chapter 11 record keeping and accounting february 12, 2014entrepreneurship (ms. hawkins)1 this...

CHAPTER 11RECORD KEEPING AND ACCOUNTING

April 10, 2023 ENTREPRENEURSHIP (Ms. Hawkins) 1

This chapter describes the importance of keeping business records.

How to keep records using journals and ledgersHow to understand balance sheets, income statements, and cash flow statementsHow to keep inventory records



SET UP A RECORD KEEPING SYSTEM

Types Of Records

Journals

Ledgers

Bank Records

Payroll Records

Tax Records

The records you will keep include:



Sales Journal (records sales of merchandise on account to customers)

Journals are accounting records of the transactions you make. They include:

Cash Payments Journal (records cash or check payments made by the company)


Types Of Records…



Cash Receipts Journal (records goods paid for in cash by customers)


Purchase Journal (records purchase of merchandise on account by the company)


Types Of Records…



General Journal (records goods paid for in cash by customers)


Purchase Journal (records any kind of transaction—those that don’t fit in the other journals)


Types Of Records…



Businesses use a general ledger to which they post items they record in their journals. Ledgers separate business transactions by account.

Posting means copying information from a journal entry to a ledger account, usually every one to two days.


Types Of Records…



An accounts receivable ledger (money owed to you by customers)

A subsidiary ledger is a ledger that is summarized in a single general ledger account.

An accounts payable ledger (money you owe to suppliers)


Types Of Records…



A check register is a book in which you record the dates, amounts, and names of people or businesses to whom you have written checks.

Bank Statements Even if you already have a personal checking account, you will need a business account for all deposits and withdrawals related to your business.


Types Of Records…



A payroll register contains employee’s name, no. of hours worked, regular & overtime earnings, taxes deducted (fed., state, and local), Social Security and Medicare contributions deducted, etc.

Payroll Records A payroll is a list of people who receive salary or wage payments from a business.


Types Of Records…



Income Tax (businesses that earn profits must pay income taxes)

Payroll Deductions (by law you must deduct taxes from employees’ paychecks and submit to the government)

Sales Tax (businesses must charge sales tax on goods and services)

Tax Records You will have to make several different kinds of tax payments:


Types Of Records…



Store and analyze data.

Link records.

Reduce errors.

Correct errors.

Advantages:


Computerized Record Keeping



Staff resistance

Unauthorized access

Computer problems

Disadvantages:


Computerized Record Keeping



To run your business, you will need to know how to read and understand financial statements to determine how well your business is doing.

UNDERSTAND BASIC ACCOUNTING

Types Of Financial Statements



Assets = Liabilities + Owner’s Equity

Balance Sheet The balance sheet lists what a business owns, owes, and how much it is worth at a particular point in time. The balance sheet is based on the accounting equation:





Revenues

Expenses

Profits (before taxes)

Income Statement The income statement shows how a business performed over a period of time (usually 1 year). It shows 3 things:





Examine how sales, expenses, and income change over time.Forecast how well your business will perform in the future.Determine where you may need to cut back.Identify categories of expenses to increase or decrease.

Income Statement … The income statement has several uses:





Service businesses do not have this expense.

Income Statement … The cost of the inventory a business sells during a particular period is called cost of goods sold.





Net cash flow is the difference between cash receipts and disbursements:

Cash Flow Statement The cash flow statement is a report that describes the cash that flows in and out of a business. It shows how much money you have.



Cash – Disbursements = Net Cash Receipts Flow



A certified public accountant (CPA) is licensed by the state in which he/she works.

A CPA can also help prepare your tax return.

Many small businesses use professionals to help keep their records and prepare their financial statements.


Use Professionals



TRACK YOUR INVENTORY

Track Your Inventory Inventory is the stock of goods a business has for sale.

Every business must track inventory levels.Take physical inventory at least once or twice a year (or periodic inventory method).Businesses that sell hundreds of items use computers for tracking.




Manage Your Inventory

The level of inventory you keep in stock depends on three factors:

The cost of carrying inventory

The cost of losing a sale because you are out of stockThe frequency with which you sell your inventory




Manage Your Inventory…

Costs of Carrying Inventory Inventory costs can increase due to:

ObsolescenceDeterioration (e.g., plants)

Interest fees (this applies when you cannot pay your suppliers until you sell your inventory)





Insurance (theft, fire, etc.)

Storage (may have to lease additional space for inventory if you run out of space)

Costs of Carrying Inventory… Inventory costs can increase due to:





Your job is to weigh the cost of being out of stock versus carrying more inventory.

Costs of Being Out of Stock If you have nothing to sell, you lose sales.



TRACK YOUR INVENTORYManage Your Inventory…

It shows how many times a year you sell all of your merchandise.

Turnover Rates The stock turnover rate is the rate at which inventory of a product is sold and replaced with new inventory.

A store that purchases inventory 4 times a year and sells all of it in the same year has a stock turnover rate of 4.



TRACK YOUR INVENTORYManage Your Inventory…

To find out how many months of inventory to keep in stock:

Determining Inventory Turnover rates can help you determine how much inventory to keep in stock.

Months in Year ÷ Stock Turnover Rate = Mos. of Inventory to Stock

12 ÷ 6 = 2



The End!

chapter 11 record keeping and accounting february 12, 2014entrepreneurship (ms. hawkins)1 this...

Documents

accounting records

business records

system types of records

inventory records slide

customers journals

business account

single general ledger

journal entry