Financial Statements

Accounting

This story and the story named Accounting are essential two very different stories about the same thing. Developing and maintaining your financial documentation is a science and an art that you can learn how to do well.

Write a budget for your personal life and for your business. Keep a ledger of everything that you do and everything that happens in your free enterprise.

Accounting is the language of business. It’s the natural laws governing money and trade. Just like grammar and syntax are the rule of law of language and communication, which everyone has to understand in order for us to understand and communicate with each other. Accounting is a mathematical formula or algorithm, not a conspiracy theory.

Learning how to create and use spread sheets is one of the most important computer science languages you can learn. Spend some time learning how to use Calligra Sheets or LibreOffice Calc to create financial statements for your holistic home office.

Read the Calligra Sheets or LibreOffice Calc help directory. It will help you learn how to produce professional financial statements. Spend the time to set up a directory in your computer’s file system with a set of spreadsheets linked together and describing your business.

Income
Expenses
Assets
Liabilities
Cashflow
Personal Budget
Business Budget

You can use LibreOffice Writer to produce your resume and business plan and LibreOffice Calc to produce financial statements, all linked together in sheets, so that changing information in one sheet, automatically updates the same data in other sheets. You can also use LibreOffice Impress to create sales presentations, and website content.

Financial Planning

The only real solution to poverty is for you to learn the rules of accounting and use that knowledge to help you produce a profitable business. You already are responsible and accountable for your private property. Study LibreOffice Calc to learn how to be a high performance capital manager.

Your success depends on you taking responsibility and consciously, intentionally and freely managing your capital efficiently, according to the natural laws of economics, the rules of accounting and the divine rule of law.

Our material affairs are not the most important facet of life on earth. Like eating is not the purpose of life on earth, however, you do need to eat to live on earth. Writing a budget and managing your capital effectively can help you transform poverty into prosperity.

Money is a tool to measure the value of your property or your ability to own property. It is your capital. It’s a lever we’ve been using for at least 6000 years now, and probably at least twice that, to measure the value of our private property and facilitate trade.

You can earn money in a variety of ways and then you can trade your money for property or sell your property for money, which is a lot easier than finding someone who has some property that you want and who also wants some property you have.

Money is a good thing. Greed and selfish ambition and competition are not so good. Trade and business and commerce are how we produce our habitat for humanity, our food and shelter and much of our entertainment.

Economic competition is natural. Like trees competing for sunshine. Economic cooperation is also natural, just like the cells in our bodies cooperating to generate a human body. Teamwork is a good strategy. These days, global cooperation is the natural order of economics. The entire human race is one team.

Accounting means, counting your private property. Get really good at that, so you can manage your financial affairs effectively. Work fast, work smart and work safely at whatever you do, and spend time thinking about accounting for your capital and recording your financial transactions.

Free enterprise involves your personal initiative to take responsibility for yourself and your family and friends and community. Making conscious decisions, rather than acting on instinct, or as ordered by other human beings, is the hallmark of a civilized human being.

Voluntary action, governed by the divine rule of law, is the basis of human creativity, civilization and freedom. Freedom is lawful. The rule of law is the difference between wild and free. Freedom and anarchy are two entirely different things. Citizens and barbarians are two entirely different creatures.

Human beings are not born civilized. We learn how to be civilized by observing our parents and other people and by formal education.

Capitalism is the natural laws of economics. Financial intelligence is your ability to understand those laws and apply them to produce prosperity for you, your family and your community.

During the imperial age, the rule of law was applied by human beings, by force. During this new world order, this global federation of self-governing nations, the rule of law is taught to every human being in school and we are more free to discover the truth, invent new ideas and technology and develop more advanced social and economic development ecosystems.

We are unleashing the creative freedom of the people of earth. While the control freaks are flourishing right now, they will soon be selected for extinction. No sane human being will submit to being ruled by anyone other than the one true God.

We’re building cities as fast as we can, to produce enough food and shelter for the entire human race. Earth is one country. All mankind are its citizens. Skyscrapers and cities are modern pueblos. Cars are our modern chariots and jet planes are completely unlike anything that has existed before.

Accounting is as old as civilization. In fact, the very first written language was probably accounting. People started writing to keep track of their private property.

It is really important that you understand the rules of accounting, even if you hire someone to keep your records, so that you can use the information in your accounting records to help you make intelligent decisions.

Budget

I recommend learning LibreOffice Calc first. Get your accounting system set up and running early in the process of building your free enterprise. Get in the habit of keeping well organized documentation for your business. Learn how to read your own financial documentation to cultivate an accurate perspective of your free enterprise.

You can write a budget that lists all of your income and then all of your fixed spending and all of your flexible spending. Fixed spending is monthly expenses that rarely change. Flexible spending is things like entertainment, which can change significantly every month. Make sure you spend less than your income.

It’s a good idea to have a separate budget for your personal life and your business. Get organized and keep detailed records of your business activities. Work on accumulating capital and investing it wisely. Get in the habit of spending some percentage of your income buying assets. Assets generate income for you.

Start by writing a personal budget. Start recording your income and expenses. Create a Budget in LibreOffice Calc and keep it up to date. Eventually, you will spin your business off from your personal budget.

