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BASIC FINANCIAL SKILLS

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CONTENTS

EXER EX ERC C ISE: ISE: PRE ASSESSMEN SSESSMENT T .................. .................. .................. ................ 3  

BASIC FINAN FINANC C IAL TERMINOL T ERMINOLOGY OGY .................. ........................... .................. .................. .................. ................ ....... 3  THE MOS MOST T IMPOR IMPORT TANT THINGS THINGS TO KNOW KNOW ABO ABOUT UT BANK BA NKING........................ ING.......................... 5  WHAT IS A BUDGET?........ BUDGET?.................. ................... .................. .................. ................... ................... .................. ............... ...... 7  EXERCISE: POST ASSESS ASSESSMEN MENT T ................... ............................ .................. .................. ................... .................1 .......19 9  BOOKKEEPING BOOKKEEP ING AND FINANCIA FINANCIAL L DOCUMEN DOC UMENT T .................. ............................ ................... .................. .........25 25  CASH FLOW ANALYSIS.....................................................................35  

FUNDRAISING.......................................................................................38

 

FUNDRAISI FUNDRAI SING NG EV EVENT ENT S.............................................................. S...................................................................................... ........................... ... 38  PLANNIN PLA NNING G A FUNDRAISI FUNDRAISING NG E VENT VENT ..................... ............................................. ................................................. ............................ ... 39  DOING DOI NG AN INITI AL BUDGET FOR A AN N O ORGANIZATI RGANIZATION ON........ ........ ........ ........ ......... ........ ........ 42  WRITING WRITI NG YOUR BUDGET....... BUDGET................................ ................................................. ................................................ ............................... ....... 42 

BIBLIOGRAPHY......................................................................................46

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EXERCISE: PRE ASSESSMENT This exe rcise rcise is designed de signed to broadly broadl y measure your curre curre nt level of awa awa re ness and knowledge knowledge about the subject

Put a tic t ick k iin n the column column that mos t des de s cribes cribes you

Not true for

More or

Definitely

me at all

less true

true tru e for me

fo r me 1

I can list th ree examples o f forma forma l fin financial ancial institutions

2

I can list th ree examples o f info rma l financial financial institutions

3

I can expl exp lain wha t a budge t is 4 5 6 7 8

I can can c comp ompile ile a budget I can explain the difference between wants and needs I can can set a SMART SMART goal I kno w wha wha t to d o if I spend mor mo re than what I earn I can can explain wha t the tru true e cost of debt is

FINAN ANC C IAL TERMINOLOG T ERMINOLOGY Y BASIC FIN

EXERCISE: Group Discussion

Group exercise

Can you think of any an y o ther the r tte e rm ino ino logy og y that we should d iscuss?

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In orde r tto o be able to se t and and manage yo ur own budge budge t as well as a bu budget dget for a small busines business, s, it is impo impo rtant to to underst u ndersta a nd the wo wo rld o f ffinanc inance e . Lets have a look look a t some of the tte e rm s:

Credit In te rms o f my m y ba ba nk acco acco unt, cre cre dit is is m oney tha tha t comes into my a ccount, ccount, for examp examplle a salary. salary. It co uld also also be money that I

borro borro w from someon s omeone e o r a bank, with the prom prom ise to repay th the e

lender at some date in the future

Debit In te rms of m y bank ba nk a ccount, ccount, deb it is the mone money y go go in ing g out ou t of the the a cco cco unt. I could for example example implement a debit order where I agree with the bank to pay a fixed amount every month to a person or institution. institution. Th The e bank bank will then automatica automatica lly deduct deduct the mone mone y e ve ry month and pa y i o ve r, fo fo r example example I could pay pa y m y clo clo thing acc a ccoun oun ts, water and lights lights e tc via via deb it o rder

Savings account Is an a cco cco unt whe whe re you make deposits e ve ry month mon th and the bank pays you in te res estt on the money in your acco acco unt. I t is normally used for fo r short term term sa sa vings

Balance sheet A company company o r person's person's fina fina ncial ncial statement. statement. It reports eports yo ur asset assets, s, li liabiliti abilities, es, and net wo rth a t a specific time

Cheque account I can open open a cheque cheque acc a ccoun oun t w with ith a b ba a nk.

The bank tthen hen issues issues me with with cheque. cheque.

A cheque cheque

contains an unconditional order from the drawer (the person writing out the cheque) that directs a bank to pay a definite definite sum of money m oney to to a payee

Beneficiary A person who benefits from the terms of a trust, pension or provident fund, or other deferred income inc ome plan, plan, o r an ins insuranc urance e policy policy

Cash Flow Cash generated by, or used in, operations

Consumer Price Inde I ndex x (CPI) An index showing changes in the cost of living, or inflation, based on the average cost of a "basket" of goods and services

Personal loan Tempora ry bo Tempora bo rrowing rrowing o f a sum sum of o f money Training material is copyright Exchange rate

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THE MOST IMPORTA I MPORTA NT THINGS TO KNOW A BOUT BA NKING

EXERCISE : Group Discussion Group discussion •

 

What is a s tokv ok vel? Is this an effectiv effe ctive e way of savi sav ing money mone y? Why Wh y?



 

What is a loan sha sha rk and why a re they so so dangerous dangerous to make use of?

 

What is a burial society? Is iitt a good or bad thing thing to bel be lo ng tto o a bu buri ria a l society? society ? P lease



mo tiva iva te your answe answe r •

 

What is a p yram yram id s cheme and explain the dangers associ asso cia a ted with it?

Money in a bank account is safe  safe  - A bank is one of the safest places to stash your cash since your accou a ccount nt is insu red aga inst loss by b y the the go ve rnment.

You pay for the convenience of having a bank account  account  - Banks pay low lo we r rate rate s on interestinterestbearing acc a ccount ounts s than b rokerages and a nd mutual f un und d companies companies tha t offe offe r chec check k -writin -writing g p rivil rivile ges. ges. What's mo re, bank fees fees can be high - a ccoun ccountt costs can easily easi ly a dd up u nl nle e ss you keep a m inimum required balance on deposit

Inflation Infla tion can eat what what y ou earn from a bank  bank -  Even Even a t a llo o w rate o f infl infla a ti tio o n, the annual creep creep in the cost cos t o f goods and services usually outpa outpa ce s what what banks ba nks pay pa y in inte inte rest-beari rest-bea ring ng acc a ccoun oun ts

Not all interest rates are created equal  equal  - Banks frequently use different methods to calculate interest. To compare how much money you'll earn from various accounts in a year, ask for each account's "annual percentage yield." Banks typically quote both figures, but only APYs are calculated the same way everywhere

You can get better rates (but there's a hitch)  hitch) – In general the longer period you have to save fo r example a 6-month 6-month deposit accoun accountt, the hi h igh ghe e r the intere ntere st rates. rates.

Howe Howe ve r that usua usua ll lly y

means that you can not withdraw the money from the account. The call off for these kind o in inv ves esttment men ts a re no rma lly 32 days, and you pay pa y penalti pe nalties es if you with withd d ra w your mone mone y ea rli rlie er

ATM fees can take a significant bite out of your budget  budget   - The convenience of using automated teller mac ma chines is an increasi increasingly ngly p ric rice e y one one . I t is even mo re expensiv expen sive e to withdra money mone y from from the ATM of anot ano the herr b ba a nk, so withdraw money from f rom your banks ATM as fa r a as s possible. Also you will pay a fee for every transaction, so plan your spending and make sure you dra enough mone mone y

Getting the best deal takes work  work  - You won't get a great deal on a car if you just walk into a dealer and plunk your money down. Likewise, you won't get a great banking deal unless you

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comparison-shop and ask about price breaks. For example, a bank might offer free checking if you are a shareholder or if you direct deposit your pay check

Internet Banking  Banking–   Internet banking faciliti facilities es is i s on the in crease crease.. Ea ch ba nk offers offers a uniqu unique e in intte rnet servic se rvice e . Se Se curity for inte inte rnet banking is top top p ri rio o rity and ce rta rta in banks need a 3 part pa rt llog og in sequence to prevent fraud. Internet banking is the cheapest way to do banking.

