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    Small and Medium Enterprises Development Agency of Nigeria

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    Eduardo Canela
    1) Proper record keeping increases the chances of a small business's survival and reduces the risk of early failure by allowing the owner to track financial performance, identify weak areas, and make informed decisions. 2) Maintaining accurate financial records provides a basis for comparing a small business's performance to peers in the industry. 3) Bookkeeping is essential for planning, control, and compliance purposes. It allows a small business owner to prepare required financial statements and tax documents. Not maintaining proper separation of personal and business finances can lead to legal and tax issues.

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    Small and Medium Enterprises Development Agency of Nigeria

    Uploaded by

    Eduardo Canela
    118 views20 pages
    1) Proper record keeping increases the chances of a small business's survival and reduces the risk of early failure by allowing the owner to track financial performance, identify weak areas, and make informed decisions. 2) Maintaining accurate financial records provides a basis for comparing a small business's performance to peers in the industry. 3) Bookkeeping is essential for planning, control, and compliance purposes. It allows a small business owner to prepare required financial statements and tax documents. Not maintaining proper separation of personal and business finances can lead to legal and tax issues.

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    Book Keeping

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    1) Proper record keeping increases the chances of a small business's survival and reduces the risk of early failure by allowing the owner to track financial performance, identify weak areas, and make informed decisions. 2) Maintaining accurate financial records provides a basis for comparing a small business's performance to peers in the industry. 3) Bookkeeping is essential for planning, control, and compliance purposes. It allows a small business owner to prepare required financial statements and tax documents. Not maintaining proper separation of personal and business finances can lead to legal and tax issues.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    118 views20 pages

    Small and Medium Enterprises Development Agency of Nigeria

    Uploaded by

    Eduardo Canela
    1) Proper record keeping increases the chances of a small business's survival and reduces the risk of early failure by allowing the owner to track financial performance, identify weak areas, and make informed decisions. 2) Maintaining accurate financial records provides a basis for comparing a small business's performance to peers in the industry. 3) Bookkeeping is essential for planning, control, and compliance purposes. It allows a small business owner to prepare required financial statements and tax documents. Not maintaining proper separation of personal and business finances can lead to legal and tax issues.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 20

    Small and Medium Enterprises Development Agency of Nigeria

    Book and record keeping


    Importance of record keeping
    Increases chances of survival & reduces the probability of early failure.
    Helps in tracking performance Provides a basis for comparing performance with peers Helps to maintain a profit focus, identify weak performance and prescribe appropriate remedy

    Useful for planning and control purposes


    Prepared By SMEDAN 3

    Book and record keeping


    Requirements of a good record system It must be simple to use

    It must be easy to understand


    It must be accurate It must be up to date
    Prepared By SMEDAN 4

    Book and record keeping


    Basic records Cash receipts record Cash disbursement Sales record

    Purchases record
    Payroll records Equipment record Inventory record Debtors record

    Creditors record
    Prepared By SMEDAN 5

    Book and record keeping


    Book keeping This is a way of recording the money of the business in the day to day running of the business to produce a final record called financial statement. This financial statement is made up of records like manufacturing, trading profit and loss account, cash flow statement and the Balance sheet. The records from the journal and General ledger will help us to prepare our trial balance The process starts from recording all our business activities that relate to money from journals to the ledger, to the trial balance. Therefore, bookkeeping is like writing history of our business activities for a given period.
    Prepared By SMEDAN 6

    Double Entry When an entrepreneur receives some value and gives out same, the receiving is what is called credit (CR) and the giving is called debit (DR).
    When we record the giving, and the receiving at the same time, it is called double entry book keeping. For instance, when you buy a car for your business, you immediately post two entries for that single transaction. Specifically, you post a credit entry into your Cash Account and a debit entry into Asset (or Vehicles) Account
    Except under exceptional cases when a value is split into two or more parts, the amount of debit entry is always the same as the amount in credit entry (i.e. the posting/transaction is said to be balanced.
    Prepared By SMEDAN 7

    Book and record keeping

    Book and record keeping


    Common Terms in Book keeping Assets: Things of value that belong to an entrepreneur for running the business. e.g. fixed assets-Land, building, machinery and current assets-cash, debtors, prepayments. Liability: This is the amount (in money terms) owed by the business or entrepreneur, e.g. current liabilitiesoutstanding payments; and long term liabilitiesoutstanding loans due in more than 12 months. Capital: This is the money that was, or will be used in starting a business sometimes regarded as Equity. Revenue: This is the money that is made when you sell goods or provide services to customers.

    Expenses: Expenses are moneys spent to make revenue, for instance wages, Prepared Byof your staff or rent paid 8to salary SMEDAN land lord.

