Improve Your Business: Basics (ILO, 1999, 188 p.) RECORD-KEEPING (introduction...) Keeping and using business records The record-keeping system The Record Book Use records to improve your business Review Summary What did you learn in this chapter?

Improve Your Business: Basics (ILO, 1999, 188 p.)

RECORD-KEEPING

IN THIS CHAPTER YOU WILL LEARN HOW TO

Keep records that improve your business
Analyse your sales
Analyse your costs
Make a profit and loss statement
Analyse both your profit and your net profit

NOTE	Since this book is intended for use in many different countries, we have used the term “NU” in the examples to represent an imaginary “National Unit of currency”

Keeping and using business records

WHAT IS RECORD-KEEPING?

To keep business records means to write down:

· how much money your business receives, and
· how much money your business pays out.

A transaction is any exchange of money for goods or services. Money comes in and goes out of the business through transactions. Here are two examples of transactions:

· A customer gets goods from your business - your business gets money from the customer.

· You keep your business money in a savings account - the bank pays interest.

In the transactions above, money comes in to a business. A business gets money mainly by selling goods or services.

A business spends money to pay for goods, raw materials, labour, rent, electricity and all other costs. In the transactions below, money goes out of a business:

· Your business gets goods and raw materials - the supplier gets money from your business.

· You are the owner and you work at the business - the business pays you a salary.

For good record-keeping you need to write down all your business transactions in an organized way in the order the transactions happened.

Do you keep business records? Do you record every transaction?

HOW CAN RECORDS IMPROVE YOUR BUSINESS?

Neat, accurate records can help you to find out how your business is doing. They can help you solve problems in your business.

· If your business is doing well, use your records to find out why. Then find and plan ways to do even better.

· If your business is not doing well, use your records to find out what is wrong. Plan ways to solve the problems.

Records can help you run your business in the following ways:

Records help you control your cash
Your records show you how much money your business should have at any point in time. Use your records to make sure that money does not disappear.

Records show you how your business is doing
Your records help you find problems before it is too late. Use your records to find out if something is going wrong, if costs are too high, if sales are falling, and so on.

Records show others how your business is doing
You need proper records when you apply for a loan, pay your taxes, and so on. Use your records to show that everything is in order and that you are in control of your business.

Records help you plan for the future
Records show how well your business did in the past and how well it is doing now. When you know your business’s strengths and weaknesses, you can plan properly for the future.

Figure

If you keep records, how do you use them to improve your business?

The record-keeping system

Your record-keeping system should be as simple as possible. You must be able to get all the information you need from your record-keeping, but the record-keeping system should not contain more information than that. A record-keeping system that has too much information is complicated and takes a lot of time to keep.

Your record-keeping system can have these parts:

· Customers’ Accounts Record
· Record Book
· Profit and Loss Statement.

Customers’ Accounts Record

If you sell on credit, write down how much each customer owes your business in a Customers’ Accounts Record. When a customer pays, write the amount received both in the Customers’ Accounts Record and in the Record Book.

Keep invoices and delivery notes for everything you buy on credit. It is a good idea to keep them in a file. You can call the file Unpaid Suppliers’ Invoices. When you pay for what you bought on credit, write the amount in the Record Book.

The Record Book

The Record Book is the centre of your record-keeping. In the Record Book you write down:

· all money that comes into your business and where it came from - mostly from sales.
· all money that goes out of your business and what it was used for - mostly for costs.

Learn more about different types of costs in the COSTING chapter.

Profit and Loss Statement

To see how your business is doing, use information from the Record Book to make a Profit and Loss Statement.

This is how the record-keeping system works:

Figure

CUSTOMERS’ ACCOUNTS RECORD

When you sell goods or services on credit, money will be paid later for the goods or services your customers receive. You need written records of everything your business sells on credit. Use a Customers’ Accounts Record.

In general it is risky to sell on credit. Some customers do not pay on time. Some customers do not pay at all. But credit can increase your sales, because good customers stay with your business. So it can be a good idea to give credit to reliable customers.

If you sell on credit, keep a record of all your credit sales. A written record of customers’ credit helps you to know:

· which customers owe money to your business
· how much money each customer owes
· which customers pay their accounts on time.

With written records, you avoid arguments with customers and you can follow up customers who do not pay their accounts on time.