Using a debit card  card  – Most banks urge their customers to use their savings, transmission and even cheque bank cards as a debit card. The card is used to pay for goods at most stores. More and more stores are excepting debit (maestro) cards Use the Internet to shop for bank services  services  - You ca ca n use the Int In te rnet to to compa omparre fees, yields, yields, and minim minim um deposit deposit req require uirements ments na tionw tionwide. ide. To find out wha t a lo ca l b bank ank is o ffe ffe ri ring, ng, plug plug it its s name into any Internet search engine

Inf ormal ormal f inancial inancial institutions Inforrma l financial Info financial institution i nstitutions s in cl clude ude friends, friends , family, family, ‘st ‘stok okv vel’, loan sharks, burial so ci cie e ties, ties, pyram pyr am id schemes schemes

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WHAT BUDGET ET? ? WHAT IS A BUDG There are very few individuals who take the time to create a personal budget. Some individuals do not see the necessity of doing so; other people simply have no desire to restrict their spending habits. habit s. W it ith h this in mind, mind , it should su rprise prise no one that the number n umber of pe rsonal bankruptci bankruptcie e s has reached an all time high. Some individuals buy on desire and envy without first thinking of the consequences thereof. In order to reverse this trend people need to become more responsible with their ways of spending. One of the best tools to help an individual accomplish this behaviour is the personal budget. This sectio sectio n will he he lp you to un unders dersttand the wo wo rld of mone mone y in order order to manage personal finances finances.. I t will will also help help you to:



 

P lan and manage you r ow own n finan ci cial al we ll-being



 

Develop an understanding of your own income and expenditure patterns



 

P lan short and long te rm financia financia l commitmen commitmentts and how ho w to b udg udge e t fo fo r th them em

A budget budge t is a p lan for saving and spendi spend ing your income. It is a financi finan cial al plan that set se ts limits limits on the amount amou nt of money mone y that will will be spent spen t on ea ch ca tegory of o f expenses in a g iv iven en month. month. Every month you ge t a ce rta rta in amount of money and you ha hav ve to use it to pa y ce ce rta rta in expenses

EXERCISE: The importance of managing personal finances Man y peopl peo ple e ha ve no idea exactly whe whe re or how they the y spend a good goo d po po rtio rtio n o f their mon mone e y. How man y times many times ha ve you taken mone y from from the t he ATM only to rea rea lis lise e a co uple of days later that it is gone? Many times it is is difficult dif ficult to to remembe r ho w exa ctly yo yo u s pent the money, and often times this money is wasted on frivolous purchases Teamwork



 

Dis cuss why it is is so importan t to to ha ve a budget b udget



 

Discuss the consequences of a wrong budget

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Compiling your budget

A lot of people realise realise thei heirr need for a budget, budget, but bu t the the y simply simp ly have no idea whe whe re to start. sta rt. W it ith h this in mi m ind, lets have a look at the basic bas ic STAGEs o f creating a pe pe rsona rsona l budge budgett

Group exercise

Dis cuss why indivi ndiv iduals with spe ci cific fic goals a re mor mo re su ccess ccess ful than people witho without ut speci spe cific fic goals

Individual exercise Se t yo yo urse urse lf short, medium and long te rm goals •

 

Short term goals



 

Medium term goals



 

Long term goals

Individual exercise Go ba ck to your goal that tha t you you have se t a nd check check if i f it is is SMART. I f not, change iitt to to be SMART S MART

The secret lies in knowing where you are now, where you want to go in the future and figuring ou how you yo u are are going going to get the the re. It is like like cha cha rting rting your your route to a new ne w and unfamilia unfamilia r place place . You  just us t have to find out which hi ch roads to take in o rder de r to rea each ch your final destination. Dis isttinguish betw be twee ee n Sho Sho rt, Med Mediium and Long Lo ng te te rm goals.

Short term goals  goals–   For a couple ouple of days, a week or a month Medium Mediu m term te rm goals  goals – For a couple of months Long term goals  goals – For a year and more

In this case, your financial destination – your future goals

SMART Goals An eas y wa wa y to e nsure nsure that we set a achi chie e vable goa ls, is is to make use of the SMA SMART RT goa goall setting setting acronym

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Specific  – does the goal Specific goa l mentio men tion n spe specifics, cifics, for examp le I hav have e just just sta rted rted with with a part time job and it is is possible to sa sa ve some money? mone y? A spe cifi ific c goal is that I want to sa ve R1000 over the next nex t 5 mon ths as a deposit de posit o n a ca r Measurable  – can I measur Measurable m easure e the goal that I ha hav ve set? If I just say sa y I wa wa nt to save, ho ho w do do I measure it? it? I t is much mu ch mo re ef fective tto o s ta te a measura measurab b le goal, for fo r examp le I wan t to to sa ve R200 a mont m onth h  Achievable – is it possible to achieve the goa goall in the the time peri pe riod od that I have set? If you have have a lr lread eady y committed committed your salary sala ry to to o ther things, your goal is not a chie chie vabl ab le   Realistic  – is this a rea listic g oal? Fo r examp le , if Realistic if I do no nott h hav ave e an y sa sa ved mone y and I do not no t have a part time time job, it is is no nott realis realis tic to say sa y that that I can buy bu y it by the end en d of the year Trackable racka ble or timelin t imeline e  – can I tra ck my m y goal? Fo Fo r example ca ca n I see that tha t a t the e nd of mont mon th one that I ha ve R200, b y the the end of mon th two two I will hav h ave e R4 00 a nd so forth  forth  As long as we measur m easure e an y goal that that we se t agains t the the SMART model, a nd we stick to it, we will reach it

Stage 2: Make a list of your monthly monthly income income

C rea te a li l ist o f yo yo ur monthly income. income. This figur figu re will will set se t the the cap on y yo o u r tto o tal budge budge t. What makes up your income in a month? Do you do any extra work where you are receiving money? Maybe your parents are providing some money? You m ight be re ceiving ceiving money f rom some so so rt of grant grant Starting a small home based business Investment profits – where you are getting interest on an investment Dividends fr f rom stock – st s to cks tha t pay out ou t a b onus from time to time Add it up and write write down the to ta l – T HAT I S HOW HOW MUC MUC H MONEY MONEY YOU HAVE H AVE TO S SP P END END I N A MONTH!

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Stage 3: C reate a list of your monthl monthly expenses

EXERCISE: Individual Exercise

Individual exercise List some some o   f your needs List some some  of your wants

C rea te a list o f yo yo ur monthly expenses. Do you know whe re your mone mone y goes? You m ig ht say re rent, nt, loa loan n repa repay yment men ts, food o r mone mone y that yo yo u spend on re laxing, for fo r examp le go ing to the the mo vie s. Bu t after after that, things b beg egiin to get a bit fuzzy about whe whe re the res estt of of it g goes oes After you hav ha ve se t yo yo ur goals, the the nex t stop is to learn learn whe here re your mone mone y is bei be ing spent s pent before before you can make a rea eali list stic ic fi finan nan ci cia a l p lan. This migh mightt be be a hard job for some p peo eo pl ple e ; o ther the rs will find it to be ve ve ry re re wa rding. No ma tte tte r how yo yo u feel, it must be done befo befo re you can start to de de ve lop your win inning ning pla pla n. Inve Inve s t the the time now for a be tte tte r pa pa yoff later Often your expenses could be divided into needs and wants.

There is a d iff iffe e re nce between w wha ha t we we nee d and wha t we we want. We oft of ten have to to sav sa ve on wha wha t we wa nt for examp le a new ne w CD, in in o rder to to pa y ffo o r what what we need for example example fo od a nd clo clo thing Needs  are basic things that ar Needs a re requir equi re d for y yo o ur saf safe e ty and health, for example example food to keep you a liv ive e , clo clo thing to keep you wa rm and she lte r to protect you Wants  on the Wants the o the herr hand, ar a re items you desir desi re but bu t a re not no t critic critica a l tto o life ife.. Theses Theses ma y in incl clude ude ice ice cream, desi des ig ner ne r jjeans eans o orr a ca ca r

So is a good idea i dea to track yo yo ur ex penses fo fo r a month to see where your money mone y iis s go ing to , but for now, lets just just see wha t makes up you r expenses expenses in a mont mon th: Rent Food Clothes Transportation Utilities (Water and Electricity) Entertainment Extra Extr a – an ything ything e lse you are a re spending spending your money on

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Stage 4: Devel Deve lop a savings plan plan

Now that you know kno w ho ho w much money mone y you ea earn rn (income (income ) and ho w much mu ch money mone y you spend (expenses), you can see see ho w m uch money (if any any)) rema ins for add add itiona itiona l savings. savings. Make a habi hab it to save some thing, no matter matte r ho ho w s small, mall, for fo rm ev e ve ry bit o f mo ney tha tha t you receive

Stage 5: Using the the plan plan Fo r a budget to be be ef fective, it must be used ea ch day da y. This is is the most import impo rtant ant ST AGE and w will ill probably need the most tenacity!

Stage 6: Add other other categories categories EXERCISE: Individual Exercise Individual exercise Why it is so import impo rtant ant to sa ve money? List different ways to save money

Add ca tegori ego ries es if  if necessary nece ssary.. Three ar areas eas that are often often o ov ve rl rlooked ooked ar a re: Debt reduction Retir Re tirement ement s avings avings Emergency savings

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EXERCISE: Set your own budget

Choose a volunteer in you r team team , someone someo ne tha tha t either has a job a nd ea rns a salary sala ry o r gets gets pocke pockett money, and and set a pe rs rsonal onal budget budget for that pe rson Use the following format

GOAL

Month: INCOME

EXPENSES

Salary

Travel

Se lli ling ng pape r o ve r weekend

Food Clothes

TOTAL OTA L I NCOME NCOME 

TOTA OTAL L EXP ENSES  ENSES 

Group exercise

What can you do if your expend iture iture is mor mo re than your income?

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PREPARING A PERSONAL BUDGET

EXERCISE – PREPARING A BUDGET Purpose Purpos e:

To practise practise prepari prepa ring ng a simple b ud udget get

T ime:

20 m inutes inutes indivi ndi viduall dually y, 10 m inutes feedba ck in p lenary ena ry

Task: Use the information provi p rovide ded d be be lo w to prepare prepare a bud budge gett fo fo r yourself ffo o r on one em month, onth, assuming that tha t you you have R 3 000 disposab disposab le income income for fo r tthe he mon montth. Calc Ca lcula ulatte the total amount, making su re tha t you you do no t exc ex ceed it. i t.

P ric rices es f o r some some items have have been p prro vi vided ded as a guide.

