1. Why keep records?

A. The law requires that some form of written

records be kept by all businesses.
B. Adequate records can answer the following
questions:
How much profit is the business making?
How much is the business worth?
How much do credit customers owe the
business?
How much does the business owe its creditors?
How much tax should the business pay?
A. Before establishing an adequate
record keeping system, the assistance
of an accountant should be obtained.
If the owner cannot afford an
accountant, he or she cannot afford to
be in business.
B. An accountant can establish a
suitable recording system tailored to
the needs of a particular business.
 Specific questions they might ask include:
A. How much do you own, how much do you
owe, and how much are you worth?
B. What was your income last year?
C. How much of your sales are for cash and how
much are for credit?
D. What has been your collection record?
E. What is your total “overhead” and what
percentage of gross sales does it represent?
 F. What expenses do you have?
G. What is the present value of buildings,
equipment, vehicles, fixtures and other
accessories?
H. What items of inventory are the best and
worst sellers?
I. What are the most profitable and least
profitable departments?
J. Are you taking full advantage of cash
discounts, trade discounts, and advertising
and merchandising allowances?
A. Payroll.
The owner must know the amount paid to
himself or herself and to employees.
B. Cash Balance.
The owner must know how much cash is
available at any given time to determine if
bills can be paid. Money comes into and
goes out of the firm every day, but without
records entrepreneurs would not know what
they can afford.
C. Accounts Receivable.
 Under certain conditions, the owner
extends credit to some customers.
They are
important records. Without them, how
would the owner know when to bill
and for how much? When to
discontinue credit?
D. Accounts Payable.
The amount of money owed by a business to
others (such as suppliers) is called accounts
payable. These bills need to be paid on time
for two reasons:
(1) sometimes by paying a bill on time you
will receive a cash discount, and
(2) you must maintain a good reputation in
relation to those with whom you do
business. Without accurate records you may
make mistakes.
Even in a small retail business, an owner must
have control of inventory. What products are
selling? What products aren’t moving?
 Is there a good supply on hand? Entrepreneurs
can keep some of this information in their
head, but not enough to do the kind of job
necessary to make a profit.
F. Government Requirements.
The owner must file financial statements for tax
purposes. Taxes are calculated on the profit a
business earns. Even a small retail business
must file certain reports.
G. Financial Statement.
 At least once a year the owner should have a
comprehensive financial statement on the
business prepared. How well did the business
 do in terms of total sales? What were its
expenses? What are its profits before
 and after taxes? What can the owner do to
improve things next year?
A. Keeping the records yourself.
B. Assigning an assistant.
C. Hiring a full-time bookkeeper.
D. Contracting the service out.
E. Accounting department.