OBJECTIVES:

Identify the reasons for

keeping business records;
CS_EP11/12ENTREP-0a-i-20
 KEEPING RECORDS
Keeping records is often viewed with
disdain. It is not uncommon to hear people
refer to the process of records keeping as a
"necessary evil." More and more, people in
business, industry and government speak
of reducing the burden of maintaining
detailed records, and simplifying
complicated governmental records.
Importance of Records
While such concerns are important,
they should not mislead you into
believing that the fewer records you keep,
the less paperwork will burden you.
Whether these records are burdensome or
not, a well run business needs to maintain
them. Inadequate records may well be
detrimental to the health of a business.
Decision-making
• Profit/loss information comes from the records keeping
of a business and is an important aid in decision-making.
Information gathered from a review of the records keeping
system can indicate past trends in a company's operating
effectiveness. This historical data can be used to answer
specific questions about the change in profitability over
time, the volume of sales at different times of year, the
level of employee turnover, etc. This historical perspective
can be especially useful to the owner/manager in decisions
about future courses of action. Information generated from
the records keeping system can provide a baseline for
setting future goals and directions.
 The value of a good records keeping
system is immeasurable. Accurate and
timely information can be used by the
owner/manager to make decisions that give
an edge in maintaining or gaining a
competitive advantage - more specifically,
a good records keeping system can make
the difference between success and failure.
 Another aid to owner/manager decision-making
derived from a good records keeping system is the
ability to compare the business with similar
businesses in the same industry; for instance, to
determine how many times a year the inventory
turned over and compare that performance to an
industry average. Or a records keeping system could
be used to determine a business's net profit as a
percentage of sales which, again, could be compared
to an industry average to tell the owner/manager if he
or she is doing well or needs to make improvements.
 Governmental Regulations
Another purpose for maintaining records - the
reason complained about the most - is to satisfy
governmental regulations. A well designed
records keeping system will simplify the process
of complying with regulations, provide an audit
trail for verifying that specific transactions have
occurred and serve the information needs of the
owner/manager as well.
 A Record for Others
Yet another purpose for maintaining records is
to provide information for other people. Many
small businesses are essentially one-person
enterprises - a single individual is the catalyst for
most activity. It is imperative that this type of
business maintain complete and detailed records.
If something happens to the key individual, often
no one else knows what has gone on in the past.
With no records system to provide continuity, the
business may be forced to close or be sold for less
than it is worth.
 EFFECTIVE RECORDS KEEPING
Records keeping, as presented in this section,
can be defined as the process of identifying what
records need to be kept, how they are entered and
maintained, and how they can be used effectively.
A record is defined as basic information which
documents financial, personnel, inventory, supply,
or customer activities. This information is normally
recorded as the result of a transaction or event in
the course of conducting the business.
A good records keeping system should be
designed and used with the following
factors in mind:
• Simplicity
• Understandability
• Reliability
• Accuracy
• Consistency
• Timeliness
 Simplicity
The records keeping system should be simple to use. One
of the major reasons for the dramatic acceptance of personal
computers today is the fact that they are very easy to use.
A records keeping system should be designed with
consideration for the employee(s) who will be recording the
information. Complicated forms may be only partially
completed and complicated processes avoided in favor of
shortcuts that result in incomplete data. A good records
keeping system should be designed to gather appropriate
information as simply as possible.
Understandability
Ease of understanding is another
important attribute of a good records
keeping system. The system itself, the way
to record information, and what the
recorded information means must all be
easily understood. Confusion, error, and,
obviously, misunderstanding can result if
records that are not clear and concise.
Reliability

"Reliable" has a specific meaning

in accounting. The term generally
means that a particular type of
transaction is recorded in the same
manner each time it occurs, in
keeping with accounting guidelines.
 Accuracy

The necessity for maintaining accurate records seems

obvious, but cannot be overemphasized. A common error,
for example, when people record numbers is that they
inadvertently transpose them.
Care should be taken to ensure the accuracy of all
records. A good records keeping system will stress
accuracy through built-in procedures for checking and
rechecking entries. Methods for improving accuracy
include double checking all entries, taking frequent trial
balances, requesting client/customer verification, and
stressing the need for accuracy to all employees.
 Consistency

Sometimes there are several ways to record a particular

piece of information. Inventory records, for example, can be
maintained on an item-by-item basis, on the basis that the last
item is in the first item sold (LIFO), or on the basis that the
first item is in the first item sold (FIFO). Consistent records
keeping means choosing one method for recording inventory,
using it consistently, and not changing it arbitrarily. This does
not mean that you cannot change your approach, but it does
mean that changes should only be made for good reasons and
that the changes in the records keeping process should be
clearly identified. Keep in mind that consistent records
keeping is essential for comparing records over time.
Timeliness

Timeliness is an important element in a

good recordskeeping system. Consider the
statement, "I made P5,000." Without the
element of time, this statement has little
meaning. Add "in one year" and the
statement has more meaning. Or add "in one
week" and the meaning changes
dramatically. One consideration of records
keeping, then, is time.
Four basic records that a business
must maintain:

1) Sales Records
2) Cash Receipts
3) Cash Disbursements,
and
4) Accounts Receivable.
 Sales Records
A record of all sales must be kept. If you use a cash
register, a combined Sales and Cash Receipts record may be
kept. Sales may result from a single primary activity or may
result from different types of activity and be recorded in sub-
categories. For example, a business might record three kinds
of sales: wholesale, retail, and services.
It is important to record all sales as they occur.
Remember that a sale may result in cash or arrangements
may be made to receive payment at a later time. In either
case, the sales records should reflect that the sale has
occurred.
Cash Receipts
Cash is received by a business at the time of the sale or as
payment on account for a credit sale. In any case, all cash
should be recorded as it is received. A small business without a
cash register can enter each transaction in a Sales and Cash
Receipts Journal showing the date, name, invoice number, and
the amount of the sale.
Deposit all cash receipts for the day in the bank. Do not pay
out small amounts directly from cash receipts. Instead,
establish a petty cash fund to pay small amounts not covered
by invoices. By depositing all cash receipts daily, you have a
basis on which to verify the daily balance in the cash receipts
book.
Cash Disbursements

Just as all cash receipts should be deposited, nearly

all disbursements should be made by check. The petty
cash fund, as stated earlier, should be used to make
payments only on small items.
When writing a check, use an invoice or bill to
support the check. In the checkbook, record the purpose
of the check, the date, name, check number, and the
amount of the check. Bank charges should be recorded
in the same manner as a check except, of course, they
would not have a check number.
Accounts Receivable
The fourth basic record to be maintained
is for credit sales. If a business provides a
product or service to a customer and agrees
to accept payment at a later time, it has
created an account receivable. An account
receivable record normally contains
information pertinent to billing and
receiving payment from a customer.
 Every effort should be made to ensure that
accounts receivable are kept current. Bills should
be prepared promptly and mailed to correct
addresses. At the end of each month, accounts
receivable should be "aged." Aging means listing
all accounts unpaid for 30 days, 60 days, and
over 6o days. Special action should be taken to
collect older overdue accounts. Extraordinarily
large accounts should be watched carefully.
 For delinquent accounts, try to get
the customer to promise payment on a
specific date. Then, if payment is not
made on that date, contact the
customer to find out why payment was
not made. Be persistent, it's your
money.
 RECORDSKEEPING
PROCESS
A small business involved in ordering and
selling merchandise should have a records
keeping process that reflects the flow of
that merchandise through the business.
RECORDSKEEPING PROCESS

• ORDERING AND
RECEIVING
• SALES
• COMPLETING THE CYCLE
ORDERING AND RECEIVING

• The process begins when a business orders

merchandise. An order can be written or oral. Oral
orders should be documented with a written record.
Copies of all orders should be retained.
• When merchandise is received, it should be
checked for quantity and condition, checked against
the packing slip, and checked against the original
order. Any discrepancies should be noted and the
supplier notified as soon as possible.
• The merchandise is then recorded on a Receipt Log
listing quantity, description, and source. The
Receipt Log serves as the basis for additions to the
Inventory List, which is a complete record of all
goods available for sale.
• When an invoice (bill) is received from a supplier
requesting payment, the invoice is checked for
accuracy and verified against the Receipt Log and
the original purchase order. A check should then be
written to the supplier for the appropriate amount.
 SALES
• As sales of merchandise are made, goods are removed
from inventory. If the merchandise consists of large,
expensive items (e.g., automobiles, refrigerators, etc.),
the inventory list may be maintained on an item-by-item
basis with a sale resulting in the immediate removal from
the inventory list of the item sold. On the other hand,
many businesses sell a large number of inexpensive
items; a small grocery store, for instance, might sell 200
boxes of cereal. For these businesses a periodic physical
count of merchandise available for sale is the only
realistic way to keep track of inventory.
• Sales can be cash or credit. In either case, the sale is
recorded at the point of sale. The sales slip serves two
primary purposes. First, it is the original record of the sale
used to record that transaction in a journal. When a cash
register is used, the cash register tape and total at the end
of the day serves as the sales slip. Second, sales slips are
used to reduce the inventory listed, at least when a
perpetual inventory (item by item) method is used.
• Sales for cash are recorded as Sales and as Cash Receipts.
Sales on credit are recorded as Sales and Accounts
Receivable. Credit sales require that a customer credit
account be established and maintained.
 COMPLETING THE CYCLE

•The reduced inventory resulting from

sales signals the need to order more
merchandise. Purchase orders are written
and sent to suppliers and the cycle of
merchandise flowing through the business
continues.
 
 
 
• Much of the process of recording and tracking
inventory today is done by computers and or
computerized cash registers. However, these systems
are only as accurate as the information which is
entered into them and checks and balances for human
error still exist. By utilizing a computerized system it
is possible to know on a daily basis what the
inventory and sales for each item are and to plan for
re-orders of merchandise in a more effective manner.
They also provide an efficient method for determining
loss by "shrinkage and theft."
Answer the following:
1. Discuss the reasons of keeping
business records.
2. What are the four (4) basic
records that must be maintain in
the business? Discuss each.
RE-ARRANGE
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1. SALES RECORDS
2. KEEPING RECORDS/RECORDS KEEPING
3. SIMPLIFYING
4. DECISION-MAKING
5. IMMEASURABLE
6. GOVERNMENT REGULATIONS
7. INVENTORY
8. DOCUMENTS FINANCIAL/FINANCIAL DOCUMENTS
9. UNDERSTANDABILITY
10. RELIABILITY
11. CONSISTENCY
12. ACCURACY
13. TIMELINESS
14. ACCOUNTS RECEIVABLE
15. CASH RECEIPTS