1 litre m ilk: R 5.50

Vege tabl ab les/Fruit: es /Fruit: R 24.99

Soap: Soap : R 5.25

Phone ca rd rd:: R 30.00 C D: R 13 130.00 0.00

1 kg Meat R 29.99

Toothpaste: Toothpa ste: R 6.45

Jam: R 7.75

Bread: R 5.80

Budget for the t he month of March 2007 f or: _______ _____________ _____________________________ _______________________ Income:  ____________  ______ _______ _ _____________________________________________ ______________________________________________ _ ____

It Ite em Rent

Cost per item

No. required

Food

Lights and Water Transport

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Calculations Calculations

Total ota l

 

Toiletries

Entertainment

Other (e.g. studies)

Savings

TOTA L

Learning points

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EXERCISE: EAR EAR NING EXTR EXTRA A I NCOME

Individual

Identify different ways to increase your personal income.

exercise

Compile a budget for a small business

???? Consultants Month: INCOME

EXPENSES

Consultat Consu ltation ion fees

Rent

Se lli ling ng o f service service s

Phone a cc Stationary

TOTA L INCOME INCO ME  

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TOTAL EXPENSES  EXPENSES 

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THE COST OF DEBT

EXERCISE: XE RCISE: Group Discussion Discussion Group exe rcise rcise

Yo u want to to buy a new ne w C D p la ye r. Afte r look look in ing g around yo yo u de cide ide to buy it on hi hirre purcha purch a se. T he p layer laye r cos ts R5 R5 99. Yo u need need a R50 R50 deposit that you pay imm imme ediately diate ly – from your savings. savings. The cred cred it rra a te is 25%. 25%. Calculate Calculate how mu ch you will will reall y pa y for the CD playe playe r ove overr a one o ne y yea ea r period period Group   Discussion Group How do you yo u build build up a credit history? How do you yo u build build up a positiv positive e credit history ? What ar are e t he consequences if you y ou have a bad b ad credit rating? rating? 

The cos c ostt of cred credit it depe depends nds on vari v ariou ous s factors, for exam exam ple: Who you borrow from. from. It is much cheape cheape r to to borrow from a place place whe re you pa no inte nterres t, ffo o r examp examp le your par paren ents. ts. The sec second ond choic hoi ce is a ba nk and they will cha rge you yo u interest, if you can can g ge e t a loan a t all. Ne ver use a loan shark Yo ur cred credit it history history – the be tter your ou r histo histo ry, the the eas ier it is tto o borrow bo rrow mo ney aga in . I t is ve ry difficul difficultt to bo rrow money without a cred credit it histo histo ry ry.. A lo t o f peo ple ple s ta rt off with help with with the ir par pa ren ts o r a guar gua rdian dian that signs su sure rety ty Ho w mu ch yo yo u borr b orro ow H o w long y you ou take to to repay it. The longe longe r you take take to rrepa epa y tthe he deb debt, t, tthe he mo re you will pa y. The cost w will ill va ry with with how long you take ake to pay Cr Cre e dit dit cos ts will va ry from lende r tto o lender s o before you borr bo rrow ow,, compare the costs at s se e ver era al p laces laces

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EXERCISE: KEY LEA L EARNI RNING NG

Checklist The following fol lowing ma jor lea rning ar a reas we re add ad d res essed sed during this section

   d   n   a   t   s   r   y    l   e    l    d   u    f   n    I   u

Fil l in the che ck list belo w:

1

I under unde rs tan d most commonly commonly us use e d finan finan cia cia l terms erms

2

I kn kno o w wha hatt a b udge t is and an d how to comp ile one

3

I kn kno o w why bud budg ge ting is impo rtan t

4

I kn kno o w wha hatt va va ri rio ous sources of in come a re

5

I kn kno o w wha hatt tto o d o if my expen ditu re o n m y budge budge t is

  p    l   e    h   e   r   o   m    d   e   e   n    I

   d   n   t   a   o   t   s   n   r   e   o   d    d   n    I   u

more than my income income 6

I kn kno o w how to set set a SMART SMART g oal oal

7

I kn kno o w how to make ex tra money

EXERCISE 12: Self-evaluation What makes ak es up the basic elemen elem ents ts of o f an income income in your budget? budget ? What make s up the e lements lements of expe e xpend nditure iture in your budget? Discuss the difference between wants and needs and provide 3 examples of each from your own life What does the acronym SMA SMA RT s sta ta nd for? Ment io ion n 3 reasons why it is important importa nt to m anage anage y our mone m oney y

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EXERCISE: XE RCISE: WORDS USED USE D IN THIS SESSIO SESSION N THAT MAY BE NEW TO ME

Frivolous

Playful, light hearted

Set the cap

The maximum maximum you can use use

Surety

Se curity, indemnity, guara guara n tee

Reciprocity

M u tua l, jjo o in int, t, sha re d, g ive and an d ta take ke , compl complime imen n ta ry

Fraudulent

Fake, falsified

Tenacity

Firmness, pe rs isten isten ce

Payee

The person tha tha t the the money is paid to

Deficit

Shortfall o r a rr rrea ea rs

EXERCISE: XE RCISE: GROWTH ACTION PLAN Re vie w the wor ork k th tha a t you you have covered du ring th this is sess ion ion an d the the n comp comple lette the growth action pla pla n belo belo w: What did I do well? Where did I struggl trug gle? e? How can I improve ? By when?

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EXERCI SE:: POST ASS ASSES ESS SMEN MENT T EXE RCISE ALL OUTCO OUTCO MES MES This EXE EX ERCISE is d des es ign igned ed to b road ly measur measu re your ou r cu current rrent le le ve l of a ware are ness an and d k now nowledge ledge abou t tthe he subje ct

Put a tic t ick k in the co co lu lumn mn tha t most describes descr ibes you 1

Not true

Mo re o r

Defiini te ly Def

fo r me a t

less true

true for

all

fo r me

me

I can list list th ree example s o f fo forrmal ma l financial financia l institutions

2

I can lis lis t th ree example s o f informa informa l fi nanci an cia a l in ins s titutio titution ns

3 4 5 6 7 8

I can explain wh at a budget is I can compi compile le a bud udget get I can exp lain the difference d ifference betw betwee ee n wa wa n ts and needs I can can set se t a S SMAR MART T goa goa l I know kno w w wha ha t to do if I spend more than what I earn earn I can exp lain ain wh wh at the true cost of debt is is

EXERCISE: XE RCISE: EXERCISES XERCISES TO C OMPLETE AT HOME OR IN THE T HE WORKPLAC WORKPLAC E

EXERCISE / Assignment cover Learrne Lea nerr Name Name (please print): Lea rne r Number Numbe r:

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Signed b y Learne Learnerr: Date Completed: Assig nmen nmen t Name Name a and nd Number: Signed by b y Coach Coach / Mentor: Datte: Da Signed b y Fa cilitator cilitator:: Date: Learrne Lea nerr Commen ts:

Coa ch / Mentor / F Fa a cilita cilita to r Comm Comm ents: ents:

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Yo u r fac fa cilita ilitator tor wil illl d ivide yo yo u into te team ams. s. Ea ch te team am must do the the follo win g: Ea ch individual in the team mu s t co n ta ct a no notthe r bank. Te ll them you are d do o ing resea rese a rch on finan fina n cial instit inst itu u tions for the purposes purposes o f a tr tra a ining p rog ramm e. Find Find out ou t w wha ha t all all the requi rements a re to open up a cheque acc a ccount. ount. Note Note the requirement requir ements s a nd the cost costs s. Also check if if you can ge t an o ve rdr dra a ft facility on the a cc ccou ount nt..

Note ote the

requir req uireme ement nts s and the costs costs fo r an an o ve rdr dra a ft.

Li st a t lleas eas t 1 0 financial terms terms tha t the bank us use e

The team reg roups oup s a nd lists lists al alll the requirem requirement ents s of the va rio rious ins titu titu tions tions.. Use the given g iven matri mat rix x to p ro rov vide ide feedba feedba ck . h hen, en, as a team team ans we r tthe he qu ques es tions tha tha t follow.

Yo u will il l use this wo rk to pro vide feedb feedbac ack k to th the class

Financial Financi al t erms Forma l f inancial inancial institution institut ions s Fo rma l financial instituti institutio o ns include Ba Ba nks, mi micro cro financial institutio institutio ns and bu buildi ilding ng societies

Describ Descr ibe e in general gener al what a bank, bank , micro financial institut institution ion and a bui buildi lding ng society is and give an example of each What ar are e t he advantages of de al aling ing with with formal forma l financial instit instit utions? utions? And t he disadv d isadvant ant ag ages? es?  

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Financial Financi al t erms Forma l f inancial inancial institution institut ions s Fo rma l financial instituti institutio o ns in in clude Ba Ba nks, mi micro cro financial institutio institutio ns and bu buildi ilding ng societies

Describ Descr ibe e in general gener al what a bank, bank , micro financial instit institution ution and a bui build lding ing society ocie ty is and give an ex example ample of eac each. h.

What ar are e t he advantages of de al aling ing with with formal forma l financial instit instit utions? utions?

And t he disadv d isadvant ant ag ages? es?  

List t en important things things that every every person should know know a about bout bank anking ing  

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Ba sic Financ Finan cia l Skills: Skills: Set S et Your Your Own Budget Budge t – Home Home work

Dr Dra a w up a pe rsona l bu bud d ge t for yo u r househ house ho ld for a t least least 3 months months.. I f poss possible ible,, do th is on th the e computer. I f you do no t ha hav ve access, use use the fo rmat on the next nex t p page. age. Then identify:



 

Pos sib sib le ways you can ea rn money mone y or mo re mo ney



 

Pos sib sib le w wa a ys you can save m mone one y

Prese Prese n t th is to y yo o u r facilit facilita a tor and a nd discus discuss s . File a copy op y of this iin ny yo o u r port portfol fol io of evidence evidenc e

Facilitator

Please pro pro vide the Learne Learnerr with with feedba ck as to the followin followin g:

Di Did d the the Learne Learne r use use a sp sprreads he hee e t tto o p rod u ce the budge budge t? If so, d did id he/she use the so softw ftwa a re effective effective ly? ly?

