Form (one page), the Accounts Form (two pages) and the Summary Form (two

pages). Through this manual you will learn to use all of them. As you do, you will take great

satisfaction the financial order that will come into your life—and the information it will give you

for making decisions.

If you have a computer that has Excel (or a program that can work with Excel files, such as the

Open Office Calc program—which can be downloaded for free), you can use a spreadsheet that

goes along with this manual to make your work easier. If you enter your transactions there it will

automatically calculate all the balances and sums that you need and will do these calculations

accurately and quickly. On this version of the spreadsheet you can write only in the white

spaces. The light grey spaces are for the computer to fill in for you. The dark grey spaces are

for explanation only.

If you don’t have a computer and one of these programs but if there is someone you know who

does, you might ask that person to copy in your data—after you have filled out the hand-written

form. Don’t ask that person to do the work of filling out the hand-written form for you. That is

your job, and doing it will give you the intimate knowledge of your finances that will help you

succeed. But the computer program will check your work and find any errors you may have

made. Be sure that whoever uses the computer spreadsheet reads the special instructions in the

Appendix.

If you have no access to a computer, it is still good to fill in the white spaces as you go along.

Later you can do the calculations in the grey spaces, perhaps when you have a calculator with

you to help you check your own arithmetic.

Simple Financial Management 2

The Transactions Form

To get started, fill in the identifying information in the top row, as in the example below. This

includes:

• The name of the business or person keeping track of their finances (“Example 1” below) • The month and year of the record. You should start a new transaction record at the beginning

of every month.

• The sheet number. This is important if you have so many transactions that you must use more than one sheet in a month. The first sheet in a month is designated “1.” If there are more, they

should be numbered, “2,” “3,” and so forth. You can use as many as you need. In the

computerized version of this form the page numbers are inserted and will print out

automatically.

• This simple record makes provision for two people to handle cash. In a household there might be two people handling money. In a business or other organization, money is often

handled both by a cashier, who usually takes money into and out of the bank, and another

person, who actually pays the expenses and receives the income. You should write the names

of these two people in the boxes below “Person’s Name.” (In the example below, “husband”

and “wife”—but you should use the actual names of the people.)

Balances Brought Forward

The first question to answer is “What do you have now?” The row that is labeled transaction

number 0 is for “Balances Brought Forward,” or starting possessions. In this system there are six

locations that money can be found, or we might say, six types of starting possessions:

1. Money in the bank 2. Money in the hands of the first person


3. oney in the hands of the second person 4. Fixed assets: long-lasting possessions other than money, such as tools, other equipment,

buildings, and land. This amounts to a fourth way of storing wealth. Things which come

and go quickly, like food, clothing, school fees, and goods to be sold, are not included in

fixed assets.

5. Money owed to you. When you make someone a loan, that money is still your money, even though it is now in someone else’s hands. You should expect to receive it back. If

you don’t expect to receive it back, you should be honest and call it a gift. It would not

be listed here, but under expenses

6. Money you owe someone else. Even though this money is in your hands, it does not belong to you, and must be paid back. You write money loaned to you as a negative

number, because it must be subtracted, rather than added, to the total of what you own.

You should write the value of your possessions of each type in the white boxes provided. If this

is not the first transaction record you have filled out, these numbers should be the same as the

“ending balances” on the previous transaction record. Note that no changes are recorded on this

line.

After you have entered something (zero if nothing is present) in each white box on line 1, sum up

all of them and enter the sum in Column 7 under “Balance.” (If you are using a computer, this

will be done for you.) This amount is the total that you own, and is sometimes called net worth.

Notice that on the example form, at the beginning there is no bank account, but there are 350

ETB in the husband’s possession, and the husband’s brother owes him 100 ETB. That makes his

net worth 450 ETB.

Recording transactions

The second question to answer is “What are you doing with your possessions?” The rest of the

transactions page will help you to keep track of this. A transaction refers to anything that you do

with money: move it into or out of the bank, move it from one person to another, spend it, or

receive money from someone. Any time there is a movement of money, it is a transaction.

The first few columns contain the following:

• A transaction number. After Transaction 0, which we described earlier as a place to record the possessions that you start with, there is room for 25 additional transactions on each sheet.