    Book and record keeping


    Other Common Terms in Book keeping are: Profit: Profit is the excess of your income over your expenditure, or revenue minus the expenses of the business. Loss: This is when expenses are more than revenue. Account Receivable: The account used to track all customer sales that are made on credit. Account Payable: The account used to track all outstanding bills from suppliers, contractors etc. Depreciation: An accounting method used in tracking the age and use of assets. Inventory: The account that tracks all products that will be sold to customers.
    Prepared By SMEDAN 9

    Accounting concepts

    Book and record keeping

    Entity the legal person

    Going concern a business that is in operation and is not expected to wind up within the next 12 months Cost details of spending, whether in cash or credit
    Realization obtaining the value of an asset Accrual usually outstanding debts to be paid or benefits already enjoyed but not yet paid for. Periodicity period of reporting: Weekly, monthly, quarterly, yearly.
    Prepared By SMEDAN 10

    Book and record keeping


    Materiality items of significance Prudence precautionary financial principles to avoid distress in business

    Prepared By SMEDAN

    11

    Book and record keeping


    Accounting procedures This is the process of recording the financial activity/transaction systematically so as to be able to classify the transactions of the entrepreneur. It is a guide on how to treat every transaction. They are rules for recording, classifying, summarizing, and reporting transactions and interpreting report.
    Prepared By SMEDAN 12

    Book and record keeping

    1.

    Journal: the book of original entry where bookkeepers keep records of daily transactions. 2. General Ledger: Where all the companys accounts are summarised. 3. Manufacturing/Trading Profit & Loss Account
    Direct cost Direct labour cost Factory overhead

    Books of accounting records

    Prepared By SMEDAN

    13

    Book and record keeping


    4.
    5.

    Trading profit & Loss Account Prepared to find out the amount of net profit/loss on sales. Net profit is the difference between the Gross Profit and other costs
    The Trial Balance: A trial balance is a list of all balances standing on the ledger account and cash book of an entrepreneur at a given date. There are also some errors that the trial balance may not show/reveal. These errors include:

    Complete omission of transaction Posting the same wrong entries to the two sides of the ledger Compensating errors where one error on one side is balanced by another error on the other side Errors of principle e.g. revenue/expenditure treated as capital or vice versa.
    Prepared By SMEDAN 14

    Book and record keeping


    The Cash Flow Statement (CFS) is a mandatory part of a companys financial reports. It records the amounts of cash and equivalents entering and leaving a company. The CFS allows investors to understand how a companys operations are running, where its money is coming from and how it is being spent. The CFS is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which on the income statement and balance sheet, includes cash sales and sales made on credit.
    Prepared By SMEDAN 15

    Book and record keeping


    The Balance Sheet

    This is a summary of all balances of the accounts remaining open in the ledger after the balances of the nominal accounts have been transferred to the profit and loss Account.
    The balance sheet is used to show a balance between the capital and liabilities used to fund the business on one hand, and the assets, both fixed and current, which belongs to the business, on the other hand. The balance sheet shows how strong a business is, by telling whether the business depends more on borrowed funds or more on assets.
    Prepared By SMEDAN 16

    Book and record keeping


    Rules for good book/record keeping Always do weekly (or monthly balances, since these will soon reveal any errors you may have made. From the bank statement, tick-off cheques and pay-in stubs against transactions listed, to reveal any cheques not yet cashed or pay-ins not yet shown When balancing, if you are out by some amount, then first look for an entry of the same amount that might be in the wrong place or miscounted

    When you are registered for VAT, always include the amount you will be charged
    Keep your bookkeeping up-to-date. The longer you leave it undone, the harder it gets.
    Prepared By SMEDAN 17

    Book and record keeping


    Class activity

    1.

    Differentiating between Debits and Credits How credits and debits impact your accounts
    ACCOUNT TYPE DEBITS CREDITS

    Assets Liabilities Income Expenses

    Increase Decrease Decrease Increase


    Prepared By SMEDAN

    Decrease Increase Increase Decrease


    18

    2.
    No
    1 2 3 4 5 6 7

    Basic cashbook
    Date
    2.2.04 3.2.04 3.2.04 4.2.04 5.2.04 5.2.04 5.2.04

    Acc
    10 51 52 10 53 10 61

    Description
    Initial cash in Electricity Shop rent Sales of products Taxes Sales of products Raw materials

    Cash in
    2345.00

    Cash out

    Balance
    2345.00

    126.50 930.40 455.70 780.90 1675.80 1675.80

    2218.50 1288.10 1743.80 962.90 2638.70 962.90

    8
    9 10

    7.2.04
    8.2.04 9.2.04

    10
    61 51

    Sales of products
    Raw materials Water

    780.45
    345.70 125.60

    1743.35
    1397.65 1272.05

    Sum balance

    5256.95

    3984.90

    1272.05

    Book and record keeping


    3. Mama Gbemisoke thinks she has successfully run her business without the rigours of writing details in a book. She sees her business as an extension of herself implying that there is no separation of business and personal account. Explain to Mama Gbemisoke why this is dangerous.
    Prepared By SMEDAN 20

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