When you discuss the budge budge t with the Lea rner, ne r, does he/she sho how w an understandin under standing g of bas ic budge budgeting ting pr p rinciples?

 

Expenditur Expend iture e should sho uld n o t exceed exceed revenue

 

P lann lann ing for unfo reseeab le expen expenses ses

 

P lann lann ing for regu regular lar expenses, such as re n t, tr tra an sport spo rt,, food etc et c

 

Allo wa n ce fo r service service fees and in intte res t









Has Ha s the Learne Learne r allowed allowed fo r any kin kin d of o f ffo o rma l sa ving o r worki workin n g tow to wa rds a financi fi nancia a l go goa a l (ther ( thereb eb y indica indica ting responsibility responsibili ty a nd fo rwa rd pla pla nning…?)

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Look Loo k for evide evide n ce o f the Lea rne nerr ha having ving applied ap plied his/her mind, mind, as opp oppose ose d to to ju s t filling fillin g in some numbers

GOA L

Month: INCOME

EXPENSES

Salary

Travel

Se llin llin g pa pe r over weekend

Food Clothes

TO TAL INCOM INCO ME  

TOTA TOT A L EXPENSE EXP ENSES S 

List various methods to Make money

List v arious method metho ds to Save Save Money Discuss plans to adjust income and/or ex penses to keep kee p budget budget on track track  

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BOOKKEEPING AND FINANCI FI NANCIAL AL DOCUMENT  

Why Learn Bookkeeping? Why wou ld you want an t tto o learn bo okkeepin kkee ping g and a nd keep up to da te financia financia l re co rds an ywa ywa y? Ca Can't n't you h hir ire e a n accou accoun n tant an t tto o come a fte fte r the en en d o off the year and get you r che heck ck book a nd shoe box and do your ou r tax taxes? es? Su Surre you can! And yes you will ha hav ve adequately fulfilled your taxpayer obligations. But in order to run a business and kno now w wh a t, where, and when

to

take ake

co rr rre e ct ctive ive action a ctions s

re quires quires

business

inforrmati info matio o n. How do you ge t and whe re do you fin f ind d tthis his in formation? formation? You do n' n'tt if you do n't keep a ccurate a nd current re re co rds about your business financia financia l a ctivities ivi ties (bookkeeping).

Learrn ing Lea ing defini de finitions tions a nd te rminology mino logy is about as much fun as watch atch ing grass gro gro ws , but i t is ne nec ces sa ry to to the und unde e rstandin rstandin g of o f bookkeeping bookkeeping . All I can say is hold you r no se, take your med me d ici icine ne , a nd s wa llow. llow. After Af ter com completing pleting the lesson, if yo yo u need to to , take tw two o aspirin asp irin and an d g go o to be bed d.

What is bookkeeping? Bookkeeping   is Bookkeeping

the pro cess

of rec re co rd rding ing and

class classifyin ifying g bus busin iness ess

fin finan anci cia al

tra nsacti nsactions ons (activitie (activities). s). In simp simp le lan languag guage e -maint -mainta ining the re co rds of the fin finan ancial cial activitties activi ies o f a busines busine ss o orr an individ indiv idua ua l. Bookkee Bookkeepin ping g 's ob ob je ject ctive ive is simp simp ly to rre e cor co rd an d summa riz rize financi fina ncial al transa transactio ction n s in i n to a us usab ab le for form m that provi provides des financia financia l inforrmati info matio o n about a business or o r a n in in dividu divid ual.

Accountants ccountants norma norma lly plan and se t up the accounting accounting and bookkeep bookkeep ing s ystem fo r a business busines s an d tu rn o ver the da y to day re cord keep kee ping to the o wne nerr o r one o f his/he his/he r emp lo yees. In thi th is age of comput ompu ters, mor m ore e and mo re of the da da ily bookkee bookkeep p ing is

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be ing ing do ne u us sing bookkee bookkeepin ping g softwa softwa re and computers although some bus ine sses still maintain manual re re co rds.

Whether you are using the co comp mp ute ute r s so o ft w wa a re or you do it manual manual ly, you should kno w and understa understand nd the fo llowin g: Bo Bookk okkee ee ping Records Re cords and D ocu ocume me nts  nts  General Ledger-A Ledger-A book containing the accounts for all of a business's assets, lia lia bilitie bili ties, s, equity, equ ity, re re venue enue,, and expense accoun accoun ts.

Chart Of A ccoun ccounts ts-A -A co co ded listing of a ll the the a cc cco ou n ts i n the the gen gene e ral ledge ledge r.

Journals-A Journals -A p re liminary re cord where here business business tra transactio nsaction n s a re first en e nte red int into the accounting system. The journal is commonly referred to as the book of original entry.

Specialized Journals-J Journals-Jo o u rna ls used to in initi itia a ll lly y re re co rd specia l types of tr t ransacti ansactio o ns such as sales sales , c cash ash d isb isb u rsements, and cash re ce ipt ipts i n th t heir o wn jou rn rnal. al.

Invoice-a Invoice -a busi busines nes s do do cument sho wing the name nam es and addresses addresses o f the bu yer and the se selller; the da te and te rms of the the sa le; th the e des des cri crip p tion, tion, quantity, unit p rice , a nd to ta l Selling

price

of

goods

business

pur purchas chase ed

refers

to

or this

sold sold

and

the

document

as

meth method od a

of

del delivery. ivery.

Sales

Invoice.

Bu ying bu busines siness s refers efe rs tto o th is do doc cumen umen t as a Su Suppl pplier ier I nvoice. nvoice.

Receiving Report-A Report-A document originated by the buying business listing the quanti ties es and an d c co o nd nditi ition on of o f the goods a nd/or serv se rvic ices es re rec ceived fro from m a su sup p plier. plie r.

Sales Order-A Order-A do do cumen umen te d o riginated b y the sell se lle e r lis ting ing the goods and/o r se se rvices rvices orderred by orde b y a cus tome omerr and other info info rma tion su suc ch as p rices and de deliv live e ry da tes.

Purchase O rd rder er-A -A document docum ent o rigin rigi na ted by b y th the e purchaser (bu yer) requesting request ing the the supplie suppli e r to to ship good goods s o r perf pe rfo o rm services services .

Check/cheque hec k/cheque Book B ook-Fo -Forrmal re co rd of all checks written, written, deposits, bank cha rges , an d m isc isce lla lla neous neous charges a an nd credits. credits.

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Check/cheque-A Check/cheque -A wri ritten tten o rde r dir di recting a bank to pay pa y cas h f rom th the e acco acco unt of the write r (dr (d ra we r) o f the chec che ck.

Bank Reconci Reco nciliation liation-The -The p ro cess of b ringing ringing the che chec ckbook kbook and bank statement ba lances lances into agreement. Bank Statement-A Statement -A copy o f the bank bank 's re co rd o f the the bus business's iness's acco acco unt showi showing ng the balance of the account at the beginning of the month, the deposits and withdrawals (mostly checks) made during the month, service charges, and the balances at the en d of o f tthe he month.

Financial

Statements-Acc Statements-A cco ou n ting repo rts p repa red pe rio rio dically dically

to iin n form form

the

own ow n e r, creditor cred itors s , and othe r interes interes te d parties as to the finan finan cia cia l c con onditio dition n a nd ope rating rating result results s of the busines busines s. Th The e th ree bas ic financial financial s ta tements are:

Balance Sheet-The Sheet-The financial statement which shows the amount and nature of business busines s as se ts, liabi l iabillities ities , and and o wn er's equity ( cap ital) as as o f a s spe pe cific po po int in time. It is a lso lso kno wn a s a Sta Sta temen t of of Financial Financial Posi tion or a St Statement atement o f Fin F inan anci cia al Condition. Income

Statement-The Statement-The

financial stat sta temen t tha thatt summar summariz izes es

re venues enues

a nd

expenses for a specific specific pe ri riod od o f ti time, me, usua usua lly a mo nth or a year. Th is s ta tement is also als o ca lled a P rofi t and L Los os s Sta Sta teme em en t o r an Ope Operrating St Sta a tement eme nt..

Capital Statement-Th Statement-The e f in inan anci cial al report th tha a t summa summa rizes rizes a ll the chan chang ges in ow own n e r' r's s eq uity (ca (ca pital pital)) ttha hatt occurred occurred during duri ng a spe cif ific ic pe riod.

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BOOKKEEPING TERMINOLOGY The de fin fin itions and ter erm m in ino o lo log g y to be p resen ted are are b y n no o m ean eans s all al l the te rm ino nology logy tha t is used in the fie field ld of o f bookkeeping bookkeeping,, bu bu t a re some of of the ma jo r terms terms tha t you might encounter.

First, Firs t, let's let's sta rt wit with h th the e Maj Major or t erms tha t a re used used to o rganiz gan ize e our ou r financial inforrmati info matio o n.

Assets   Assets Fo rma l Defini Defini tion: The p ro perti pertie s u sed in the opera tio n or in vestmen estmen t a ctivities ctivities o f a business busines s.