If you need a second sheet in one month, use transaction numbers 26 through 50, and for a

third sheet, transaction numbers 51 through 75.

• Date of the transaction. • Receipt number. You should get into the habit of keeping receipts for all your transactions. It

is easiest if you keep an envelope with you at all times. Any time you have a transaction,

you write on the envelope the date, purpose, and amount of the transaction in ETB or USD

and put the receipt for this into the envelope. If you have more than one business (or a

business in addition to your personal transactions), keep two separate envelopes, one for

each. If you are receiving money from others, you should also keep a receipt booklet with

you so that you can give receipts to them and keep a copy for yourself in the envelope. If


you are faithful in writing everything on the envelopes, even if you don’t have a receipt, you

can know where your money is going. Then at the end of the day—or at least once a week

you should number all of the receipts and copy all of your transactions onto the transaction

record with receipt number in this third column. Keep all the weekly envelopes together with

the transaction record for that month. That way, if there is any question about a transaction,

you can easily find the evidence for what really happened. Do not expect others to trust you

to handle their money if you have not been able to do this consistently with your own money.

• The description. This tells what happened during the transaction

You can see these entries in the example

Money Locations

Money you possess will be in any one of the six locations mentioned above. For each of these

sex locations there are two columns on the form.

The first column in each pair is for “change”—the increase or decrease in the amount of money

in that location or in the value of the fixed assets. The change is written as a positive number if

the change will increase the amount of money you own, or a negative number (number with a

minus sign in front of it) if it will decrease your possessions. There may be changes in more than

one of these columns. For example, if money gets moved from one of the people to the bank,

then there is an increase (positive number) in the bank column and a decrease (negative number)

in the person’s change column. Or if money is loaned to one of the people, there is an increase in

that person’s change column (positive number) and a decrease (negative number) in the “Money

we owe” column.

The other column for each location is a “balance” column. The balance is the amount of money

in the money location after the change takes place. Whenever a change is made, the balance has

to be changed. If the change is positive, the balance has to be increased by the amount of the

change. When it is negative, the balance has to be decreased by that amount.

For example

The example transaction record illustrates how this works. In the first transaction, the husband,

who has ETB 350 in his hands, opens a bank account by transferring 100 ETB from his hand into

the bank. The husband’s change column shows “-100” because the money in his hand has

decreased, and his new balance becomes “250” (350-100). The bank’s change column shows

“100,” a positive number which indicates increase, and its balance has now increased from “0” to

“100.”

In the next transaction he buys food for 50 ETB, which decreases his balance further to 200. In

this case that is the only money location affected. In transaction 3 the husband receives income

from his work. That increases what he holds, so it is added to his balance.

Transaction 4 shows that both people and the bank can all have changes. In this case, the

husband puts 300 into the bank and gives his wife 200. So his total decrease is 500, which


appears as a negative number. Both the bank and his wife’s holdings are increased by 300 and

200 respectively.

Transaction 5 is another purchase. In transaction 6 the wife borrows some money from a friend.

Transaction 10 is a partial payback of the loan made to the wife. Notice that it is the husband

who pays back 300 ETB. Thus it appears as -300 in his change column.

In transaction 11 the bank pays interest on the money in the bank. The husband and wife find this

out when they update their bankbook or get a monthly bank statement. In transaction 12 the wife

buys some equipment for a business they want to start. The rest of the transactions up to

transaction 16 are straightforward and should be easy to understand because they follow the

same patterns. We will explain some more complicated transactions a little later.

Change in Net Assets

In Column 7, “Change in Net Assets,” you write the sum of all the changes for each of the six

money locations. You have to remember to take their signs into account. A negative number is

subtracted rather than added. For example, in transaction 1, the bank change is 100 but the

husband’s change is minus 100. These exactly cancel so the “Change in Net Assets” holds 0.

One reason for this “Change in Net Assets” column is to provide a check to make sure you are

doing your arithmetic correctly. When you are simply moving money between the six money

locations, the “Change in Net Assets” should come out 0. When you are receiving money or a

fixed asset with value, The “Change in Net Assets” should be positive and equal to the total

amount received, regardless of which money location receives it. When you are transferring

money out it should be negative and equal to the total amount transferred out. You can see this

illustrated in the various transactions.

Manual Check.

