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					Certificate III in Small Business Management


Financial Record Keeping

Introduction
Keeping accurate, up-to date, financial for your business is paramount to its success
and is also a legal requirement for accounting and taxation purposes.

Financial records are the „barometer‟ by which you will measure the viability of all
decisions you make about your business. Every decision you make, whether it affects
management, production, marketing, planning or some other facet of your business,
must be made with reference to your business‟s current financial position.

Accurate financial record keeping allows you to use the information collected to

          monitor cash flow
          control debtors
          manage credit
          cost your product or service
          control stock and raw materials
          prepare budgets
          forecast profit and loss
          prepare a balance sheet
          complete a tax return
          plan for the future

Your financial records are also of interest to your creditors, including suppliers with
whom you have credit accounts and finance institutions with which you have loans or
overdraft facilities. Creditors will use the information you supply to determine you
capacity to repay them

Business Structure
The legal structure you decide on for your business ownership will have some bearing
on the type and amount of financial record keeping that is required of you by law. The
three types of business structures available to privately owned small businesses are

        Sole Trader
        Partnership
        Company

These legal structures      are described in      detail   in   the section   LEGAL
INFORMATION.

Types of financial records
Financial records can be separated into debtor records, creditor records, bookkeeping
records and financial reports. Bookkeeping and accounting procedures link the
financial records together to produce reports which give an overall picture of the
financial position of the business.




Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 1 of 10
Certificate III in Small Business Management


Debtor Records
Debtors are people who owe your business money. It is important to keep accurate
records for each debtor for all goods or services you supplied, when they were
supplied and how much you are owed. You must also supply your debtors with this
information so that they can keep their records accurate. If their records do not match
the documents you supply you will usually not be paid until the discrepancy is
righted.

Debtor documentation
Documents which form the debtor records of your business are:

          your customers‟ applications for credit
          your invoices
          your credit notes
          you receipts
          your statements

Applications for credit
Debtors who will be holding large accounts with your business should be checked
beforehand for their ability and willingness to pay accounts on time. It is good
practice and acceptable in business, to ask debtors for information which will support
their application for credit – trading names, directors names, business address, where
bank accounts are held, credit limit applied for and the names and addresses of
businesses with which they deal on a regular basis. The information supplied should
be verified and the referees contacted.

All people applying for credit facilities with your business should be supplied with a
written statement outlining the terms and conditions under which you will give credit.

Invoices
An invoice is the written account you give people when you supply them with goods
or services. If you offer credit the account may not be paid immediately.

An invoice should show the following information:

          your business name and address
          your invoice number
          the date the goods or services were supplied
          the customer‟s name and address and the name of a contact person or
           department if appropriate
          the customer‟s order number
          a complete description of the goods or services supplied including the
           number or amount of each item
          the unit price for each item
          the total price for the number or amount of each item supplied
          the sales tax payable, if any
          discount, if any
          the total amount owed
          the terms and conditions applying to the sale


Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 2 of 10
Certificate III in Small Business Management
Customised stationery
While it is cheaper to purchase ready-printed stationery and rubber-stamp it with you
business name, it looks more professional if your business stationery is customized
for your business. See ADVERTISING.
A simple method of keeping debtor records is to

            complete invoices in triplicate

        one copy is sent with the goods for your customer‟s records.
        one copy is kept in your debtors‟ file under the month the invoice is due
         for payment.
        one copy remains in the invoice book for accounting and taxation
         purposes.

When payment is received, note the date paid on the filed copy of the invoice and file
it alphabetically under the customer‟s name in an Arch Lever file or similar. This
copy can be easily accessed for account queries.

Credit Notes
Your business may need to issue a credit note to a debtor or cash customer who has
returned goods or have been overcharged for goods on an invoice. A credit note
allows both you and your customer to control stock accurately and balance cash
books. Either the whole credit note or the words „Credit Note‟ are usually printed in
red. Credit notes should be printed in triplicate and the copies issued or filed the same
as for invoices.

Note: There are consumer laws governing the refund of money paid for goods. In
certain circumstances the customer may be entitled to a full cash refund by law.