General Ledger

Most people use computer software to keep their general ledger, their record of everything that happens in the business. Get in the habit of recording everything you do for your free enterprise and everything that happens in it. Keep track of your money coming in, money going out, money owed to the business and money the business owes to others.

You can receive money coming in from selling products and services, from loans and from investors. Buying equipment and inventory, paying expenses and distributing profits to investors are examples of money going out.

If you allow people to buy your products and services on credit, then they will owe your company money. Your company can also buy stuff on credit, which is money your company owes to others.

Balance Sheet

Your balance sheet is a snapshot of your business. It provides a financial perspective of your private property. What property do you have and who actually owns it?

Both sides of your balance sheet must be equal, hence the term double accounting, which your accounting software will usually take care of automatically.

Current assets are cash and other assets that can be converted into cash within one year. Fixed assets are property and equipment that your business owns, which is not normally intended for sale.

Liabilities are amounts of money that you owe other people or companies. Owner’s equity is your private property that is already paid for. So your house, for example, can be a liability and you can have owner’s equity in it at the same time.

I like Robert Kiyosaki’s idea that an asset is a property that puts money in your bank account. Liabilities take money out of your bank account. So, your houses, cars, and equipment that you are making payments for are liabilities, not assets, even though you do accumulate owner’s equity in them. You can call your houses and cars property or equity in property. They are not assets, unless they are earning some kind of income.

A house can be an asset if you are renting it out and getting more income from it than it costs to maintain it. All of your private property that earns income are assets. If it costs you money to own that property, that is owner’s equity, rather than an asset.

Buy assets. Accumulate capital. Invest your capital in income generating assets. Spend a certain percentage of your income buying assets, no matter what else happens. Yeah, you do need some income to buy assets. Start early and keep buying assets and increasing your capital.

Just think about the 8 billion people looking for work to do and the artificial intelligence and robotic factories. Investigate the global market, to make wise investments and then buy and own some little niche of the means of production. Work on turning your computer into a cash machine, pumping money into your bank account.

Owner’s equity is definitely valuable, just get in the habit of thinking of an asset as something you own that earns you income. And start buying assets.

Ownership is really important here. You can collect rent from some of your private property. Private property can be an asset or a liability, depending on whether it earns more income than it costs.

Income Statement

Your income statement records your profits and losses, your income and expenses. It shows you whether your business is profitable or not.

Gross margin is your profits minus your cost of sales. Cost of sales is what it costs you to produce or acquire the products or services you are selling. You can turn your gross margin into a percentage of sales by dividing the cost of sales by revenue, to see how expensive your variable costs are.

Revenue is the total amount of money coming in from sales, loans, investments or any other source of income. Gross margin minus operating expenses equals net profit.

Sales are income you have earned, but not necessarily collected. The cost of sales is your variable expenses. They represent the cost of doing business and can include any labor, materials and shipping. Variable expenses usually increase with sales, because they are the cost of delivering your products and services.

Your fixed expenses are the cost of being in business. These can include any wages, insurance, rent, advertising, utilities or interest payments. They usually do not vary with the number of sales your business generates.

Net profit is your income after all expenses are counted. Your net profit statement shows you if your business is profitable, it shows you what you’ve earned over a specific period of time.

Your large investment costs are spread out over the useful life of the asset invested in. Depreciation is the reduction in the value of your equipment, due to wear and tear during the passage of time. Whenever you count depreciation on your income statement and you remove that amount from your earnings over time, then you also need to reduce the value of the property.

Sales earn your income. Subtracting the, “cost of sales,” from your sales, gives you your gross profit. Subtracting your fixed costs from your gross profits gives you your net profit.

Your income statement represents your sales and expenses over a certain period of time. Your balance sheet shows you your financial status at a particular point in time.

Cash Flow Statement

Your cash flow statement shows you the actual amount of cash flowing through your business. Your income and your balance sheets measure your productivity, your income and expenses. Your cash flow statement shows you the money itself.

When you make a sale you record that on your income statement. You record it in your cash flow statement when you get paid for the sale.

So, your income statement and your balance sheet are measuring earned income, etc., and your cash flow statement is measuring the actual flow of money through your business. If you receive a payment or any other income, it goes on your cash flow statement. If you make a payment for anything, it goes on your cash flow statement.

A typical cash flow statement will include

• beginning cash balance
• plus cash inflows
• minus cash outflows
• equals cash balance

Your balance sheet gets its cash and earnings balances from your income and cash flow statements and shows you your financial status at a particular point in time. Your income statement shows you your earnings over a particular period of time. Your cash flow statement shows you your cash coming in, cash going out and the net result over a period of time.

Summary

Spend some time studying these documents. Understand what they mean. And then fire up your LibreOffice Calc and start creating your financial documentation. Keep them up to date. And back them up, on your other computers and on your cloud computing account.

Keep your office neat and clean and your records in order. Make them accessible, secure and easy to understand. Use them to learn and to help you plan your business and execute your plan. It’s all about what’s in your mind. Use your financial documents to help you guide your ambition, your free enterprise, in the most productive and profitable way.

While studying and learning how to understand the accounting involved in your business is important, the relationships you cultivate are even more important. Your venders and customers are all important. Your natural habitat is vitally important. Make sure your spiritually inspired free enterprise is attractive and valuable and works in harmony with nature.

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Photo by Bob Mccoy using Canon EOS Rebel SL2 
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