At at least once a week, you should look at the balances in the six money location columns and

check to see if what you have recorded matches what you actually have in each location. In other

words, you check your bankbook, and you actually count the amount of money in the hands of

the two people handling it. You should also think about your fixed assets (has anything broken or

increased in value?) and loans in and out. This is to make sure you haven’t made some mistake,

lost some money, or forgotten to record something. When you do this check-up and find that the

money you actually have matches the transaction record, put an “x: in the “Check” column of the

last transaction. That will let you know that you actually had everything you thought you had up

to that point.

If the record doesn’t match what you find, think: did you forget to enter a transaction? Did you

enter all of your receipts correctly? Did you add and subtract correctly? This becomes much

easier if you are checking often, for then you will not have too many numbers to check.

If after all this you still can’t make them match, you will have to make an entry that brings them

together. Otherwise this error will just carry forward. You can do this by entering an income or

expense of the amount that makes the book amount match the amount in your hands or in the


bank. Describe this kind of transaction as “Correction of balancing error.” If you find yourself

doing this often, it means you are not recording what you actually do accurately and need to pay

more attention to this.

Checking what you have in hand against what the record says you should have is an important

discipline that you will have to learn if you are going to manage money or a business. If you

don’t do this regularly you will quickly lose track of your money.

The Accounts Form

The purpose of the Accounts Form is to help you keep track of where your money is coming

from and what you are using it for. Without this information, you cannot plan for the future.

Identification

If you are not using a computer, you should write in on the top line the name of the person or

family or business, the month and year, and the sheet number, just as you did for the Transaction

Form. This will help you connect this Account Form with the proper Transaction Form. We

suggest that for a Transaction Form which has the sheet number of 1 (or 1.0), the first Accounts

Form associated with it should be labeled sheet number 1.1. If more pages are needed for

accounts, you can number them 1.2, 1.3, etc. or for additional Transaction pages, 2.1, 2.2, etc. or

3.1, 3.2, etc.--up to as many as you need. In the example we are working on, we only need one

such form and you will see that it is numbered 1.1.

Account Names

First, on a separate piece of paper make up a list of all the different categories under which you

would like to describe your income and expenses. We will call these categories “accounts.”


Income accounts bring money into one of the money locations and increase your possessions.

These include salaries, loans or advances given to you, gifts, etc. Expense accounts include all

the ways that money leaves one of the money locations and your possessions decrease. They

include expenses and gifts you give. Remember, loans or advances you make to other people or

receive from other people are not recorded here, but on the Transactions Form. This is because

when money is only loaned or advanced, its location changes but not its owner.

In addition, you should also put two more special accounts on your list, namely “Gain on Fixed

Assets,” and “Loss on Fixed Assets.” These two accounts are somewhat different than the others.

They don’t refer to actual money in someone’s hand, but to a change in the value of some

possession you own. When someone gives you a piece of new equipment, your fixed assets

have gained in value by the amount the equipment is worth. The “Gain on Fixed Assets”

account is therefore included in the Income accounts. When a piece of equipment breaks and

cannot be repaired, your fixed assets have lost in value. The amount they have lost would be the

value of the equipment when you first obtained it, minus the value of the equipment after it broke

(which is often zero). The “Loss on Fixed Assets” account is therefore included in the Expense

accounts.”

The accounts “Miscellaneous income” and “Miscellaneous expenses” are categories that can

catch unusual sources of income and expenses that might only happen rarely and are not large in

amount. Then you don’t have to add a new category every time you have an unusual source of

income or expense.

The computerized version allows for 35 accounts, but if you are using paper forms, there is no

limit to the number of accounts you can create.

After you have decided what categories or account names best describe your own situation, write

them in the spaces right above Transaction Line 0, as has been done on the example.

There is no particular order that these have to be put into, but it is a good idea to put first the

“income” accounts, and then the “expense” accounts. They are shown in the example in this

order. Keeping them all together like this in this order avoids confusion. However, if you later

discover that you need other accounts, you can put them in at the end without rearranging all the

previous accounts

Account Type

The line above the names of the accounts, labeled “Tp” for Type, is where you indicate if the

account is “Income” or “Expense.”

.

On the sample form we have done this for the example used here.