Make your own Customers’ Accounts Record, with one page or section for each customer. You can use:

· a book with a page for each customer
· separate pages in a file
· a separate book for each customer, if you have very few customers who each buy a lot.

This is the Customers’ Accounts Record for one customer at Reader’s Bookshop:

Figure

When the customer pays the account, write down the payment in the Customers’ Accounts Record. The payment also means that cash comes into the business. So the transaction must be recorded in the Record Book.

The Record Book

The Record Book is where you write down all the transactions in your business. Make a habit of entering the day’s transactions in your Record Book at the end of each day.

VOUCHERS

For your record-keeping you need proof to show that you received or paid out money. You need written proof of every transaction, even for small amounts such as stamps or small cash sales. Some examples of written proof are:

· copies of receipts you give to customers when they buy from you
· receipts or invoices you get when you buy goods or raw materials, or receipts when you pay rent and electricity.

If there is no written proof, you must write down the details about the transaction yourself. You can use a sheet of paper to write down the information you need. It is important to write:

· when the transaction happened
· who was involved in the transaction
· what happened in the transaction
· how much money was involved in the transaction.

In record-keeping, receipts and any other written proof of transactions are called vouchers. File and keep all the vouchers. They are the only proof that your records are correct. If there are mistakes in your record-keeping, the vouchers help you find out where the mistakes are.

The information you need to fill in your Record Book comes from the vouchers from all transactions in your business.

Give each voucher a number

Write a new number on each voucher. Start with number 1 for the first entry of the year. Then continue in number order with 2, 3, 4 and so on, until the end of the year. By numbering your vouchers this way, it is easy and quick to find the voucher you need. Give the voucher its number when you record the transaction in the Record Book.

After you have recorded the vouchers in your Record Book, file all vouchers in number order. This way, your vouchers are in the same order in the file as they are recorded in your Record Book.

HOW TO FILL IN THE RECORD BOOK

All business transactions are recorded in columns in the Record Book. The different columns are for details about each transaction in your business. In different columns, you record transactions of different types. The amount of money for each transaction is recorded in two different columns.

Why must you record a transaction in two columns?

Figure

In what order should you record a transaction?

To avoid making mistakes, record every transaction in this order:

Step 1. Fill in the date, details and voucher number in the Record Book.

Step 2. Write the voucher number on the voucher.

Step 3. Record the amount of the transaction in two different columns. Enter the amount in the Cash or Bank column first. Then enter the same amount in one of the other columns.

Step 4. File the voucher.

Use an analysis book, an exercise book or any other suitable book for your Record Book. Draw the same columns as in Modern Furniture’s Record Book on the next page.

Figure

Modern Furniture’s Record Book

Modern Furniture is a manufacturing business, making furniture to order. People in town come to Modern Furniture and order the furniture they want. This is Modern Furniture’s Record Book for November.

Figure

Date: Write the date of the transaction.

Details: Describe the transaction.

Voucher No.: Write a voucher number for each transaction. Write the same number on the voucher.

Cash: Write all the cash that came into or went out of your business. At any time, the Balance column shows the amount of money you should have in the cash box.

Bank: Write all the money that came into or went out of your bank account. At any time, the Balance column shows you the amount of money you have in the bank.

Sales: Write all your money in from sales in this column.

Direct material costs: Write the cost of all raw materials or goods for resale in this column.

Direct labour costs: If you are a manufacturer or service operator, write all wages for people who make your products or provide your services in this column. Retailers and wholesalers do not need this column.

Indirect costs: Write all other costs for running your business in this column. Here are explanations for some of the transactions:

A. On the first day of the month, Modern Furniture wrote down the balances brought forward for Cash and Bank on a new page in the Record Book. The balances brought forward show how much money Modern Furniture have in the cash box and in the bank account at the start of the month. Modern Furniture got the amounts from the balances on the last day of the month before.

B. Modern Furniture paid cash for timber. The receipt from the supplier is the voucher. Modern Furniture write down the amount in two columns, under Cash out and under Direct Material Costs.

C. Two customers bought goods for cash, so Modern Furniture have copies of two receipts. They give each receipt a voucher number. They write each voucher on a separate line in the Record Book. For each transaction they write the amount under Cash in and under Sales.