In Inffo rma l Definiti Defini tion on:: All the good stuff stuff a bus bus iness iness h has as (anythin (an ything g with

va lue). Add itio tional nal Explanatio Explanation: n: T he good stuff stuff in cludes tangible a nd int nta a ngible stuff. Tangible stuff you can physical see and touch such as vehicles, equipment and buildings. Intangible stuff is like pieces of paper (sales invoices) representing loans to your customers where they promise to pay you later for your services or product. Examp xam p les les of asse ssetts tha t ma man n y individuals have are are ca rs , houses houses , boats, fu f u rn iture iture , TV's, and appliances. Some Some exampl ex ample e s of busines busi ness s type a sset sse ts are cash, ash , a cco unts re ce ivable ivable , n ote ote s receivab receivab le, iin n ve n tory, ory, land, land, a nd equipment.

Liabilities   Liabilities Fo rma l Defini Definiti tion on:: Claims by cr cred ed itors to to the p roperty (as (a sse ts) of a bus in ne e ss until they are paid.

Info Inf o rmal Definition: Definition: O the r’ r’s s clai claims ms to the busine busine ss's good good stuf f. Amou Amou nt nts s the business busines s o wes to o thers thers .

Additional Explanation: Usually one of a business's biggest liabilities (hopefully they ar are e not pas pas t due) is to s upplie upplie rs whe re a bus iness ness has b bo o ught goods and services services an d charge charge d them. This This is simila simila r to us go in ing g o u t and bu ying ing a TV and char cha rg ing ing it on ou r credit card. Our Ou r cred credit it card card b ill is a l iabili iability. ty. Anot no the r good pe rsona sonall exampl exam ple e is a home mortgag mortgage e . Very ffe e w peo peo pl ple e a ctua lly own own their their ow o wn home. hom e. Th The e ban bank k has a claim claim aga inst the home which is call alle e d a mortgage. This Thi s mo rtgage rtgage is anothe anotherr example exam ple of a personal liability. Some examples of business liabilities are accounts payable, notes pa yab le, a nd mo mo rtgages rtgages pa yab le.

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Owner's Ow ner's Equity a lso called O wner's wner's Capital  Capital  Comment:Bot Comment: Both h te rms ma y be used in intte rchangea ha ngeab b ly.

Fo rma l Defini Definittion: The o wner's ner's ri rights ghts to the p ro pe rty (a (asse ssetts ) of the busine ss; a lso lso ca lled proprietorship and ne t wo rth. rth . Info Inf o rmal De finition: finition: What the b usiness usiness o we s the owner. The good s tuff left for fo r th the e own ow n e r assum ing ing all lia l iab b il iliti ities es (am ount ounts s o wed ) h ha a ve been pa id.

Add ddition itiona a l Expla Expla na tion: ion: O wn er’s Equity (Capital (Capital)) rep rep resents resents the owne owne r's claim to the goo d s tuff (as (ass se ts). Most people a re familiar familiar with the term erm equi equi ty bec beca a use it is so often use used d with lende lende rs wan ting to loan l oan individ indiv idua ua ls m mone one y based on the ir home equity. Home equity can be thought of as the amount of money an owner would re ce ive if he/she he/she sold so ld the the ir hou hou se and pa id off a n y mo rt rtg g age (loa (loan) n) on the p rope ope rty.

Reve nue a lso called Inco me  me  Fo rma l Defini Definiti tion on:: The g ross incr increas ease e in o wner' ne r's s eq e qu ity ( capital) ap ital) rres es ulting ffrrom the ope rations rations and a nd o the r activi activitie ties s of the b usiness. usiness.

Info Inf o rmal Definiti Definition on:: A Amou mou n ts a b usiness usiness earns earns b y se llin llin g s se e rvice rvice s and an d products. Amountts bille Amoun b illed d to cust us tome om e rs fo forr se rvices rvices a nd /or /o r p rod u cts.

Addition Addi tiona a l Expl Exp lana ana tion: I ndiv nd ividua idua ls c can an best re re late by thinking of rre e venue venue as tth heir ei r ea rnings rnings /wages /wages the y re re ce ive ive from f rom the ir job. Mos t bu bu sines siness s re ven enue ue res ults ffrom rom se lling their pro p roducts ducts and/or and/o r se rvices. rvices.

Expe nse nse also called Cost Cost   Fo rma l Defini Definiti tion on:: De crea se in in o wner's ner's equity e quity ( capital) res ulting ffrrom th the e co st o f goo ds, fixed fixed asse asse ts , an and d se rv rvic ices es and and supplies supplies consumed in the ope ra tio tion n s of of a business.

Info Inf o rmal Definiti Definition on:: Th The e cos costts o off do ing bu si siness. ness. The stuff st uff we we us use e d and had to pa y for o r cha cha rge to run our business.

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Add ddition itiona a l Exp lana ana tion: S Some ome examples of perso perso nal nal expen expe nse s that mos t individuals are are famili familia a r with with a re ut utili ili ties, p hone, hone , clo clo th in ing, g, food foo d, gaso line line , a nd repair repai rs . Some Some examp xam p les les of o f business expen ses a re office sup sup plies, salaries & wages , advertisin adve rtising g, building re re n tal, a nd u tilities.

Owner's Ow ner's Inv estments  estments  Fo rma l Def Definiti inition on:: In crease in o wne r's equ ity (cap (cap ita ita l) resulting from from addi additional tional investmen investm entts of of c cas as h an an d/or othe othe r property made by the own own e r.

Info Inf o rmal defin definiti ition on:: Add Add itional amo un ts , e it ithe he r cash o r othe othe r property tth ha t tthe he ow o wn e r puts in h is busine business. ss.

Add ddition itiona a l Exp lana ana tion: Altho Althou u gh the t hese se amoun ts can be kept up with as a separ separa a te item, they are usua lly re re co rd rded ed directly in the O wne ner' r's s Capital A ccount. In o ther wo rds , immedia immedia te ly put into Ma Ma Eq ui uity's ty's purse.

Owne Ow ner' r's s D ra raw wing  ing  Fo rma l Defini Definitio tion n : De crea se in o wner's ner's equ e quity ity (capital) (capital) resulting fr f rom withd ra wa ls made by the the owne owne r.

Info Inf o rmal defin definiti ition on:: Amounts Amounts the o wne nerr withd withdra raw ws from his bus ine ine ss fo r liv ing ing and pe rsonal expen expe nses .

Add ddition itiona a l Exp la ana na tion: The owne owne r of a so le p ro p rietor ieto rshi ship p does not nor normal mally ly rre e ce ive a "forma "forma l" pay che chec ck fr from om the b usiness usiness,, b bu u t jus t like like most of the rest of us needs mone mo ney y to to pa y for his house, ca r, u tilities, an and d g roc oce e rie rie s. An o wne r's d ra w is use sed d in order for the owner to receive money or other "goodies" from his business to take ca re o f his pe rsonal rsonal b ills. lls.

Transaction-Any Transaction -Any event or condition that must be recorded in the books of a business because of its effect on the financial condition of the business, such as buying and selling. A business dea l or agree agreemen men t.

Sing le E En n try-Type try-Type of "info "inforrmal" a cc cco ou n ting /bookkeep bookkeepin ing g sy sys s tem whe re a use r of thi this s sys sys tem m makes akes only onl y one ent e ntr ry to e nt nte e r a bu siness financia financia l tr trans ansa a ction. It generally general ly

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includes a da ily summary of cas h rec rece e ipts and a monthly re re co corrd of re ce ip ts and disb disbu u rse semen men ts (workshee (workshee ts ).

Double

Entry -Type Entry-Type

of

accoun tin ing/bookkeeping g/bookkeeping

sy s yst stem em

tha t

requir equ ires es

e ev ve ry

transa ction tion to be re co rded in at leas leas t two p la ces (acco (accoun ts) us ing a debi t and a credit. Every transaction is recorded in a "formal" journal as a debit entry in one acco acc o unt, and as a cred cred it e ntry in a no ther accoun accoun t. Pe riodic riodica a lly, usual usuallly mon thly hly,, the summarized summari zed balances from the journ ou rna a ls a re post pos ted (transferr (transfe rred ed ) to to a forma forma l business re co corrd called the genera genera l ledger. ledge r.

Cash as h M Me e tho d (Basis) of A ccounting ccount ing-metho -method d of accoun ting ing

that re cogniz ogn izes es

re ven ue ues s (ear (ea rni ning ngs) s) in in the period the cash cash is receive receive d and expenses in the pe riod riod wh e n th t he cas h pay payments ments a re made made..

Debit-Debit An e ntry in the the financial financial bo bo oks of a firm tha tha t incr ncreases eases a n asse asse t or an expense o r an en e n try ttha hatt de de creases creases a liability, own owne e r's r's equity equi ty (cap (cap ital) or in come. Also , an entry e nt nte e red on the the left s ide ide ( co lumn) lumn) of a journa journa l or o r gene general ral lle e dger acco acc o un unt. t. Let’ Le t’s s

combine

the

two

a bov bove

de fi fin n iti itio o ns

into o ne

complete complete

definition.

An en tr try y (amount) (amount) ent ente e red on the le le ft side ( co lumn) lumn) of a jou rn rna a l o r general lle e dge r account that increases an asset, draw or an expense or an entry that decreases a lia lia bility, bili ty, o wn e r's eq uity (capit (cap ita l) or o r re ve nue.