How to Use the Accounts Form:

After writing in the names of the accounts you plan to use, write on the Accounts Form the same

transaction numbers as are on the Transaction Form. Then place both forms on a table with the


Accounts Form to the right of the Transaction Form, with transaction numbers lined up on each

form, as in the illustration.

For transactions in which money simply moved from one location to another, all the entries will

be on the Transaction Form, the “Change in Net Assets” column will be zero, and you will not

need to write anything on the Accounts Form. For transactions in which money or value came in

or went out, you will make at least one entry on each form. You will write the amount on the

Transaction Form in the column that indicates the location into which the money came or from

which the money departed. You will also write the sum of all the changes in all the locations on

that line in the “Change in Net Assets” column. On the Accounts Form, you will write that

amount in the one or more columns which best explain the purpose for which the money came in

or went out. Money coming in is always represented as a positive number (such as “500”).

Money going out is always written with a minus sign in front of the number (such as “-500”).

You will write the sum of all the numbers on that line in the Accounts Form in the column

labeled “Sum of Income and Expenses from All Accounts.” If there are more than 11 accounts,

don’t forget the accounts written on additional sheets (1.2,1.3, etc.). Also, don’t forget that in

summing, you are actually subtracting the negative numbers (expenses). Therefore, many people

refer to this as Income Minus Expenses.

The important thing is that for every line, “Change in Assets” is the same as “Sum of Income and

Expenses from all Accounts.” If you are using a computer, the computer will check this for you

and tell you if this is true in the Accounts Form column just to the right of “Sum of Income and

Expenses from all Accounts.” If there is a “No” in this space, or if you notice that the numbers

in these two columns are different, you need to check your work and look for the error. If there is

a “Yes” in this space, or if you notice that the numbers in these two columns are the same, we

say that line “balances.” If you are doing the calculations manually, you should write your own

“Yes” in this column when it balances, so that you don’t have to wonder later about an error in

that line.

For example: on transaction line #4, money went from the husband to both the bank and to his

wife. But no money left the family or came into the family, even though it changed locations.

The sum of all the changes (+300, -500, +200) in the “Change in Net Assets” column is zero, and

there is nothing written on the Accounts Form for that transaction. However, in transaction #7,

both the husband and the wife contributed to paying the rent. What he gave (-200) and what she

gave (-400) totaled -600, which is written in the “Change in Net Assets” column. This same

number is then written in the Expense column for “Rent.” The sum of all the numbers on that

line in the Accounts Form is written in the column labeled “Sum of Income and Expenses from

All Accounts.” In this case, the -600 in the “Sum of Income and Expense from All Accounts”

column is the same as the -600 in the “Change in Net Assets” column, and we say the accounts

balance.


Some Slightly More Difficult Transactions

Transactions 16 to 21 are somewhat more difficult and deserve some further comment. (See

illustration on next page.)

In transaction 16 the wife decides to sell some of the equipment she previously bought in

transaction 12. She decides to sell 200 ETB of the 300 ETB worth of equipment she bought, but

only manages to get a price for that 200 worth of equipment of 100 ETB. In other words, she

loses 100 ETB on that sale. She still has 100 worth of equipment left.

The way we show this is as follows: The value of the equipment she still possesses has gone

down by 200, shown by a –200 in the “Fixed Asset” column. The money in her hand has gone

up by 100. The sum of these two changes, -200+100, is -100, which is written in the “Change in

Net Assets” column. This amount represents the loss she has experienced, and this in turn needs

to be written on the Accounts Form in the “Loss on Fixed Assets” column. The total in “Sum of

Income and Expenses for All Accounts” is therefore -100, which equals the amount in the

“Change in Net Assets” Column, and we say everything balances.

If the equipment had been completely destroyed or become worthless, we would have recorded a

loss of 200, or the whole amount. On the other hand, if she had made a profit on selling the

equipment, we would have recorded a positive number in the “Gain on Fixed Assets” column.

These accounts give us ways of handling whatever happens when we dispose of a fixed asset.

The second situation is where, in transaction 17, the husband advances 500 to a friend to buy

some things for him. Therefore the husband’s balance is reduced by 500 and the “Money Owed

to Us” column has a positive 500. He then writes the sum of all the changes on this line in the

Transaction Form as zero in the “Change in Net Assets” column.