D. Modern Furniture took money out of the business’s bank account and put it in the cash box. They wrote their own voucher for the transaction and wrote the amount under Cash in and Bank out.

E. Modern Furniture paid monthly wages in cash to the two carpenters working at the business. Each employee signed a receipt. The two receipts are the vouchers. Modern Furniture write the amounts under Cash out and under Direct labour costs.

F. The owner of Modern Furniture paid himself his monthly salary. The owner’s salary is a direct labour cost because he works directly in the production. The owner’s salary is written under Cash out and Direct labour costs.

Figure

Figure

QUESTIONS AND ANSWERS ABOUT THE RECORD BOOK

What should you do if a page is full?

When a page of Modern Furniture’s Record Book is full before the end of the month they add up the columns and carry the totals and balances to the next page.

To carry the totals and balances to the next page is called balances brought forward. You can write B/f in the details column.

Figure

How should you record loans, grants, tax and equipment?

The general rule in the Record Book is to make two entries for each transaction. But you make only one entry for some transactions. The most important of those transactions are:

· loans
· grants or donations
· tax
· equipment or machines
· depreciation.

A. Loans

A loan is money coming into the business, but not from sales. To keep control of your money the loan must be recorded. Write the amount in the column for Cash in or Bank in, depending on where you put the money. But make no other entry.

When you pay back the loan, enter the payment in the column for Cash out or Bank out, and no other entry.

B. Grants or donations

A grant or donation is also money coming into the business, but not from sales. Write down the amount under Cash in or Bank in, and make no other entry.

C Tax

You pay tax on the profit you make. It is neither a direct cost nor an indirect cost so you only record it as Cash out or Bank out.

D. Equipment or machines

When you buy machines or any other expensive equipment, money goes out of your business. Enter those amounts under Cash out or Bank out, and make no other entry.

Here are examples of these transactions:

	Date	Details	Voucher No.	Cash						Bank						Sales		Direct material costs		Direct labour costs		Indirect costs
				In		Out		Balance		In		Out		Balance
	2/1	B/f						360	-					1230	-
A	3/1	Received loan	78							5000	-			6230	-
	3/1	Sales	79	125	-			485	-							125	-
B	4/1	Received donation	80	2000	-			2485	-
	4/1	Bought stationery	81			67	-	2418	-													67	-
C	5/1	Paid tax	82			1200	-	1218	-
D	5/1	Bought machine	83									4500	-	1730	-

E. Depreciation

Machines and equipment get older every year they are used. They lose value. The loss in value of machines and equipment is called depreciation. Depreciation is an indirect cost to your business and must be recorded. But depreciation does not mean that money goes out of the business. The money was paid out when the machine or equipment was bought.

To calculate the depreciation, divide the total cost of buying the machine or equipment by the number of years you expect to use it. Only calculate depreciation for machines or equipment which have a high value and last for several years.

In your Record Book, record the depreciation for all your machines and equipment as one amount every year. Make it the very last entry of the year. Enter the amount under Indirect costs, and make no other entry.

For example. Modern Furniture’s total cost for depreciation is 3200 NU per year. They record it as the last entry of the year like this:

Date

Details

Voucher No.

Cash

Bank

Sales

Direct material costs

Direct labour costs

Indirect costs

In

Out

Balance

In

Out

Balance

29/12

Sales

471

350

-

350

-

30/12

Glue and varnish

472

78

-

78

-

31/12

Depreciation

473

3200

-

Learn more about depreciation in the COSTING chapter.

Use records to improve your business

Your records cannot solve problems by themselves. You are the one who must solve the problems. But your records will help you.

Figure	Figure
Think of a broken-down car. The mechanic cannot find the problem by looking at the whole car.	The mechanic must study each part carefully to find the problem.

Your business is like a car. To repair it and make it run well, you must understand all the different parts that make it work. That is called analysing your business.

You can use your records to analyse your business. Your records help you to:

· analyse your sales
· analyse your costs
· analyse your profit.

When you analyse your sales, costs or profit, you will be able to find out if your business is doing well or not. If something is wrong, you will be able to find out what is wrong so you can solve your problems. Even if your business is doing well, analysing your records can help you to find ways to do even better.