Credit-Credit An entry in the the fina finan n cia cia l books books of a fi firrm tha tha t in cr creases eases a liabili liability, ty, ow owne ner' r's s equity equi ty (capital) or o r reve nue nue,, or an entry that de cre crease s an asset or o r an expense. Also, an en e n try e n ter ered ed on the rig right ht s ide (column) (column) of a journal ou rnal o r general ledge ledge r acco acc o un unt. t. Let’ Le t’s s

combine

the

two

a bov bove

de fi fin n iti itio o ns

into o ne

complete complete

definition.

An e ntry (amount) (amount) ente ente red on the right s ide (c (co o lumn ) o f a journ journa l o r gen gene e ral lle e dger account that increases a liability, owner's equity (capital) or revenue, or an entry tha t de crea ses a n asset, dr d ra w, o r an expen expe nse.

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Don't wo wo rry double entry, debi ts , and credits credits a re discus d iscussed sed and exp lai lained ned in futu re lesso less o ns. I only on ly wan wantted to introdu introduce ce and an d make you a ware are of these ter erm m s because the y a re critical te rms for fo r unders unders tanding th the e do ub ublle e ntry bo okkeeping syst sys tem.

Account-a Account -a separate record for each type of asset, liability, equity, revenue, and expense used to show the beginning balance and to record the increases and de creases creases for a pe ri riod od a nd th t he re sulting sulting ending ending balance balance at the end o off a period.

Loss-amoun Loss -amountt a b usine usiness's ss's exp expenses enses ex ceed (g rea te r than) re re ve nues . I n o the r wo rds, we ea rned less than we spent. spe nt.

Property-is Property -is ano ano the r te rm for assets asse ts.. In f u tu re lessons lessons the te rm prope rt rty y a nd asse asse ts bo th mean the same th in ing g -all -all the go good od s tu ff a busines busines s has.

Cash flow-i flow-is s the mo vemen eme n t of m mon one e y iin n to and out of a busines s as goods a re bo ught and so ld . A healthy health y Cas h f low is when a compan y is ha ving eno ugh m one one y tto o make paymen paymen ts whe hen n necessa necessa ry.

Cash registerregister- a mac m ach h in ine e us use e d in st sto o res /sh /sh ops, ops , rre e s taur au ran ts, e ct tha t ha s a d raw awe er for keepi keeping ng mone mone y in in,, and an d th tha a t shows shows a nd rre e co rd s tthe he amount a mount of mone money y re rec ce ive d fo r ea ch thin thin g that is sold.

Receipts-- a pe Receipts pea a ce of o f pape r ttha hatt shows shows that goods or ser se rvices have have bee been n paid pai d fo fo r.

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INCOME AND EXPENDITURE TRANSACTIONS. Income and an d expen expen ditur diture e transa transa ctions a re better illust illustrra ted by b y an in inc come s ta tement

The Income Income St Sta a tement eme nt is a ffo o rma l finan inancial cial s ta tement tha t summarizes a company's operations (income and expenses) for a specific period of time usually a month or yea r.

The follow fol lowin in g types of accounts accounts a re used to pr p repa re the Inc Income ome St S ta tement. ement .

Reve nue (A lso lso Called Income ) Fo rma l Defini Definiti tion on:: The g ross incr increas ease e in o wner' ne r's s eq e qu ity resulting fr from om the o pe ra tions an d ot o the r acti viti itie e s of o f the the business.

Info rmal Definiti Info Definition on:: A Amou mou n ts a b usiness usiness earns earns b y se llin llin g s se e rvice rvice s and an d products. Amountts bille Amoun b illed d to cust us tome om e rs fo forr se rvices rvices a nd /or /o r p rod u cts.

Expense Expe nse (A (A lso Called Cost ) Fo rma l Defini Definiti tion on:: De crea se in in o wner's ner's equity e quity resulting f rom the cos t of goods, fixed assets, sse ts, and and se rvices and and supplies supplies consumed in the ope ra tions o off a busi busin ness .

Info Inf o rmal Definition: Th The e cost cos ts of do in ing g bu si siness. ness. The stuff st uff we we used and had to pay pa y for o r cha cha rge to run our business.

Add ddition itiona a l Exp lana ana tion: S Some ome examples of bus bus in ine e ss expe nses a re o ffice su su pp ppli lie es , sa laries & wages, adv ad vertising ertisi ng,, bu ilding ilding re n tal, a nd utili utilities ties..

Hopefully a busi b usiness ness ea rn s a pr p ro fit ca lled net income income (reve (reve nues are la rg rge e r than expen se ses). s). If ho we ve r, expen expe nses a re large r than revenues evenues a ne nett loss re su lts.

The maj majo o r secti section ons s of a n inc in come s tateme atemen n t a re the headin head ing, g, the in in come section, the expen se se ction, ction, and the final calcu calculla tion of a p ro fit o r los loss s.

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The I ncom ncome e Sta temen tementt f  o r ABC Mowing Company is p re resen sentted be low.

ABC Mowing Company Inc In com ome e Stat Sta temen t Fo r The The Pe riod riod Ending De Dec cember embe r 31, 2007

Re venue/income enue/income from oper ope ra tions ions R1, R 1, 205

Expe nse nses s Ad ve rtisin rtising g Exp xpe e nse R225 Mulc Mul ch Expen se R1 R160 60 To ta l Expense Expense s R385 R3 85

Net Income R820

Note: In the real world an income statement would have many more expense categories than the two types illustrated in our simple example. Some additional expen se ses s that t hat wo wo uld no no rma lly be inc in cluded are:

Offic Offi ce Su pp ppli lie e s U sed Te lephone lephone Building/Office Rent Utilities Deprecia Depreci a tion Expense pen se Ma intenance intenance and and Repairs Inte Int e res t Expen Expense se Memberships Donations Bank Fe Fees es and an d Cha rges rges Sa laries & Wag Wages es Employment Taxes Eq u ipment ipment Rent Re ntal al Con tra ct Labour Pro Pro fessi fessiona ona l Fe Fee es Travel

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CASH FLOW ANALYSIS The cash cash flow ana ana lysis lysis is a ve ry effective effective and s im impl ple e tool w whi hich ch ca ca n assi assist st m anage rs to be tter manage their budge budge ts an d de te ct de viations viations f rom bu dge ts i n a n umb umbe er of areas. It can:

 

p re ve n t fina finan n cia cia l managers re-allocating funds w with ith in expenditure classes; asse s;

 

act as an early warning of possible over and under expenditures in certain





expenditu expendit u re cla cla sses; sses; and

 



p rovide rovide a wa rning to to m anage anage rs tto o be proactiv proacti ve to reques reques t fu fund nds s timeously be fore the y a re re requi qui red to be a va ilable ilab le for dis disbu bursement. rsement.

A cash flo flo w stateme statemen n t is an ext exte e nsion nsion of the ope o pe rational pla pla n. In the ex examp amp le be low, the NPO want an ted to purchase purchase computer ha rdw dwa a re and soft sof twa re:

Activity 1

Responsibi Responsibility lity

Pu rchase rchase computer

Ntomb Ntomb i

Pu rchase rchase license license for

Khany Khan yisile

Cost Cost

Ti Timef mef rame

R1 R10 0 00 000 0

R7 0 00

comp u te r Sta tionery

0 1 July – 31 Augu Augus st

1 Augus t – 3 1 September

James

R2 000

01 Ju June ne – 31 September

Th is can ca n be convert onve rte e d to a c cash ash flo f low w s tatement:

Activity 1 Pu rchase rchase

June

July

August

September Septe mber

Tota Tota l

R0

R10 00 000 0

R0

R0

R10 000

R0

R0

R3 500

R3 500

R7 000

Sta tionery

R500

R50 R500 0

R500 R5 00

R500

R2 000

Tot otal al f or month m onth

R500

R10 50 500 0

R4 000

R4 000

R19 000 000

comp u te r

Pu rchase rchase license license for computer

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The learn learne e r must diffe diffe rentiat en tiate e be twee n cos cos ts tha t can be d ivided ivided acr acros os s multiple months (such as stationery above) or that need to be expended once off (such as with th the e pu purch rchase ase of the comput compu ter). It I t is clear clear tha t some expe nditu nditurres can be divided divi ded and o the rs not.

CASH FLOW PROJECTIONS Cas h flow proj projection ection is an impo impo rt rtan antt pa rt of of the f inan inanci cia a l managemen t process. process. Ea ch expenditure xpenditure ite item m is pro pro jected o n a month month ly basis for an entir enti re financi financial al yea r. Some items, such as pe rs rsonnel onnel and a dminist ministrativ rative e expe nditur nditure e are regula egula r mo monthly nthly expen se ses s and ha ve almos t eq ua l distribu distributi tion on th roughou t the yea yea r. Howe Howe ve r, some items su ch as eq u ipmen ipmen t o r tr t rans ans fer fe r p pa a ymen ts a re o on n ce-off expenditur expend iture, e, and the re fore fore m onthly expe expe nd nditur iture va ri rie es depend depend ing on wh en those on ce -off pa ymen ts are are made. Fo r example example Depa rt rtments ments are a llo lloc ca ted funds funds on a mont mo nth h ly basis basis i.e. tra tra nsfers nsfers a re made f rom the Na tiona tiona l Reve Reve nue Fund to natio natio nal, nal, p ro vincial and local gov gove e rnmen t depa rt rtmen men ts.

Ther The refo eforre cas h flow p ro jection mus t take take int i nto o a cco ccount unt monthly

alloc allo ca tions ions from the Na tional Re venu en ue Fund Fund..

