Maintain Business Records PDF

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Maintain Business Records
contents'
Lo1:- Collate business records
LO2: Record
LO3: Prepare reports from the business or records system...

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Maintain B Business usiness Records Maintain Business Records Lo1:- Collate business records

1.1. Definition  Accounting is the process of recording, summarizing, analyzing, and interpreting financial (money-related) activities to permit individuals and organizations to make informed judgments and decisions. Accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business Accounting is a ‘language of businesses. This is because accounting is the means by which business information is communicated to stakeholders Importance  In order to provide financial information about the economic activities of an enterprise this is useful for making economic decisions By law all businesses must keep accounting records. Decisions are based on accounting information for profit and nonprofit companies alike. Users of Accounting Information The users of accounting information can be divided in to two major categories:i. Internal users are the company managers who are responsible for planning and control of operations on a day by day and long term basis, Employees of the business ii. External Users : include  Owner(s)  Creditors and Financial Institutions.  Investors  Government. Forms of Business Organizations There are different forms of business organizations:  Corporation—owned by investors called  Private business—object is to earn a profit  Sole Proprietorship—owned by one person stockholders (The business—not the Owners—are responsible for the company’s obligations.)  Partnership—co-owned by two or more persons There are different types of business organizations:  Service business—doctors, lawyers, barber shop, etc.  Manufacturing business—produces a product to sell  Merchandising business—purchases goods for resale Accounting Principles and Concepts Accounting principles and concepts are standards or guidelines that the accountant should follow in identifying, measuring, recording and reporting the financial statements of an organization.  Business entity concept. The accounting records for the financial activities of an organization should be separate from the financial activities of its owners or the organization.  Going concern (Continuity) principle. A business enterprise will continue in operations for a period of time long enough to fulfill its objectives and meets its contractual agreement  Unit of Measure concept (Monetary principle). All business activities of an enterprise are expressed and recorded in terms of money  Cost concept. It requires that properties and services purchased by a business enterprises be recorded at their cost (historical cost) The Elements of Accounting A. Assets Assets are items with money value that are owned by a business. Some examples are: cash, accounts receivable (selling goods or services on credit), equipment (office, store, delivery, etc.), and supplies (office, store, delivery, etc.). B. Liabilities Liability are debts owed by the business. Paying cash is often not possible or convenient, so businesses purchase goods and services on credit. The name of the account used is Accounts Payable. Another type of liability is Notes Payable. This is a formal written promise to pay a Specific amount of money at a definite future date. Accounting// Level –III-

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Instructor Wagari A. (BSc. Eng., MBA.,

P hD

)

Maintain B Business usiness Records C. Owner’s equity The difference between Assets and Liabilities is Owner’s Equity. The can also be called capital, proprietorship, or net worth. The accounting equation Assets = Liabilities + Owner’s Equity This equation must always balance! Assets

–

Liabilities

=

Owner’s Equity

Business transactions and the Accounting Equation  A transaction is any activity that changes the value of a firm’s assets, liabilities, or owner’s equity. Each transaction has a dual effect on the basic accounting elements. A transaction may affect more than two accounts in a transaction. This is called a combined entry. Withdrawal (Drawing) is the removal of business assets for personal use by the owner. This transaction decreases the asset taken and the value of the business. Each transaction increases or decreases (or both) the basic elements in the accounting equation. The effect of recording a business transaction must always leave the two sides of the accounting equation in balance. Example Consider the following business activities or events of a typical firm:  the firm owned assets of $100,000  the firm owed creditors $80,000  the firm owed the owner $20,000 The accounting equation would be: Assets = Liabilities + Owners' Equity $100,000 = $80,000 + $20,000 Suppose that $6,000 was used to reduce liabilities and the balance remained in assets side of the equation. And then, as you would expect, the accounting equation would be changed: Assets = Liabilities + Owners' Equity $94,000 = $74,000 + $20,000 What is bookkeeping? Bookkeeping is a process of recording and summarizing the financial activities of a business. The difference between Accounting & Bookkeeping Bookkeeping Accounting  It records business transaction in  It designing accounting system & prescribed manner interpreting financial statements  It is technical in nature  It is about directing & reviewing the record of a Bookkeeper  It requires conceptual & analytical skill

1. What customer data to collect  Name and contact details  Transaction history  Communications from you to customers and any response they make  Profile  Spending habits

2. How to collect customer data  Data collection has to be either un intrusive or incentivize  Surveys  Competitions  Online  Research  Noticing things

Accounting// Level –III-

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Instructor Wagari A. (BSc. Eng., MBA.,

P hD

)

Maintain B Business usiness Records 3 .Collect information Record: a written or electronic document to preserve information or keep a record of a transaction, Records management: the practice of maintaining business records from their creation and up to their eventual disposal, including classifying, storing, securing, archiving and destruction. What is information? Information is → a power for making a decision is → a weapon  