At the end of every month, make sure you have:

· written the balance for cash and bank
· added up all the sales
· added up each of the costs: direct material costs, direct labour costs and indirect costs.

These totals for sales and costs are the starting point for analysing your records.

Do you know the total sales and costs for your business?

ANALYSE YOUR SALES

High sales do not always mean that your profit is high. But your sales are important for the success of your business. Analyse your sales to find out if sales are going up or down.

Compare the total sales from this month with the total sales from last month and for the same month last year. These are the amounts for sales at Modern Furniture:

SALES COMPARISON
	THIS MONTH December 2001	LAST MONTH November 2001	THIS MONTH LAST YEAR December 2000
Sales	5763 NU	3728 NU	3850 NU

Modern Furniture asked themselves:

· Are sales going up or down? Why?

Modern Furniture know why sales were higher in December than in November. In December they had a special order for beds from the new hotel in town. In December 2000 they had no special order so sales were about the same as in November 2001.

In some business the sales are higher in some seasons and lower in others. You know your business best. · In which months or seasons do you expect to sell more? Why? · In which months or seasons do you expect to sell less? Why?

When you understand the reasons for changes in your sales, you can plan ways to increase them. If your sales are falling, study your records and think of every possible reason for the problem. Here are some examples:

· Is it a marketing problem? For example, do you not sell what your customers want?

· Is it a buying problem? For example, do you buy from a supplier who cannot offer what the customers want?

· Is it a stock control problem? For example, do you keep too little stock, damaged stock or stock in bad condition?

· Is it a costing problem? For example, do you not calculate your direct labour costs correctly?

· Is it a record-keeping problem? For example, do you not write down and follow up credit sales?

· Is it a financial planning problem? For example, are the costs in your business higher than planned?

There is a chapter on each of these topics. Use these chapters to help you analyse your business. Think about these same topics when your sales go up, too. When you know why your sales increase, you can plan ways to do even better.

Follow these steps to analyse your sales. You can use the same steps to analyse any other part of your records.

ANALYSE YOUR SALES
STEP 1.	Compare	®	Compare your monthly or yearly sales to find out if there is a change. Are your sales rising or falling?
STEP 2.	Find reasons for changes	®	Find reasons for rising or falling sales.
STEP 3.	Plan improvements	®	Plan ways to increase your sales and improve your business.

ANALYSE YOUR COSTS

These are the different costs in Modern Furniture. They get the figures from their Record Book.

COSTS COMPARISON
	THIS MONTH December 2001	LAST MONTH November 2001	THIS MONTH LAST YEAR December 2000
Direct material costs	2490 NU	1520 NU	1345 NU
Direct labour costs	1495 NU	1220 NU	1250 NU
Indirect costs	485 NU	340 NU	310 NU

Modern Furniture compare the different costs from this month with the costs from last month and the same month last year. They use the same steps as they did for sales.

ANALYSE YOUR COSTS
STEP 1.	Compare	®	Compare your monthly or yearly costs to find out if there is a change. Are your costs rising or falling?
STEP 2.	Find reasons for changes	®	Find reasons for rising or falling costs.
STEP 3.	Plan improvements	®	Plan ways to lower your costs and improve your business.

Modern Furniture analysed their costs to find out:

· which costs had gone up, and why
· which costs had gone down, and why.

Here are some examples of what they found:

· Direct material costs were much higher in December 2001 than in November. This seems bad. But Modern Furniture know that sales were much higher in December than in November. The more you sell, the more raw materials you need. So there is a good reason for the increase in direct material costs.

Sales in December 2000 were slightly higher than in November 2001. But the direct material costs were lower. Modern Furniture should look closely in their Record Book to find out how they managed to keep the direct material costs so low.

· Direct labour costs have increased from November. One employee was paid overtime to make the beds for the new hotel. This does not worry Modern Furniture as long as the sales increased at the same time as the direct labour costs.

· Indirect costs for December 2001 were higher than in both November 2001 and December 2000. The cost for electricity increased. Modern Furniture must find out why.

Figure

Are costs in your business rising or falling? Do you know which costs are rising or falling, and why? What can you do to lower costs in your business?

MAKE A PROFIT AND LOSS STATEMENT

To find out if your business is making a profit or a loss, you subtract all costs from your sales. When sales are higher than costs, your business makes a profit. When sales are lower than costs, your business makes a loss.