Cash flow projection enables managers to plan monthly expenditure and to align it with the th e planned planned a ctivit ctivities. ies. I t also allo allo ws for bu dge gett moni moni to ring ring and control, as the projected projecte d monthly budge budge t can be ea e as ily compared w with ith the a ctual expenditu expendit u re .

The depa depa rt rtme ment nts s must m ust rre e view vie w the ir cash flow o n a mon thly basis basis – o ver-expe nd iture iture or under-expenditure has serious implications and domino effect on government’s bo rrowing rrowings, s, infl i nfla a tion ta rge ting ting and ec econ onomy. omy.

The f in inancia anciall sta tus of the orga nization izat ion is determined deter mined with with the a ssista nce o f an acc ounta nt.

Mo s t a ccountant counta nts s when asked will rec recomm omm end that a bus ine ness ss use use the d do o ub uble le en en try bookkee ookke ep ing sy s ystem stem and the a ccrual basis or met me thod of accountin accou nting g wh ich ich i s based on the re venue rea lization lization p rinciple and a prin cip cip le ca ca lled the matching c co o n cep t. The

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re ven ue rea rea lization lization p rinciple stat sta tes tha hatt reve reve nue sh shou ould ld be be re co rded when a ct ctu ua lly ea rned.

Don't tell me accoun accou n tan ts a ctua lly pla pla y matchmakers matchmakers or o r promot promo te a da ting ting se rv rvic ice e ! No the m atching atching princip princip le is re co rding the revenues evenues ea rned du ring ring a pe perrio d us ing the revenue realization principle and matching (offsetting) the revenues with the expen se ses s incurred incurred in ge ner nera a ting this rev reven enue. ue. Why is this so important? Al Alll businesses busines ses sm all and large need infor informa ma tio tion n to determine how ho w we ll o r b ba a dly the y a re pe rfor rfo rming ; ho ho we ver, if this this

informa informatio tion n is mis mis leading lead ing it cou ld le ead ad

to false fa lse

co n clusi clusions ons and u unne nnec ces sa ry a ctions. ctions. Sho Sho w me wha hatt you you mean .

The follow fol lowin in g samp samp le bu bus s in ine e ss tr t ra ns nsa a ctions ctions fo r a mowing an and d lan lands dscapin caping g company will be used to illustr illust rate ate the accrual bas is of of a cc cco o un ting/match ting/matchin ing g concept and the cas h ba basis sis o f accoun accoun ti tin n g.



 

Janua Janu a ry 2 007 Bil illed led R30 R30 , 000 00 0 tto o Custome Custome rs for Services Services Pe rformed rformed & Comp om p let leted ed In Jan Jan ua ry 2007 200 7



 

Janua Janu a ry 2 007 Recei ved Pa yments fr f rom Cu stome tom e rs o f R15, 000



 

Janua Janu a ry 2 007 Bil illed led R12 R12 , 000 00 0 b y Outside Contractors for fo r Se Se rv rvices ices Pe rforme rformed d & Complete Complete d In I n January January 200 7



 

Janua Janu a ry 2 007 P Pa a id O utside utside Con tr tra a ctor ctors s R8, R8 , 000

Feb ruary 2007 2007 Recei ved Pa yments fr from om C us tome rs of R1 R15 5 , 00 000 0 Feb ruary 200 200 7 Pa id Outside Contr on tra a cto rs R4 R 4, 00 0

Cash Basis A ccrual Basis Jan 2007

Feb 20 200 07

Total

Re venue

R1 5,000

R1 5,000

R 30 ,000

Expe nses

R8, 000

R4 , 000

R12, 0 00

Pro Pro fit fi t/Loss /Loss

R7 , 000

R1 1, 000

R18, 000

Pos sib sib le Conclusi Conclusio o ns from from the Cas h Me Metthod Ma de money in January January an d F Feb eb ruary.

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The imp im plica tion of t he f inancial inancial sta sta tus on the orga nisat nisat ion. ion.

Our company is making more profit on the same amount of revenues. We had re ven ue ues s of o f R15, 000 in i n both January & Februa Februa ry but made made a bigg b igge e r pr pro o fit in February.

In Feb ru rua a ry ry,, we mus t ha ve impl implem eme en te d so some me expense expense sa ving measure measures s o r got che heape ape r p rices rices on ou r con contract tracted ed serv services. ices. Are any o f these these conc concllusions valid? No No not a o ne! The "real" "real" world as illustrat illustrated ed b y the a ccrual ccrual meth method od s ho ws we had a g re at January and and made R 18, 000 but Feb ruary wa s te rrib rib le . W We e ce lebrated our g rea t Janu Janua a ry and sa t on our "y "yo o u know wh wh at" a nd did did n't go go out and ge t additional additional bu business siness and mow some some mo re ya rds an and d do some more landscaping.

FUNDRAISING

 

Fund ra is ing ing organisations

is n ot nec ne cessarily a bookkeepin bookkeeping g ter te rm bu butt it is nec neces es sa ry tha t that

exist

to

help

communities

develop

income-generating

projects(NPO projects(N PO ’s ’s)) s hould under unders s tand how it should shou ld be be conducted.

Fund ra is ing ing i s the the co ll lle e ction of m oney for a cha cha rity or an or o rganiz gan ization. ation. Mo s t NPO’s NPO’s have to re ly on gran grants ts and an d do do nations fr f rom fund fun d raising b be e cause NPO ’s usua usu a lly se se rv rve e se ctio ctio ns o f the community tha t could could not affo affo rd to pay the full cost o f the se rv rvic ice e . NPO’s NPO’s do no no t usually usually choose their thei r target target g roups ou ps acco acco rding rding to who can pa y for the the se rvice, but b ut a cco ccorrd ing to who needs the se rvice rvice mos t.

Fundraising events

There are many different fundraising events you can use, like fetes, cake sales,  jum bl ble e sa les, fil film m s hows hows , d isc iscos , da dan n ces, ta lent sho how ws , plays and so on . Some a re eas y to o rganize rganize (l (like ike a cake sa le) an an d others a re mu mu ch mo mo re d iffi iffic cu lt ((lliike ke a fet fete) e)..

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Always work out very carefully whether an event will be profitable. For example, Tshirtt sales shir sales o ften ften run a t a loss be cause you have to b uy th the e TT-shirts shirts and the the y a re expensive.

The sup support port of e ve ryo ne in the o rgan ization zation is neces neces sa ry for the suc success cess of any fund fun d rais raising ing e vent en t. Fun Fund d raising raising ev e ve nt nts s also help build the t he organizati organization on..

PLANNING A FUNDRAISING EVENT

Ste tep p 1: W hat to do? do?   •

 

Decide how much m one one y y you ou want to raise



 

Wha Wh a t reso sou u rc rces es do you ha ve a va il ila a ble? (tim (t ime, e, mo ney, peo pe op le)



 

How Ho w much is the event e vent g oing tto o cos t you you to run? run ?

Ste tep p 2: When Whe n to do it?  it?  •

 

Wha Wh a t dat date e for the the e vent en t?



 

Wha Wh a t time ime of the da y wil illl the ev e ven t happen?

Ste p 3: W here to do it? it?   •

 

Wha Wh a t ve venue nue will be suitab suitab le?



 

Is the venue ea e as y to to get to?

Ste p 4: W hat extra s to offer?  offer?   •



 

Will you of offe ferr ref efrres hment hmen ts?

 

Will you offer offe r a place p lace wh e re peop le c can an lea ve the ir child ren ?

Ste p 5: P ublicity ublicity   •

 

Wha Wh a t kind kinds s of publicity publi city will will you use? (pamphle (pamphle ts , pos postte rs, banner ban ners s , sticke sticke rs, ne ws pa pape pe r adve adve rtis rtisements ements,, rrad ad io, and and so on )



 

Whe Wh e re wil illl you advert adve rtis ise e , for fo r example exam ple w wh h e re will you di dis s tribute ribute your ou r pamphlets?



 

Whe Wh e n will will you ad adv ve rti rtis se?

Ste p 6: Who does the work?  work?  Yo u will need peop le to do the preparation work  work a   n nd d to work on t he day day..

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Without With out committed wor orke ke rs no no fundra fundra isi ising ng even t can can be a succe success. ss. There There mus t be a co-coordinator who takes overall responsibility. But there are also hundreds of small  jo bs and the co -coordinator ca nnot d o the hem m all all.. The co co-coo -coo rd ina natto r must m ust delegate many ma ny of the jo jobs. bs. His o r he r jjob ob is to make make sure sure that t hat e ve ry ryone one e lse do does es what they promised

Ste p 7: Evalu Ev aluat at ion  ion  Whe Wh e n iitt is all over ove r the mone y is co unted unted . Then Then it is impo imporrta n t tto o ask: •

 

Wha Wh at d diid you yo u do righ t?



 

Wha Wh a t di did d you yo u do w wro ron ng ?

ACTIVITY ACTIVIT Y – P LA NNING NNING A FUNDRAISI FUNDRAISI NG EV EVENT ENT Purpose:   Purpose: Time:   Time:

How to p lan lan for a fund raising e ven entt 30 m inutes nutes

Task: 1 .  Fo llow the 6 s tep eps s in the fundra fundra ising p lannin lanning g p roc oce e ss to plan your ou r own own fundraising event 2 .  Step 7 e valuates the the e ven t – e va lu lua a te your you r plan planning ning and list th the e things hings you d id wro wrong ng a nd the things yo yo u di did d ri rig g ht,

How to t o pre pa re an a n orga org anizatio niza tional nal budge budgett

Incomeis Income is the mone y an o rga nization rre e ce ceives. ives. Expenses Expenses  are the amounts of mone mo ney y an orga o rganizatio nization n pa ys ou t.