Types of information

Examples

Correspondence

faxes, letters, memos, email

computer databases

customer records, library catalogue

computer files

copies of letters, memos, other documents

sales records

monthly forecasts, targets achieved

Forms

membership forms, insurance forms

Invoices

accounts from suppliers, accounts to debtors

personnel records

personal details, salary rates

minutes of meetings

staff meetings, board meetings

4. Who may request information?  supervisor  colleague within your area/department  colleague outside your area or department  person outside of the organization (e.g. a client)

6. What types of technology or business equipment can assist in the effective collection of information?  photocopier  printer  binder  filing systems - manual, computerized or electronic  answering machine  fax machine  telephone  computer - including the following peripheral devices, software or applications:  input devices including keyboards, mice, scanners, and cameras  output devices including printer, speakers, DVD or CD room  internet - vast computer network linking smaller computer networks worldwide  intranet - computer network with access restricted to within a particular organization  email - electronic system of sending messages  electronic diary  word processing and spreadsheet programs

5. Points to consider when responding to requests for information:  Document the request  Urgency of request  Prioritizing request  Information required  Level of security of the information  confidential  high security  General access  Location of information  Delivery of information  Tracking of information

7. Organizational requirements relating to security and confidentiality All organizations must comply with this Commonwealth legislation, to protect individuals from intrusion into their private lives and guarantee fair dealing with their personal information. Accounting// Level –III-

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Instructor Wagari A. (BSc. Eng., MBA.,

3

P hD

)

Maintain B Business usiness Records

8. Organizational requirements All classified or sensitive information should be stored in secure areas with access restricted to authorized staff. All organizations will have policies and procedures designed to maintain security and confidentiality of information.

9. Update business record or records system  Identifying and recording control information for describing new records to be incorporated into business or records system  Updating control information describing movement  Recording and updating control information accurately in business or records system  Identifying and removing records of completed business activities from current system for disposal 10. Business record A business record is a document that records business dealing. Business records include  meeting minutes  employment contracts  memoranda  accounting source documents It must be retrievable at a later date so that the business dealings can be accurately reviewed as required. A document that is used to store information from business operations, Types of operations having business records include meetings and contracts, as well as transactions such as purchases, bills of lading and invoices. 11. Why you need to keep records If you have to fill in and send us a tax return, the law says that you should keep all the records and documents you need to enter the right figures. If we need to check your return, we may ask to see the records you used to complete it. 12. Record keeping penalties If you do not keep adequate records or you do not keep your records for the required period of time, you may have to pay a penalty. 13. Penalties for an inaccurate return  If you send us an inaccurate return you may have to pay a penalty.  Complete, readable and accurate records will help you fill in your return correctly and so help you to avoid this penalty.  keeping full and accurate records which are regularly updated and saved securely 14. Keeping accurate records helps you Having an accurate record keeping system which you keep up to date will help you:  ask for a bank loan or credit if you need to  pay the right amount of tax  Save time and accountancy costs  avoid paying any extra tax or penalties  Receive the right amount of benefits or credits.  keep track of your expenses  see quickly what you are owed by others and how much you owe them 15. How to keep your records The law does not say how you must keep your records. You need to keep some original documents which show that tax has been deducted. Most records can be kept electronically (on a computer or any storage device such as disk, CD, memory stick or microfilm) as long as the method you use: captures all the information on the document (front and back), and allows the information to be presented to us in a readable format, if we need to see it. 16. How long you need to keep your records As a general rule, you should keep your records for a minimum of six years. However, if you are:  An employer, you need to keep Pay as You Earn (PAYE) records for three years (in addition to your current year)  A contractor in the Construction Industry Scheme (CIS), you need to keep your CIS records for three years (in addition to your current year) Accounting// Level –III-

Instructor Wagari A. (BSc. Eng., MBA.,

4

P hD

)