Later the friend returns, gives him back a receipt for 400 worth of supplies, and then returns the

100 that he didn’t spend. In transaction 18 the 100 is shown as an increase in the money in the

man’s hand and the purchase of supplies is shown on the Accounts Form as -400 in the

“Supplies” column, a negative number because money went out. Because the return of 100 and

the purchase for 400 together represents a full repayment of the advance made to the friend, he

therefore writes -500 in the “Money Owed to Us” column on the Transactions Form. The total

now in the “Money Owed to Us” column is +500-500, or zero, which shows the friend now owes

nothing. The sum of all the items on this Transaction 18 line, or 100-500, is -400, which is

exactly what is in both the “Change in Net Assets” column on the Transaction Form and “Sum of

Income and Expenses” column on the Accounts Form. Therefore this transaction balances.

There are other possibilities. If the amount of the purchase was exactly 500, then the -400 would

have been -500 and the person would not have returned anything except the receipts. If he had

spent more than 500, the “Money Owed to Us” column would have been negative. That would

have meant one of the money sources would have had to pay him the difference to clear out the

transaction.


On occasion money coming in goes directly to pay an expense, without actually coming into the

hand of one of the owners. For example, on transaction line #19, the family received

miscellaneous income of 100 birr, but that income was spent directly on food, and the family

received the food instead of the actual money. Because the amount of actual money in the family

did not change, the “Change in Net Assets” is zero. The “Sum of Income and Expense from All

Accounts” is also zero (100 plus -100).

Summing Things Up At the End of the Month

At the bottom of both forms are summary rows. The Transaction Form has four such rows; the

Accounts Form, one. If you are using a computer, these calculations are done for you. Whether

or not you are using a computer, the end of the month is another good time to check to see if

what you think you have (Line A) is what you actually have. If it is, put a check in the far right

column

Hand calculations at the end of the month:

If you are not using a computer, it is worthwhile doing the calculations requested by hand. It is

very easy to make an arithmetic error over the course of a month. These checks help you know

when you have made an error and also when you have corrected it. This kind of calculation is

easy to do with a hand calculator. These are available at low cost.

Ending Changes/Balances. Add up all the numbers in each “Changes” column and put the total

in this row. You will not add anything from the Transaction 0 row in the “Changes” columns.

For the “Balances” column, just copy the latest balance above it onto this line. Be sure to include

in your balance sums any numbers in the Transaction 0 row. Remember to subtract any negative

numbers.

In the example shown, the “Bank Changes” column contains the numbers 100, 300, -200, 10, and

-100. Adding these up gives 110, which is shown in the “Bank Changes” column on the “Ending

Changes/Balances” line. The latest balance in the “Bank Balances” column is also 110, which is

not surprising since there was no starting balance and you have been continuously adding and

subtracting changes since the beginning. That 110 is copied directly onto the “Ending

Changes/Balances” line (the second column with numbers). In the husband’s balance columns

his changes sum up to 400 but his ending balance is 750. The difference, 350, is equal to his

starting balance on Transaction Line 0.

The last three lines do not contain any new information, but copying in the information requested

will help you make sure you have done everything right.

Beginning Balances. Just copy in the balances brought forward from Line 0 at the top of the

form. Notice that nothing is entered under the “Changes” columns.

Changes. Just copy the numbers at the bottom of the “Changes” columns as shown in the

example.

Ending Balances. Just copy the Ending Balances at the bottom of the “Balances Column”


Sum the Bottom Three Rows Across. Sum these three rows to the right and put the results in

the “Account Name” column as shown in the example.

Check. There are two ways of checking to make sure your numbers are right. First, the number

at the bottom of the “Change in Net Assets” column should be the same as the sum of all the

numbers in Line C, Changes. If that is true, write Yes in the little box on the far right of that

line. Second, the first two numbers you just wrote into the “Balance of Net Assets” column

should add up to the bottom number. In the case of the example, the Beginning Balances

number (Line B) is 450 and the Changes number (Line C) is 710. Together these sum up to 1160,

which is the sum of all the numbers in the bottom row across ((110 + 750 + 300 + 100 + 0 - 100

= 1160). Therefore we say this “checks.” If the numbers in Lines B and C don’t add up to the

number in Line D, there was some error made in the arithmetic somewhere and you should go

back and try to find it. If you are not using a computer, you need to recheck all the numbers, all

the additions, and all the subtractions. Once you find the errors and get the numbers to match,

you should write another “Yes” in the little box on the far right of Line D.

