BOOK-KEEPING AND ACCOUNTING RECORDS

1 WORLD BANK SUPPORTED WORKSHOP FOR MICRO, SMALL & MEDIUM BUSINESS OWNERS. ON BOOK-KEEPING AND ACCOUNTING RECORDS BY ON THE 27TH JUNE, 2007 Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 2 COURSE OUTLINE  MEANING OF BOOK-KEEPING AND ACCOUNTING  DIFFERENCE BETWEEN BOOK-KEEPING AND ACCOUNTING  IMPORTANCE OF KEEPING ACCOUNTING RECORDS  SOURCE DOCUMENTS  BOOKS OF ACCOUNTS: USES AND FORMAT FOR VARIOUS BUSINESSES. SALES JOURNAL PURCHASES JOURNAL CASH BOOK PETTY CASHBOOK EXPENSES ACCOUNT SALES ACCOUNT PURCHASES ACCOUNT CASH FLOW STATEMENT OPENING JOURNAL (For capital calculation)  CONCLUSION/SUMMARY Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 3 MEANING OF BOOK-KEEPING AND ACCOUNTING Book-keeping is the art of recording the day to day financial transactions of an organization or business. It involves the recording of the activities of a business organization which can be measured in monetary terms. Accounting on the other hand is the art of recording, classifying, summarizing, presenting and interpreting the financial information of a business or an organization in a detailed form to aid decision-making. Accounting goes beyond the terrain of financial transactions recording only, but it also ensures that the information recorded are processed in such a way that it facilitates decision making. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 4 DIFFERENCE BETWEEN BOOK-KEEPING AND ACCOUNTING Book-keeping is just an aspect of accounting that deals with only the art of recording the day to day transactions of an enterprise. Book-keeping as a function ensures that financial/business transactions are correctly and accurately recorded in the books of account. Accounting on the other hand goes beyond mere recording of financial transactions, but rather, it entails a process of classifying and summarizing the recorded information for the purpose of decision-making. Accounting makes the information recorded to be useful for decision making. It is actually the processing of the financial information collected and recorded to facilitate quality decision-making. For example, while a book-keeper ensures that the various credit sales of a business are correctly recorded or entered in the books of account, an accountant usually concerns himself with the implications of the those credit sales on the liquidity or cash flow of the business. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 5 IMPORTANCE OF KEEPING ACCOUNTING RECORDS • Keeping accounting records helps in measuring performance. Accounting record keeping aids a business owner to determine how far the business has gone since its commencement. That is, it helps the owner to know whether the business is growing or not. The performance of a business is usually determined through the calculation of the profit. For example a business with an increase in its annual profit will be deemed to be growing and vice-versa. • It aids business planning: It is a truism that knowing where you are is a prerequisite to knowing where you want to be. If a business present position is not known, then to plan for the business will be a fairy tale. Thus having good record keeping of the financial activities of the business in place helps in planning for the future growth of the business. • It helps business owners to have control over their businesses: Control is the ability or the authority to manage things. But having control over a business means having control mostly over the financial affairs of the business. But if accounting records are not kept and maintained by a business owner, how can he/she confidently have full and adequate control over the financial affairs of the business which can spell doom for the business. • It aids decision-making: That is, it helps a business owner to make quality decision that will bring about improvement in his/her business. The major aim of Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 6 keeping accounting records is to ensure that accurate information are available to facilitate informed judgements in respect of the activities of the business. SOURCE DOCUMENTS • Source documents are the documents