Maintain B Business usiness Records

 Keeping records to complete a personal (non-business) tax return, you only need to keep them to which they relate. Be careful not to destroy any records you also use for tax purposes too soon. 17. Getting things right from the start It is especially important if you are starting a new business that you get a proper record keeping system in place from the beginning. 18. Simple record keeping applications for mobile devices  To help small businesses with record keeping on the go, the commercial software industry, following consultation with HM Revenue & Customs (HMRC), have produced simple record keeping mobile applications for businesses below the VAT threshold.  These applications may help you with maintaining good records and include links to HMRC guidance related to record keeping that you may find useful.  The companies listed at our website below have commercial mobile applications for record keeping that meet the HMRC specification. 2. Record 1. Document that memorializes and provides objective evidence of activities performed, events occurred, results achieved, or statements made. Records are created/received by an organization in routine transaction of its business or in pursuance of its legal obligations. 2. All documented information, regardless of its characteristics, media, physical form, and the manner it is recorded or stored. Records include accounts, agreements, books, drawings, letters, magnetic/optical disks, memos, micrographics, etc. Generally speaking, records function as evidence of activities, whereas documents function as evidence of intentions. 2.1. Daily Recording of Business Transactions In order to take control of your financial recordkeeping, you must accurately record pertinent transactions. Specifically, you need to record:  Sale and revenue transaction.  Cash transaction  Accounts receivable, if you extend credit to your customers  Accounts payable, if you purchase from your suppliers on credit  Summaries of transactions in your general ledger  Considering Separate Accounting Many entrepreneurs find separate accounting provides more meaningful information for their products. The practice may reveal that one product line or department is profitable and another is not.  Selecting the Right Accounting Software Whether your business is a sole proprietorship, partnership or corporation, always keep your personal transactions separate from your business transactions in your accounting software. For example, using business funds to pay for personal expenditures complicates your recordkeeping and can lead to serious tax problems. It can also result in some hefty accounting fees as you pay your accountant to sort it all out. 2.2. Maintaining Sales and Cash Receipts Journals Entries in your sales and cash receipts journal come from the source documents you use in your business every day. These documents are sales invoices, daily cash register totals, daily cash sheets and daily sales registers.  Keeping Tabs on Sales Invoices. If you use sales invoices, you will post the information from each invoice to an entry in the sales journal. If you maintain customer charge accounts, you will also be posting entries to the accounts receivable ledgers so that each customer account is up-to-date. Sales invoices should be numbered.  the date of the sale  an extension column, if applicable (quantity multiplied by price)  quantity, if applicable  a payment due date  price or rate

Accounting// Level –III-

Instructor Wagari A. (BSc. Eng., MBA.,

5

P hD

)

Maintain B Business usiness Records 2.3. Recording Cash Register Receipts Most relatively new cash registers should be able to separately record cash sales and charge sales, and keep track of sales tax. Some should also be able to record cash received on account. At the end of the business day, record your cash register totals in the sales journal.  Set up a record keeping system Write down the procedure you use for filing so if someone has to do it for you they know what to do. As your business grows, this is a job you could give someone else to do. Use our financial policies and procedures manual template if you don't have one already.  Financial record keeping For any transaction that has a financial element keep:  copies of invoices and receipts you provide for goods sold or services rendered  invoices for goods or services you purchase or bills you pay such as rent, rates, insurance, license fees etc  payments to employees and to other organizations on behalf of employees e.g. super funds, PAYG tax  financial statements including profit and loss statement and balance sheet  tax return information  bank account and credit card statements  End of year stock take records, assets register etc. Good practice records management should include preparing and using both the profit and loss budget and cash flow forecast. 2.4. Business record keeping When setting up your record keeping system, keep:  contracts, insurance agreements and other legal documents  your lease if you're renting  licenses and permits  Employee records including time sheets, copies of pay slips etc.

safety records e.g. risk assessment for occupational health and safety  Any other records which are 'business activity' specific and required by law for the operation of your business e.g. for a café your food safety plan



A business record is a document that records business dealing. Business records include meeting minutes, memoranda, employment contracts, and accounting source documents. It must be retrievable at a later date so that the business dealings can be accurately reviewed as required.  Business record A business record is a document that records business dealing. Business records include meeting minutes, memoranda, employment contracts, and accounting source documents. It must be retrievable at a later date so that the business dealings can be accurately reviewed as required. Since business is dependent upon confidence and trust, not only must the record be accurate and easily retrieved, the processes surrounding its creation and retrieval must be perceived by customers and the business community to consistently deliver a full and accurate record with no gaps or additions.  How should I record my business transactions? A good recordkeeping system includes a summary of your business transactions. Business transactions are ordinarily summarized in books called journals and ledgers. You can buy them at your local stationery or office supply store. A journal is a book where you record each business transaction shown on your supporting documents. You may have to keep separate journals for transactions that occur frequently. A ledger is a book that contains the totals from all of your journals. It is organized into different accounts. Electronic Records: All requirements that apply to hard copy books and records also apply to business records which are maintained using electronic accounting software, point of sale software, financial software or any other electronic records system. The electronic system must provide a complete and accurate record of your data that is accessible to the IRS. Whether you keep paper or electronic journals and ledgers and how you keep them depends on the type of business you are in. For example, a recordkeeping system for a small business might include the following items: Accounting// Level –III-

Instructor Wagari A. (BSc. Eng., MBA.,

6

P hD

)

Maintain B Business usiness Records

 Business checkbook  Check disbursements journal  Daily and monthly summary of cash  Depreciation worksheet  Employee compensation records receipts Note: The system you use to record business transactions will be more effective if you follow good recordkeeping practices. For example, record expenses when they occur, and identify the sources of income. Generally, it is best to record transactions on a daily basis.

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