Summing the Accounts Columns

In the example we have been working on, all the numbers on each line of the Accounts Form

together add up to the “Sum of Income and Expenses of All Accounts.” If all of the lines

balance (that is, this column is equal to the “Change in Net Assets” column on the Transaction

Form), all that is left is to add up the contents of each column and write the sum on the last row,

which is labeled “Sum.” You do not include anything from Transaction Line 0

Not Enough Room and Moving From Month to Month

If during a month, you fill up a Transaction Form, do the calculations in the “Ending

Changes/Balances” row, including physically checking to see what you actually have in your

hands and in the bank. Do the checks at the very bottom, because once everything checks here,

you know that any future errors did not occur on this page. Then enter the “Ending Balances” at

the top of a fresh Transactions Form in the “Balances Brought Forward” line and continue

entering additional transactions. Notice that you do not transfer the “Changes” from one page to

the next. (If you are using the computer spreadsheet, this is done for you automatically for up to

two additional pages.) If you need to go to more pages of the Transactions Form for a particular

month, the second should be numbered 2 (or 2.0), and the Transaction numbers should start with

26 and go to 50. A third page would be sheet number 3.0 with line numbers 51-75, and so on.

At the beginning of the next month you do essentially the same thing. On a new Transactions

Form, copy the balances at the end of the previous month (Line D on Transaction Form—or H or

L, depending on how many Transaction pages you use for the month) onto the “Balances

Brought Forward” line on the new Transaction Form.


The Summary Forms

The purpose of these forms is to sum up all the information from the various accounts in a way

that is easy to read and to analyze. They will help you see the important trends in what is

happening in your finances. You should take a few minutes to fill out these forms after you

complete the Transaction and Account Forms for each month.

Before you start, you need to make a decision as to what “fiscal” or “financial year” you will use

for your personal finances or business. You have three options:

1. You can use the Ethiopian calendar year. 2. You can use the western calendar year. 3. You can determine your own calendar year, beginning with the month in which you start

your business. (For example, you might start your fiscal year on October 1 and end it on

September 30.)

However, if you have to file yearly taxes, it is best to make your accounting year the same as the

period during which you have to make accounting to the government.

Once you have decided this, fill out the identification information at the top of both pages of the

Summary Form). This will include the name of the person or business the record is for and the

beginning month and year you are summarizing. If you choose to use either the Ethiopian or

western calendar, the first month of your business may not be the first month of the year. For

example, if you are using the western calendar and you begin your business in August, you will

use the line for month #8 for your first month’s transactions, and your first fiscal year will be

only 5 months long. You will then use another set of Summary forms for the next year, which

would be a full year.


The first page of the Summary Form is the Summary of Balances and Changes. You have only to

copy two lines from the Transaction Form onto this form. The first is Transaction Line 0, in

which the beginning balances are written. Write the six numbers from columns 1-6 on the

Summary form on the line for month 0. The second is the last line on the Transaction Form, the

“Ending Balances” (Line D—or H or L, if you have used extra pages). You write the first six

numbers from this line onto the same Summary Form on the line corresponding to the month of

the Transaction Form.

Now there are some simple calculations to do (done automatically for you if you are using a

computer).

1. First, write in the sum of all the “Net Assets” from Column 7 on the Transactions Form into Column 7 of the Summary Form.

2. From the ending “Net Assets” balance for the month, shown in Column 7, subtract the beginning “Net Assets” as listed on the previous line and write that in Column 8. This is

the change in your net assets for this month.

3. If this is the first month of your financial year, write the same number in Column 9. 4. If this is not the first month of your financial year, subtract the beginning “Net Assets”

(Month 0) from the ending “Net Assets” of this present month to get the change in assets

for the year so far, and write that in Column 9.

If you are using a computer, the computer will now automatically graph your Net Assets each

month in the graph at the bottom of the page. This may be useful to you, as it enables you to see

visually how your assets are growing or shrinking. (For months in which nothing is yet written

the computer uses zero; do not let that discourage you, as it is not a prediction of your future.)