from which the information contained in the books of account are obtained. • • They are the documents that evidenced business/financial transactions. Source documents that are commonly used in business organizations includes: Receipts, Invoice, Good received note, Debit/Credit note, Payment voucher, Petty cash voucher e. t. c DESCRIPTION OF SOME SOURCE DOCUMENTS • RECEIPT: A receipt is a document used for acknowledging payment. It is usually used as an evidence that money has been received by the person or company whose name is specified on it . • INVOICE: An invoice is a written record of goods and services and the amount charged for them, sent to a customer or employer as a request for payment. It is a document sent to the debtor requesting him/her to pay the amount stated on it for the goods obtained or service enjoyed. • PETTY CASH VOUCHER: This is a document that provides supporting evidence for a claim of fund/money for petty expenses. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 7 • PAYMENT VOUCHER: This is an office document that provides supporting evidence for a claim of fund for major expenses or project of the business. This voucher is usually raised when cheques are issued for a project, major expenses, or for office float. • GOOD RECEIVED NOTE: This document is usually raised whenever goods are received. It is usually signed by the receiver of the goods that the goods are received in good condition and in the correct quantity. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 8 BOOKS OF ACCOUNT • The various books of account can be conveniently classified into Journals and Ledgers. • Journals which are otherwise known as the daybooks are the books of original entry or preliminary records for recording the daily financial transactions of a business before posting to the ledgers. Examples of journal are sales journal, purchases journal e. t. c • Ledgers are the principal books of account. Transactions are recorded in the ledger using the double entry principle. ledgers accounts usually have debit and credit columns. Examples of ledger accounts are sales account, purchases account e.t.c SALES DAYBOOK/JOURNAL • Sales journal is a book of original entry for recording the daily sales of a business before posting into the sales account. • The sales journal can be of various forms depending on the nature of the business Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 9 as long as it captures the sales transactions of the business. • A typical sales journal usually have columns for date, particulars or description of the product sold, unit price, total quantity sold, and the total amount. Below is an example of a sales journal for a supermarket or boutique. BONA VENTURES LTD SALES DAYBOOK DATE JUNE 1,2007 DESCRIPTION/PARTICULARS 100 Packets of biscuits @ N5 each Less 10% Discount JUNE 1,2007 JUNE 1,2007_ JUNE 2,2007 JUNE 2,2007 1 Packet of Bubble chewing gum 3 rolls of tissue paper Napkin 5 Handkerchiefs 2 packets of Tom-tom @ N300 per packets 1 textbook 2 pens 1 handbag 1 packet of lipton tea Total sales for the month AMOUNT 5000 500 100 150 300 250 SUB-TOTAL 4500 100 150 300 250 4750 DAILY TOTAL JUNE 2,2007_ JUNE 30,2007 JUNE 30,2007 JUNE 30,2007 JUNE 30,2007 600 400 20 1000 200 600 400 20 1000 200 1150 1620 7520 Fig 1: An example of a Sales Daybook. PURCHASES DAYBOOK/JOURNAL • A purchases journal is a daybook used for recording the daily purchases of a Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net___________________________ 10 business organization especially credit purchases. • Purchases journal usually contains columns for date, particulars, unit price, total quantity, and the total amount of the goods purchased. On the next page is an example of a purchases journal for Bona Ventures Ltd. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 11 BONA VENTURES LTD PURCHASES DAYBOOK DATE JAN 1,2007 JAN 1,2007 DESCRIPTION/PARTICULARS Bought 500 packets of biscuits @ N200 Purchased 1 carton of Tom-tom Bought 2 cartons of Peak milk @ N1000 Bought 1 packet of Handkerchief Bought 10 dozens of exercise books @ N250 each Bought 1 packet of Big biros @ N1000 Bought 1 packet of pencil Purchased 2 packets of rulers @ N500 JAN 30,2007 JAN 30,2007_ Bought 1 face towel Total purchases for the month 1000 1000 2200 113700 AMOUNT 100000 5000 TOTAL JAN 1,2007'__ JAN 2,2007 2000 1000 107000 JAN 2,2007 2500 JAN 2,2007__ JAN 30,2007 1000 200 4500 Fig 1: An example of a Purchases Daybook. CASH BOOK • A cashbook is also a daybook used for keeping a record of money received and money spent. Money received is usually debited to the cashbook while money spent is usually credited to it. • The cashbook is usually balanced at the end of a month. This balance is compared to the balance on the bank statement for reconciliation if there are discrepancies by preparing a Bank reconciliation statement. On the next page is the cash book of Bona ventures limited. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 12 BONA VENTURES LIMITED 14 ALLEN AVENUE,IKEJA.LAGOS-STATE. CASH BOOK Description Balance from previous period Bought Motor vehicle with cash/cheque Cash sales(sold goods for cash) Paid rent Received money from Mrs Ngozi Bought goods for resale(Cash Purchases) Paid for carriage of goods Cash sales(sold goods for cash) Paid salaries Cash drawings for personal use Withdrew cash for office use. Closing balance Date Jan 1,2007 Jan 2,2007 Jan 3,2007 Jan 4,2007 Jan 5,2007 Jan 10,2007 Jan 21,2007 Jan 22,2007 Jan 28,2007 Jan 29,2007 Jan 31,2007 Jan 31,2008 Debit 4,000.00 Credit Balance 4,000.00 2,000.00 12,000.00 9,000.00 14,000.00 6,000.00 5,000.00 11,000.00 6,000.00 3,000.00 2,000.00 2,000.00 2,000.00 10,000.00 3,000.00 5,000.00 8,000.00 1,000.00 6,000.00 5,000.00 3,000.00 1,000.00 Fig 3: An example of a Cash book. PETTY CASHBOOK • A petty cashbook is a book used for keeping record of the small amount of money kept in an office to cover minor everyday expenses. • A constant monthly amount is usually set aside for covering the petty expenses of the office. This amount known as imprest or office float together with the petty expenses of the month are recorded in the petty cashbook to avoid overlabouring the cashbook with minor expenses which are usually many. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 13 JUNE, 2007 DATE Jun 1 Jun 1 Jun 3 Jun 4 Jun 8 Jun 10 Jun 30 Jun 30 DESCRIPTION Opening bal. Office float Transport to V.I Bought fuel for office vehicle Repair of office generator Repair of office vehicle. Bought recharge cards for office use TOTAL CLOSING BAL INCOME/BAL 3000 50000 PETTY CASHBOOK TRANSP. FUEL REPAIRS RENT R/CARDS OTHERS TOTAL 400 1000 4000 10000 1000 53000 36600 400 1000 14000 1000 400 1000 4000 10000 1000 16400 Fig 3: An example of a petty cashbook. SALES ACCOUNT • Sales account is used for recording both the cash and credit sales of the business. Sales account like every other ledger account has columns for date, particulars and amount on both the debit side and the credit side of the account. • The daily total of sales from the sales journal is usually transferred to the credit side of the sales account. Below is the sales account of Bona Ventures Ltd for the Month of June, 2007. Please note that the information contained in the sales account below actually came from the sales journal in the previous page. More or less the sales account serves as a summary of the transactions recorded in the sales daybook. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 14 BONA VENTURES LTD 14 ALLEN AVENUE,IKEJA.LAGOS-STATE. SALES ACCOUNT DR DATE PARTICULARS AMOUNT DATE JUNE 1,2007 JUNE 2,2007 JUNE 30,2007 PARTICULARS SALES JOURNAL SALES JOURNAL SALES JOURNAL CR AMOUNT 4750 1150 1620 7520 JUNE 30,2007 CLOSING BAL. 7520 7520 JULY 1,2007 OPENING BAL. 7520 Fig 4: An example of a Sales Account. It should be noted that format like the one below can be used to keep track of the debtors of the business. Sales on credit No. Date Name / Address of Client Product/ service Unit value Advance paid Remained to be paid Date of final payment Signature 1 2 3 4 5 6 7 8 Fig 5: A format for keeping records of the business credit sales ( i.e. Debtors) Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 15 PURCHASES ACCOUNT • Purchases account is used for recording both the cash and credit purchases of the business. • Purchases