A budget budget  sets out ou t the amoun amoun ts the o rgani gan iza tion expe expe cts it its s income income and ex pen penses ses to be for a fixed period of time, such as a year. In other words, the budget tells you ho w much mone mone y the the o rga niza tion thinks it wil willl need to do iitts wo rk in th the e nex t months mo nths or year, ye ar, whe whe re it hopes hopes som some e o f the mone mone y will come come from from , and ho w mu ch mone mo ney y it s till till n needs eeds to find.

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Once Onc e the budge budgett ha s bee bee n prepared, it needs needs to be chec che cked a nd discuss discussed ed by ot othe he r members member s of o f the exe cut cutive ive.. Then Then it must must be app ro ved b y tthe he trust trustees ees , management comm ittee ittee o r w whoe hoe ver has auth auth o rity in the o rganiza rganiza tion. •

 

The b ud udge ge t shou shou ld be p resente esente d to the membe rs hip, hip, e ither a t tthe he Annual General Meetin Mee ting g o r in the the An Annual nual Repo Report, rt, and and i t sh sho o uld be used use d re gula rly rly as a wa y of monitori mon itoring ng the spendi spendin ng o off the organ organ iza iza tion.



 

Bud udge ge ts a re a lso lso an impo impo rtant pa part rt of trying tryi ng to to ra ise ise money f rom fu funder nders s . You ca nnot fool funde rs with made-up made-up amounts. Amou Amou n ts m ust be pr prope ope rly motiva motiv a te d, ei the the r in the funding funding p roposal o r in a note with with the bu budg dge e t. An examp xam p le o f such such a no te is 'A mo tor ve ve hicle hicle is es sen sentia tiall fo f o r th the e fie fie ldw ldwo rke r be ca use the settlemen settlemen ts a re re,, on a ve rage age,, 150 k ilome ilome te rs apa rt rt,, and there is no public tr tran ans spo port.' rt.'

Wha t pe pe r iod of time ime should should a budg b udget et cove cov er ? There is no fixed rule about this. A budget can cover any time from months to years. With an overall budget for an organization, you need to budget for at least two years. This shows a sense of commitment and continuity. How to t o cal cula cula te ex ex pec te d expenses expenses and income income Before you can wor wo rk out what your y our organizat organization’s ion’s expe nses will be, be , and how ho w much money you will need, you must be clear about the organization’s objectives, objecti ves, and ho w you yo u plan to ac achiev hieve e them in the period for which you y ou are pre reparing paring a budget. budge t. Wha t does the the orga orga nizatio nization n spe spe nd money on ? Once you are cl c lea r abou aboutt what work the the organization organization will do fo r the time the budget covers, you must write down everything that costs the organization money. Start off with a list of everything you can think of. Afterwards you can put the items into groups or categories. So yo yo u r f inal list could look loo k like like th is: Staff:   Staff:

A ccom omm modation: oda tion:  

salaries

rent

medical aid

e lectricity lectricity,, wa te r

pension fund UIF Administration:   Administration:

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41

 

stationery

transport

te lephone, ephone, fax

food

postage

cost of venues

ba nk cha cha rges

a ccomm oda tion fo fo r pa part rticipan icipan ts

groceries Equipment:   Equipment:

Publications:   Publications:

re nt / purcha purcha se

printing costs

repair and maintenance

distribution costs

How much much does ea ch cat egory egory cost? c ost? Whe Wh en y you ou ha ve wo rked ou t wha t you you spend money mo ney o n, you can wo rk out ho how w mu ch ea ch it i tem and ea ch catego atego ry c co o s ts. You ca n u se you r own re re cor co rds to work out ou t the costs.

Doing an initial budget for an organization If this is the the f irs irs t ti time me tha t you yourr or orga gan n iz iza a tion is pr p repa ring ring a bud get, you sho sho uld make a list of the it i tems and ca tegories you think yo yo u will will hav h ave e to spen spend d m oney o n.

Remembe em embe r to in clude those it item ems sw which hich you w wil illl nee nee d in the be beginning ginning,, but bu t that y yo ou will no nott ha hav ve to b u y aga aga in, such as desks, chai chairrs , ke ke ttle ttle,, filing filing cab ine ine ts , rren en t depos depos it, te lephon lephone e ins ins tallat alla tion, advert adve rtising ising jo jobs bs,, c compu ompu te r and p rint rinte e r. This This is called capital outlay.

Running costs  costs  a re tthose hose costs tha tha t you sp spe e nd o n a re re gular basis tto o keep the organizati orga nization on go going. ing. I t is is important to in clu clude a section section in your budget o n expected income.  This means the in income. i n come that y you ou expe ct to to ge t fr from om your own fu fundra ndra is sing ing o r membership member ship fees fees an d so on. You are then t hen telling the ffu unde nderr w wh h a t your need needs s a re , an d also how you expe expe ct to to pa y for these these needs.

Writing your budget Whe Wh en y you ou ha ve ca lcul lcula a ted your ou r exp expe e cted cted expen se ses s and in come, the nex t s sttep is to write yo you u r budge budge t do dow wn in a wa y tthat hat is use useful ful for the organ organis isa a tio tion na and nd ffo o r fund funde e rs. Fo r the o rganisa rganisa tion's own use use it shou shou ld be po ssib le to un unde de rstan rstand d , at any time, ho w amoun ts we werre de cide cide d u pon and what the y a re .

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Mo tivat tiva tions for pa rticu rticu lar items items in the the b udge t do not h ha a ve to be written itte n int into the budge bud get, t, but they can be pa rt of the t he written written propo p roposal sal,, o r tthe hey y can be a tta ched to the budge bud gett a s n o tes.

Where you think that something in the budget may be unclear to the reader, it is wo rth includ includin ing g a no te to to explain it. i t. Fo Fo r example example , wh en in the firs firs t y yea ea r o f the budge budgett you have have a fairly fairly small smal l amoun amoun t, but bu t in in the second yea r it is muc mu ch b igger, igger, you should shou ld ha ve a note exp exp laining the b ig incre in crease ase .

Wha t shoul d y ou se se nd with y our b udge udge t? If you are are p re pa ri ring ng a budget to se nd to funde funde rs, you will il l ha ve to send certai certain n o the r documents with it. The se co uld include:

 

ove ove ra ll fu fun n ding pr p ropo sal

   

projje ct p rop osal pro osal annua l re re port



 

programme program me o f a ction fo fo r the year yea r to come come



 

audited statement



 

copies of publications (if available)



 

co pies of newsle newsle tters (if avai lable) ab le)







Examp xam p le o f an organ isa isa tional budget Th is is an example o f a s impl imp le o ve rall budge budge t for an ad vice vice office.

Expected Expenditure

2001/2002   2001/2002

(in Rands)  Rands)  Adm inist nistrra tio tion: n:

Aud Aud it ito o rs

1 500

Bank Bank charges harges

300

Equipment Equip ment

2 500

Gene Gen e ra l office expenses expenses

1 800

Rent Rent

4 800

Sta Sta tione ry

1 200

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Staf f:

Publi cati ations ons

T ra ining ining

Telephone Telephon e a nd pos tage

2 4 00

SUBTOTA SUBTOT A L 

14 500  500 

Salaries (1 pe rson)

2 1 600 600

Staff Staff training training

800

SUBTOTA SUBTOT A L 

22 400  400 

P rinting inting

15 000 000

SUBTOTA SUBTOT A L 

15 000  000 

Ph Pho o to copying copying

1 200

T ra ve ling

8 5 00

SUBTOTA SUBTOT A L 

9 700  700 

OVERALL

61 000  000 

EXP EX P END I TURE TURE TOTAL  TOTAL 

Expec Exp ectted I nc ncome ome (in (in

1998/99   1998/99

Rands)   Rands) I ncome ge ne nerrat ated: ed:

Raff Rafflle

3 500

Disco * 2

6 0 00

Mo nthly ju jumb mb le sale

7 200

SUBTOTA SUBTOT A L 

16 700  700 

OVERALL INCOME TOTAL  OTAL  Da ted:

61 700  700  1 July 2001 2001

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A CTIVITY CTIVITY – BUD GETING FO R A FU FUND NDRAI RAI SING EVENT Aim:   Aim:

Ho w to budget budge t for a fundra fundra ising even t

Time:   Time:

3 0 minutes

Task: 1 .  Exp Explain lain in y yo o ur o wn wo wo rd s wh wh a t a budget is. 2 .  P ro vide vide infor info rmation on what your ou r compa compa ny will il l be be spen spend ding money on fo forr 2006

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BIBLIOGRAPHY  

Brigham E F,Ga F,Ga pensk pensk i L C & Dave Daves s P R (1999 (199 9) Intermediate Financia Financiall Management. Fort Worth, The Dryden Press Brigham E.F, Houston J.F (2004) Fundamentals of Financial Management; Thomson/South-Western Horngren C.T, Gary L and Sundem G.S., Stratton (1990) Introduction to Management Accounting Prentice-Hall

Pinson L. (2007) Keeping the Books: Basic Recordkeeping for Successful Small Business, Paperback

http://www.foe.co.uk/resource/how_tos/cyw_17_fundraising   http://www.foe.co.uk/resource/how_tos/cyw_17_fundraising

www.mnc.com  www.mnc.com 

Tr Tra a ining ma te rial is cop yrigh t

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