Next, you will fill out the second page of the Summary Form, which is the Summary of

Accounts. If you are using a computer, the account types and account names you used on the

Accounts Form will already be written in the boxes at the top. If you are not using a computer

you will need to fill these in yourself, exactly as they are written on the Accounts Form. If you

have used more than one Accounts sheets because you had more than 11 accounts, you will need

0

1160

1360

960

0 0 0 0 0 0 0 0 0

0

500

1000

1500

1 2 3 4 5 6 7 8 9 10 11 12 13

To

tal A

sse

ts

Month

Net Assets (Column 7)


to copy the accounts from the second sheet onto page 2 of the Summary of Accounts Form, the

third sheet onto page 3, and so on.

You have only one line to copy from the Accounts Form to the Summary of Accounts page: the

“Sum” line at the bottom of the Accounts Form (shaded in grey). Copy this line onto the

Summary of Accounts Form on the one line that matches the number of the month you are using.

In the example we are using, the Sum line on the Accounts Form was copied into Month 1 of the

Summary Form, including the number in “Sum of Income and Expenses from All Accounts”

(710). Copy that same number into the appropriate line of Column 8 on the Summary of

Balances and Changes Form. The number in Column 8 should equal the number in Column 6. If

it does not, you have made a mistake somewhere, and you need to go back over all of your work

to look for it. However, if you have been careful to correct any such errors on the monthly

Transaction and Account Forms, you should have no trouble here.

By the way, we have not included a Transaction Form or Account Form for months 2 and 3; we

just made up these numbers to give you the idea for summing up transactions for several months.

Now you can calculate also the year-to-date sum of income and expenses, and put that number in

Column 11. For the first month of the fiscal year, that number will be the same as the number in

Column 10, the first month’s income and expenses. For all other months, you need to add to the


previous month’s Column 11 figure the current month’s income and expenses in Column 10,

and write that in Column 11.

On the example we have been using, for month 2 the year-to-date income and expenses is Month

1 Column 11, (710) plus this month’s income and expenses in Month 2 Column 10 (100), which

together add up to 810, written in Month 2 Column 11.

The numbers in Column 11 should be exactly equal to the numbers in Column 9. If you are

using a computer, the column to the right of Column 11 will show “Yes” if this is true, and “No”

if there is some error. If you are working without a computer, don’t forget to write your own

“Yes” in that space once the numbers for that month balance.

If you are using a computer, the numbers in Column 8, representing something like monthly

profit or loss, will be automatically graphed for you at the bottom of the page, as shown below.

If you are using a computer, the “sum” line at the bottom of the Summary of Accounts page will

automatically be calculated to show the “year to date” totals. If you are not using a computer, it

is worth while adding up all of the numbers in each column and writing them at the bottom of the

page under the appropriate month. This enables you to see at a glance what you have been

spending your money on.

Going from Year to Year

At the beginning of a new accounting year it is important to carry over all the asset accounts as

shown on both the Transaction Form and the Summary of Balances and Changes Form (Columns

1-7). The money held by each person, the money in the bank, the value of the fixed assets, and

any money owed stay the same as the new year begins. To do this, write the numbers on the

“Ending Balance” line into line 0 of both Transaction and Summary Forms.

On the Accounts Forms, the balance at the end of the year is NOT carried over to the next year.

Income and expenses are only recorded in the year they are incurred. You start each new year

with a balance of zero in your accounts. (And that allows you to resolve to correct any mistakes

you have made in the management of your finances in the previous year!)

810

200

-400

0 0 0 0 0 0 0 0 0

-500

0

500

1000

1 2 3 4 5 6 7 8 9 10 11 12

Pro

fit

or

Loss

Month

Profit or Loss (Columns 8 and 10)


Conclusion

It may seem that this whole process is complicated but as you do it you will gradually become

better and better at it. Eventually you won’t have to think much about it. Entry of transactions

will become simple and natural to you. But keep in mind that this kind of record keeping is

essential if you are going to be able to manage either your own finances or that of an

organization. It is a mistake for leaders of organizations just to hand over all the financial record

keeping to accountants. Good management requires that you are able to understand your

finances and make good decisions based on accurate records that you can understand.