account like every other ledger account has columns for date, particulars and amount on both the debit side and the credit side of the account. • The daily total of purchases from the purchases journal is usually transferred to the debit side of the purchases account. • It should be noted that the difference between total sales and total purchases represents the GROSS PROFIT of the business provided every goods purchased is sold and there is no opening stock. BONA VENTURES LTD 14 ALLEN AVENUE,IKEJA.LAGOS-STATE. PURCHASES ACCOUNT DR DATE JAN1,2007 JAN 2,2007 JAN 30,2007 PARTICULARS PURCHASES JOURNAL PURCHASES JOURNAL PURCHASES JOURNAL AMOUNT 107000 4500 2200 113700 113700 JAN 30,2007 CLOSING BAL. 113700 113700 DATE PARTICULARS CR AMOUNT FEB 1,2007 OPENING BAL. Fig 6: An example of a Purchases Account. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 16 CASH FLOW STATEMENT • A cash flow statement is like a budget for the assessment of a business liquidity in the subsequent period. It is usually a detailed statement of the expected cash inflows (i.e. receipts) and cash outflows (i.e. expenditures) of a business for the coming period. • A cash flow statement is used to determine whether there will be a cash shortage (deficit) or a cash surplus in the coming period. If it is discovered that there will be a deficit then plans can be put in place to source for the required money to nullify the expected deficit of cash. • It is simply a statement of expected receipts and proposed expenditures. The receipts can be cash sales, loan and overdrafts, and any other cash receipts e. t. c. While the expenditures can be cash purchases, and all cash payments. Guidelines for preparing cash flow statement: Establish cash receipt from debtors and cash sales Establish cash payment to suppliers and cash purchases . Establish payments for other expense items e.g. salaries, wages, telephone bill, insurance, electricity, fuel e. t. c Establish payments and receipts of non-major trading items e.g. Purchases or sales of fixed assets, tax payments, dividends to be paid or received, loan repayment, loan procurement e. t. c Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 17 BONA VENTURES LTD 14 ALLEN AVENUE,IKEJA.LAGOS-STATE. RECEIPTS Opening Balance Receipt from debtors Sales of fixed assets Any loan received Proceeds from sales of shares Cash sales Any other cash receipts TOTAL CASH RECEIPTS Less:PAYMENTS Payments to creditors Cash purchases Loan repayments Purchase of fixed assets Dividends received Tax payments Wages and salaries Any other cash disbursements TOTAL CASH PAYMENTS CLOSING BALANCE CASH FLOW STATEMENT. JANUARY FEBRUARY 2000 22000 5000 33000 4000 1200 10000 12000 30000 1200 12000 1300 22000 123000 85000 193700 1000 2000 300 200 500 12000 13000 34000 63000 22000 12000 23000 0 1200 23000 2400 50000 12000 123600 70100 MARCH 70100 0 0 0 0 23000 12000 105100 23000 47000 50000 0 0 0 3000 100000 223000 -117900 Fig 7: An example of a Cash flow Statement. OPENING JOURNAL • • An opening journal is used for calculating the capital of the business. Capital is the amount the owner of a business invested in the business. It is otherwise called the net worth of the business. • In opening journal the assets of the business are set against its liabilities to determine the capital. That is, Assets - Liabilities = Capital Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 18 BONA VENTURES LTD OPENING JOURNAL PARTICULARS DEBIT ASSETS Land 100000 Building 1000000 Motor vehicles 200000 Furniture&fittings 100000 Cash at bank 50000 Cash in hand 10000 Debtors 20000 Stock 40000 LIABILITIES Loan and overdraft Creditors TOTAL BALANCE 1520000 CAPITAL= 1520000 - 160000 1360000 CREDIT 100000 60000 160000 Fig 8: An example of an Opening Capital. CONCLUSION/SUMMARY From the foregoing it should be stated that the various books of account discussed in this manual can be modified to suit different categories of business depending on the nature of the activities of the business. Akada Konsults ltd. 14/16 Nduka Osadebay Str, Ajao-estate, Isolo. Lagos-state.Nigeria Tel: +234-1-8936762. info@akadakonsults.net. www.akadakonsults.net____________________________ 19