A credit note should show the same details as an invoice with the addition of

          a credit note number
          the date the credit note was issued
          the name of the person authorising the Credit Note
          the total amount of money credited
          description of goods

Receipts
Receipts are issued for money your business receives. Although receipts for payments
made by cheque are not usually sent these days as part of normal business practice,
writing receipts for every payment is an excellent way to keep track of payments
made to your business. Receipts should always be written for cash payments.

Each receipt should show the following information:
       your business name
       a receipt number
       date issued
       name of the business or person making the payment
       the number of the invoice the payment corresponds to, or
       in case of a cash sale, a description of the goods being paid for
       the amount received in words and figures

Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 3 of 10
Certificate III in Small Business Management
        the signature of the person receiving the money.
Receipts should be printed in duplicate. The original is given to the customer; the
duplicate remains in the receipt book for accounting and taxation purposes.

Statements Of Account
Statements are summaries issues to debtors of all their account transactions over set
period of time – usually the previous calendar month. The statement shows a debtor

              invoices issued during the month
              how much money has been spent and when it was spent
              what amounts have been paid and when payments were made
              how much money is owing
              the period of time the money has been owing

Statements should show the following details

          your business name
          the period covered by the statement
          date of issue
          all payments – dates and amounts
          all debits to the account – dates, amounts and invoice numbers
          the total amount still owing at the end of the statement period
          amounts overdue (aged balances)

Controlling Debtors
Maintaining control of debtors is vitally important to the success of your business. If
your debtors do not pay or are in the habit of paying late, you may experience
difficulties paying you own creditors due to poor cash flow. A debtor control strategy
should be included in you business planning.

        Decide in advance what your credit terms will be eg. cash payment in 7
         days, 30 days, etc.
        Make sure debtors are aware of your credit terms – verbally and in writing
        Be aware of what terms you are offering – remember ‟30 days‟ can mean
         up to 60 days credit.
        Think about offering a small discount for prompt payment of accounts.
        Develop a debt collection strategy and enforce it.

A typical debt collection strategy is

            Keep your „working‟ copies of debtors‟ invoices in month order and
             check monthly
            If an invoice is not paid when due, telephone immediately
            Record details of the conversation, the date, and to whom you spoke
             on the back of the invoice
            Follow this up with a written reminder and a personal visit
            If the account is not paid after a predetermined time either put the debt
             in the hands of a debt collector (debts over $500.00), or send a
             solicitor‟s letter.
            Check to see if the money can be collected a low cost through the
             Small Claims Tribunal

Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 4 of 10
Certificate III in Small Business Management



Creditor’s records
Creditors are people to whom your business owes money. If you buy stock or raw
materials regularly from the same supplies you may wish to open credit accounts with
them rather than pay cash for each order. Be prepared to give details of you business
and names of referees when applying to open a credit account.

If properly managed, credit accounts with suppliers can assist the small business
owner to budget, record payments, and control stock and manage cash flow. If not
properly managed, credit accounts can lead to insolvency. Your relationship with
creditors will have a direct influence on your credit rating and your ability to trade.

Proper management of creditors involves

            ordering goods with reference to your capacity to pay within the
             creditor‟s stated terms of credit.
            checking the goods received against your order and the creditor‟s
             invoice
            paying the creditor on time and taking advantage of discounts where
             appropriate.
            checking the creditor‟s statements against your records of orders,
             credits and payments
            contacting creditors immediately to make alternative arrangements for
             payment if you are unable to meet your payment responsibilities for
             any reason.

Creditor’s documentation
Documents which form the creditor records of your business are

          your purchase orders
          delivery dockets/packing slips
          creditors‟ invoices
          creditors‟ receipts
          creditors‟ statements
          creditors‟ credit notes

Purchase orders
The preferred method of ordering stock and raw materials for your business is by
using a written purchase order. Orders place by telephone should be confirmed by a
written order as soon as possible.

A purchase order
           allows you to specify your requirements in writing.
           allows you to return or refuse to accept goods if they do not match
             your written specifications.
           forms party of your supplier‟s financial records.
           assists you to control stock and raw materials.




Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 5 of 10
Certificate III in Small Business Management
A purchase order should show the following information

        your business name and address
        your order number
        the date the order was placed
        description of the gods ordered
        quantity of goods ordered
        the price quoted
        your sales tax registration number quoted in the correct manner ( if
         applicable )
        delivery instructions

If you do not quote a Sales Tax Number the supplier will add any sales tax
applicable and this will appear on the invoice

Taking delivery of goods
When ordered goods are delivered it is important to check the goods against

        your purchase order
        the supplier‟s delivery docket or packing slip

This should be done as soon as possible. If you are asked to sign for goods at the time
of delivery, add the words “not checked” after your signature. If on checking the
goods you find discrepancies between the goods received and either your purchase
order or the supplier‟s packing slip, or if the goods are damaged, notify the supplier
immediately and ask how the supplier intends to rectify the situation.

If the supplier has damaged goods or wrong items, the situation should be remedied at
no cost to you. If you ordered the wrong goods or changed your mind after ordering,
negotiate with the supplier for their return or replacement. The supplier may agree to
exchange the goods or provide a credit note but you may have to bear the cost of
returning the goods in good order.

Suppliers‟ mistakes are annoying and frustrating but it is important to preserve you
good relationship with your creditors – good negotiation and interpersonal skills are
essential. If your requirements are consistently not being met, negotiate credit
arrangements with another supplier.

Checking and matching invoices and statements

Creditors’ Invoices
The creditor‟s invoice may accompany the goods or be sent to you by mail after the
goods have been delivered.

When the invoice is available
           check to see that all the details, including amounts charged to you
             account, correspond with those on your purchase order. make sure that
             the credit terms on the invoice are the same as those you agreed to
             previously with the creditor.


Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 6 of 10
Certificate III in Small Business Management
             note any discount offered and calculate if it will benefit you
                financially to take advantage of it.
The purchase order, delivery docket and invoice should be filed together for payment
by the due date and for checking against the creditor‟s statement.

Creditor’s receipts
Creditors may or may not issue receipts for cheque payments. If you pay an account
with cash, you should always obtain a receipt, but as cheque payments can be
traced through your cashbook entries and bank statements, receipts for cheque
payments are not essential. When you pay a creditor, note you cheque number and the
date paid on the invoice so your payment is easy to trace if for some reason it is nto
received or not recorded correctly.

Creditors’ statements
When a statement of account is received from a creditor, check that

        all the debit figures on the invoices you have received during the past
         month match the figures recorded on the statement
        all the payments you have made tot he account have been recorded
         accurately – the statement is in effect you receipt.
        any credits have been deducted.

Statements should be filed in date order for each supplier, with purchase orders,
invoices, and delivery dockets attached. These documents are required for taxation
purposes and auditing of accounts.

As a general rule, payment of amounts owing to creditors should only be made
against the creditors invoice, not the statement. This practice will prevent yu
inadvertently paying an invoiced amount twice, due to the possible time lag of you
accounting processes against those of your creditors.

Statements should only be used to reconcile against the amounts owing to a creditor

Cash Book

Payments received from debtors and payments made to creditors are recorded in a
cash book, also known as a cash receipts and cash payments journal. The cash book
should be written up daily, balanced monthly and all cheque numbers, details and
amounts recorded accurately.

       The cash book

          records all your bank account transactions – debit and credit.
          records payments in a format which allows you to analyse you expenses.
          assists you to verify transactions recorded on bank statements.
          records information in a format which assists with budgeting and future
           planing.

The cash book has two parts: cash receipts and cash payments.


Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 7 of 10
Certificate III in Small Business Management



Cash receipts
The cash receipts section of the cash book records the detailsof all payments made to
your account.

Details recorded in the cash receipts section of the cash book are

          the date the payment was banked
          the debtor‟s name
          the number of the invoice paid (or the receipt number)
          the amount paid by the debtor
          the total amount banked in each bank credit transaction
          the total amount banked per month

Cash receipts are entered in date order showing the amount of each payment. The
total amount banked each day is entered in the right-hand column. Both the amount
and the amount banked columns are totalled each month and the totals must
balance.

Cash payments
The cash payments section of the cash book records all payments made by you from
your account.

