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Section 2 Business Accounting

Section 2 Business Accounting – includes four lessons on setting up the book keeping accounts for your business.

Lesson 2.3 How to Keep Track of Business Funds

Lesson 2.4 Practice Book Keeping

Lesson 2.5 How to Record Business Transactions

Lesson 2.6 Record Your First Purchase

We are now ready to buy our Lemonade Stand supplies. Most kids just go to the local grocery store and pay full price for their supplies. However, we can save money by seeking out wholesale supplies and buying each item in bulk. We will buy our Cups from Cups Galore. They will sell us a box with 1000 cups for $10 or one penny per cup. To enter this expense in our accounting system, click on the Check Register in your Chart of Accounts. Then open it. For Number, write the number on the check of the date of the transaction. For Description, write Cups Galore. For the Transfer type, click on the arrow and select Expenses, Supplies, Cups. For withdrawal, type 10.00. Then press Enter.

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Then click Save. Then click Close.

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We now have only $190 in Assets all of which is in our Checking Account. But we still have $200 in Equity because the $10 we spent on cups is counted as an Asset. It is our inventory of cups.

We will next buy a box of 50 lemons from a company called Lots of Lemons for $20 and record this transaction in our check register.

Now that we have set up our business accounts, in this lesson we will review how to enter or record basic business transactions.

How to Make a New Deposit to Your Business Checking Account
If for some reason, your initial screen shows no assets or equity, you can make a deposit by clicking on Assets. Then click on Current Assets. Then click on Checking Account to select it. Then click Open in the top menu or right click and click Open Account.

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In the yellow box, for the Description column, type Initial Deposit. Then click on the Transfer Column to bring up the Drop Down Arrow box.

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Click Equity Opening Balance so that GnuCash knows what this deposit is being made for. Then in the Deposit column, type 100.00. Then Press Enter. Then press Save. Then press Close.

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How to Delete a Transaction
If you made a mistake or want to delete a deposit, just select the row and want to delete a deposit, just select the row and click Delete in the top menu. In case you are wondering what the R and N mean in the table above, the R stands for Reconciled and the N stands for Not Reconciled. At the end of each month, when you get your statement from your bank, you want to review all of your transactions to make sure you and your bank agree on what happened. You then want to click on the N and change it to C meaning that your account has been reconciled with your bank statement. To Save the Changes you made to your checking account, always remember to click SAVE. Then Close.

An Easy Risk Free Way to Learn How to Use GnuCash
One way to learn how to use GnuCash is to jump right into the deep end of the pool by creating a system of accounts for your real business. If you make a mistake and enter the wrong amount to the wrong account, you can typically go back and delete it. But the deletion process is not always obvious.

A much better way to learn how to use GnuCash is by creating a fake business account also called a Sandbox account. This way, if you make a few mistakes you can simply delete the fake account and start all over by creating an entirely new account. Set up your Chart of Accounts with your Sandbox Account. Then practice several transactions using fake vendors and fake customers. Once you are confident with how GnuCash works, then delete the fake account by deleting the folder it is in – and then starting over by creating your real business account.

How to Install GnuCash
The easiest way to install GnuCash on a Linux laptop is to click on the Menu, then click on the Software Manager. Then type the word GnuCash into the search box. Then click on GnuCash and click the Install button. However, the Software manager version is 2.6.19 made in April 2018. If you go to the GnuCash.org website, you will see that the most recent version of GnuCash is version 3.4

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There have been more than 100 improvements to GnuCash in just the past year. It is therefore worthwhile to install the latest version. This can be done by using a Personal Package Archive or PPA. To install the PPA in Linux, go to your menu and click on the terminal to open it. Then copy paste the following line into the terminal.

In this lesson, we will show you how to keep track of every dollar that comes into your business (aka your business income) and every dollar that goes out of your business (aka your business expenses). Money coming in and money going out are called Financial Transactions. The whole point of a Financial Management Program is to keep track of and organize all of your business financial transactions.

There are several reasons you need to keep track of your business income and expenses. First, you not only need to tell whether you are making a profit or loss on the entire business, but also where you are making the most money and where you are losing the most money. You will stay in business longer if you keep track of the various sources of your income and the various categories of your expenses.

Second, if you want to persuade other people to invest in your business so you can grow your business more rapidly, you will need to be able to prove to them that you are making a real profit – not merely that you have a good idea. Third, while you will not have to file state and federal tax reports for a simple lemonade stand, you will have to file precise reports to the state and federal government if you make more than a few thousand dollars a year. And if you have a real business, at some point you will be making several thousand dollars per year in sales. The government will allow you to deduct your business expenses from your business sales to determine your net business income. But to get these deductions, you have to define all of your expenses by very specific categories.

Thirty years ago, in the days before personal computers, one of the first things any new business owner would do was purchase a Business Ledger Book. This ledger book was essentially a series of big pages with each page containing a giant table with 20 to 30 rows and 10 to 20 columns. Each row was a new transaction – an income deposit or an expense withdrawal. Each column was a different kind of income or a different category of expense. At the bottom of each page, the business owner would add up all of the rows and columns to make sure each page balanced.

These ledger page totals would then be added up to make sure each day, each week and each month balanced and that everything matched the monthly statement from your bank.