This is the end of the main part of the manual. Following is an appendix that contains some

useful information for people working with the Excel spreadsheets that work with exactly the

same forms but do some of the calculations automatically. Then come the blank forms that you

can copy for your own use. If you request the CD that comes with this manual, you can print off

these and other forms directly from the Excel spreadsheet on it.


Appendix: Some Directions for using the Computer-Based Simple Transaction

Record Excel Spreadsheet

You only have to read this section if you are going to use a computer spreadsheet or if you are

the person copying and checking someone’s hand-written records. The spreadsheet contains

exact copies of the forms for hand-entered use. However, they can handle up to 12 pages of

information arranged in four pages across and three down. Each page lets you enter up to 25

transactions and, for your convenience if you have many transactions in a month, there are three

such pages going down. That means you can enter up to 75 transactions on one worksheet. If you

are breaking down the entries into accounts, you can enter up to 35 accounts, each in a separate

column, on the three accounts pages going across.

The spreadsheet pages have also been carefully laid out so that they will print well. You just

have to select and print the ones that you use.

Locked Cells

The spreadsheet has both cells into which you will enter numbers as well as those that contain

formulas that do calculations for you. The latter are locked so that you can’t accidentally enter

anything in them and thus destroy one of the important formulas. Please leave them locked. If

you unlock them, the formulas in them will be easily erased and this will ruin the spreadsheet

that has been prepared for you.

General Directions

Every month before writing anything, do a “Save As” of the blank workbook and give it a name

containing the name of the new month. You can either enter some of the information manually or

else copy it is from the previous workbook if one is available. For example, if the account names

haven’t changed, you can copy them in from the previous workbook.

You can also copy in Balances Brought Forward from the Ending Balances on the previous

worksheet. These numbers need to be written onto both Line 0 on the Transaction Form and the

appropriate line for that month on the Summary form. However, see the instructions for Going

from Year to Year in the main part of the text.

In the case of balances being copied, be very sure that you paste in only the values not the

formulas. The regular “paste” command, or Ctrl-V, pastes in formulas and formats, not just

values, and this can cause problems in a spreadsheet that is already developed. To paste only the

values, hit Ctrl-Alt-V, rather than just Ctrl-V, and then hit V for values. Or, if you are using the

“Paste” icon at the upper left corner of the Home page, hit the drop-down menu under “Paste,”

then choose Paste Values.

Don’t Use Ctrl-X

When you are using a spreadsheet that has been prepared for you, never move an entry using

“Cut,” Ctrl-X, or its equivalent. If you select a cell or group of cells and press “Cut” or Ctrl-X it

will “cut” those cells. This doesn’t happen right away, but if you then go somewhere else on the


spreadsheet and press “Paste” or Ctrl-V, it will put those “cut” cells into the new location and

remove them from the old location. Though this is a very useful feature when you are developing

a spreadsheet, it is dangerous when you are using a spreadsheet that is already developed. It

disrupts the formulas that are in the locked cells, making the spreadsheet no longer useful. So

don’t do this or anything like it.

If you want to move the contents of cells you must do it in these steps.

• Copy the cells to some empty cells. o Select the cell or cells you want to move and press “Copy” or Ctrl-C. This copies

them on to the “clipboard.” That is a place in your computer memory where all sorts

of things can be stored temporarily.

o Find some empty cells somewhere else, maybe even on another worksheet, and select them

o Press “Paste” or Ctrl-V. This should copy the information that you have just put on to the clipboard to the empty cells.

• Go back and delete the cells you moved. • Copy the cells into their new location.

o Select the cells that you have put into the temporary location. o Press “Copy” or Ctrl-C o Move the cursor to where you want to put the information you just put on the

clipboard.

o Press “Paste” or Ctrl-V which should put the cells into the place where you want them.

o Delete the cells from the temporary location.

This sounds a little complicated, but it is the only safe way to move information from one place

to another on the worksheet without using the dangerous “Cut” or Ctrl-X. Often you might find it

easier just to delete that information and re-enter it in the right place.

Blank Forms for Your Own Use

Documents

Simple Financial Management.2ckronaldlklaus.weebly.com/uploads/2/5/3/5/25353756/simple...Simple Financial Management 2 The Transactions Form To get started, fill in the identifying