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This post has been created to demonstrate simple accounting principles for our MYOB Training Course students. It demonstrates, visually, a very simple fact that is often sensationalised.
I’ve been to many presentations, seminars and watched hundreds of webinars run by people who describe themselves as gurus yet the secrets they reveal are actually just plain old good accounting principles.
The Value of Time as Money
This Bookkeeping Training video is part of our DIY Bookkeeping Principles. It is designed for students who are new to accounting an fundamental bookkeeping principles.
This one is all about the time value of money; more commonly referred to as cash-flow and the Cash Conversion Cycle – how long it takes to convert the inventory you buy back into cash in the bank.
It’s very important for retailers and e-commerce businesses but also important for tradies who hold stock and offer credit to their customers.
Cash Conversion Cycle
Let’s say you sell a product for $100 and it costs you $50, then you double your money and make a gross profit (before expenses) of $50. BUT what if it took you 3 months (or 90 days) to get that money? You’d double your money in 90 days. The biggest problem with giving these kinds of terms is that “theoretically” you won’t be able to buy more stock for sale until you get that money.
Now image in you were paid within 30 days – you’d double your money THREE times faster.
Now image if you received your money on the same day you sold the products – like most retail shops? You could double your money EVERY DAY – so you can actually make 90 TIMES more money.
This example is best used for selling products and there are a whole lot of other variables involved in earning that kind of money (or selling that kind of volume) but it gives you a good example of how good accounting practises can earn you a LOT more money.
If you are interested in starting a business and learning more about the financial as well as sales, marketing and management then you might be interested in our Small Business Management Course.