Details recorded in the cash payments section of the cash book are

          the date the payment was made
          who the payment was made to
          the cheque number
          the amount
          the area(s) of your business the payment is apportioned to

Cash payments are entered in date order with cheques recorded consecutively.

Writing cheques
Details for cash payment entries in the cash book are taken from the information
recorded on cheque butts. Therefore, when you write a cheque it is essential that
you record all relevant information on the cheque butt at the same time.

Take care to safeguard cheques you write. Always fill in all information before you
sign the cheque, leaving no spaces between words or figures. Cross the cheque „not
negotiable‟ to prevent the cheque being cashed out and cross the words „or bearer‟ so
that the cheque must be pain into the account of the person it is drawn to.

Petty Cash
Most of the items you buy will be paid for by cheque, but as it is not always practical
to use cheques to pay for small, single purchase items, you may often pay for
purchases with personal cash. Always obtain a receipt which states what items
were purchase and the amount paid.


Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 8 of 10
Certificate III in Small Business Management
Keep all receipts and on a monthly basis, claim the total amount you have spent in
cash, from your business. To do this you become a creditor of you business and write
a cheque from the business account to yourself, which is then banked in your personal
bank account.
Enter the cheque in the cash payments book as being reimbursement to you for petty
cash expenditure, then enter the amounts under the appropriate analysis headings.

Cash payments analysis
The cash payments section of the cash book included analysis columns which you
label to suit your business. Cash payments are always recorded in the amount column
and again under the appropriate heading in the analysis columns.

The analysis columns allow you to see how much money you have spent in different
areas of your business. This information will assist you to control cash flow and
compare you spending with budget forecasts.

Balancing cash payments
The cash payments section of the cash book is balanced monthly. Before you total the
months‟ payments, you must record all payments, which have been automatically
deducted, from your bank account, including all bank charges and loan repayments.
You will find these amounts on you bank statement.

To balance the cash payments

          draw a horizontal line across the money columns
          add each column and place the total below the line
          add the totals of the analysis columns together
          the total of the analysis columns should balance with the total of the
           payment amounts column.

Bank Reconciliation
Each month, your records (from the cash book) and you bank‟s records (from the
bank statement) should be compared and the information verified. You do this by
completing a bank reconciliation.

The purpose of a bank reconciliation is there-fold: to update your business records, to
detect any errors made by you or the bank and to make sure your records and the
bank‟s agree after all necessary adjustments are made.

The bank statement
Bank statements for your accounts are issued regularly – usually monthly, although
you can ask to have them issued more or less frequently. If you request occasional
extra statements you may be charged a fee for their preparation.




Western Business Enterprise Centre at Victoria University
April 2001                                 Financial Record Keeping Page 9 of 10
Certificate III in Small Business Management


A bank statement shows the following details

          the name and number of your bank account
          the statement and/or page number
          the dates covered by the statement
          the opening balance
          the date of each account transaction
          the cheque number or other identifying information for each transaction
          whether each transaction was a debit or a credit.
          the amount of each transaction
          the balance following each transaction
          an account transaction summary

Bank reconciliation process
The first step in the bank reconciliation process is to identify and record in your cash
book, all transactions the bank has recorded which have not yet been recorded by you.
These may include debits such as bank fees, taxes, automatic payments, etc. and
credits such as interest, share dividends, refunds etc.

The second step is to check all entries for errors. Compare all amounts recorded on
your cheque butts and in your bank deposit book with those on the bank statement.
Ad you verify each amount, tick it on both the statement and the cheque butt or
deposit book. If you detect an error you have made, you will need to adjust your cash
book entry. If the bank appears to have made an error, notify the bank immediately so
the error can be corrected.

The third step list all transactions, which you have recorded but which, have not yet
been recorded by the bank. These will include

        un-presented cheques (cheques you have written which were not recorded
         by the bank before the closing date for the statement)
        deposits which have been made after the closing date for the statement.

Bank reconciliation statement
The bank reconciliation statement, prepared after all adjustments have been made,
shows the true balance of you account.




Western Business Enterprise Centre at Victoria University
April 2001                               Financial Record Keeping Page 10 of 10

				
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