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

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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
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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
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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.
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 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.
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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.
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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.
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Book and record keeping

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

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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.
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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

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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.
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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.
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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.
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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.
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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

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Decrease Increase Increase Decrease

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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.
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