A Profit and Loss Statement helps you to calculate if your business is making a profit or a loss. Every business should do a Profit and Loss Statement at the end of every year. You can also calculate your profit and loss more often, for example:

· after each month
· after three months
· after six months.

The more often you calculate your profit and loss, the sooner you will know if your business has problems. Then you can do something about the problems before it is too late.

Modern Furniture get all the amounts in the Profit and Loss Statement from their Record Book. This is their Profit and Loss Statement for 2001:

PROFIT AND LOSS STATEMENT
1/1/2001 - 31/12/2001
A	Sales		36213
B	Direct material costs	-	11600
C	Value added	=	24613	®		24613
D	Direct labour costs		15800
E	Indirect costs	+	4713
	All other costs	=	20513	®	-	20513
F	Net profit				=	4100

A. Sales

Modern Furniture add up all the 12 monthly sales totals for 2001 from their Record Book. The sales from January to December were:

1460 NU + 2315 NU + 2330 NU + 3070 NU + 2635 NU + 3050 NU + 2870 NU + 2812 NU + 3200 NU + 2980 NU + 3728 NU + 5763 NU = 36213 NU.

B. Direct material costs

Modern Furniture add the totals of direct material costs for each month to get the total direct material costs for 2001: 11600 NU. They get the figures from the Record Book.

C. Value added

Deduct direct material costs from sales to get value added. The value added shows you how much your business has increased the value of the direct materials that you bought. Read more about value added.

D. Direct labour costs

Modern Furniture add up all the monthly totals for the employees making furniture: 15800 NU. That is the total direct labour costs for the year. They get the figures from the Record Book.

E. Indirect costs

The total indirect costs for 2001 are 4713 NU. Modern Furniture worked out the figure by adding up all monthly totals from the Record Book.

F Net profit

Deduct all other costs from the value added to get the net profit. The net profit shows the total result of your business. Read more about net profit.

Manufacturers and service operators have direct labour costs. Retailers and wholesalers do not. If your business does not have direct labour costs, do not enter any amounts under direct labour costs. Instead, include all your costs for labour under indirect costs.

ANALYSE YOUR PROFIT

Analyse your profit to find ways to improve your business. To analyse your profit, follow the same steps as for analysing sales and costs.

ANALYSE YOUR PROFIT
STEP 1.	Compare	®	Compare your monthly or yearly profits to find out if there is a change. Are your profits rising or falling?
STEP 2.	Find reasons for changes	®	Find reasons for rising or falling profits.
STEP 3.	Plan improvements	®	Plan ways to lower your profits and improve your business.

Analyse your value added

The value added is very important for your business. Value added is the amount of money left after you have subtracted your direct material costs from the money earned from sales. The value added must be high enough to pay for all other costs in your business and to give you a profit.

Sales

-

Direct material costs

=

VALUE ADDED

A retailer or wholesaler buys goods for resale and a manufacturer buys raw materials to make products. These are direct material costs to the business. The price when the business sells its products is higher than the direct material costs. The difference between the direct material costs and sales is the value added. It shows you how much your business has increased the value of the direct materials that your business bought.

When you try to increase your value added, your direct labour costs and indirect costs will often increase as well. But the costs will often not increase as much as the value added and your net profit will be higher.

Modern Furniture, for example, make a simple dining room table which they sell to customers who cannot pay much for furniture and want a cheap table. The table is sold for 300 NU. Modern Furniture have done the costing of the table and know how much one table costs to make. This is the profit they make from one table:

PROFIT FOR SIMPLE DINING TABLE
Sales		300 NU
Direct material costs	-	110 NU
Value added	=	190 NU
Direct labour costs	-	40 NU
Indirect costs	-	20 NU
Net profit	=	130 NU

To increase the value added in the production of the tables, Modern Furniture are planning to:

· change the design of the table
· use better quality wood.

Modern Furniture will sell the new type of tables to customers who want more exclusive furniture in their homes and can afford to pay higher prices.

The direct material costs for the new table will be higher. The design will be more complicated and each table will take longer to make, so the direct labour costs will also be higher. The indirect costs allocated to one table will be higher, because one table takes a longer time to make.

The price will increase more than the increase in costs. This is the profit they will make from the new exclusive dining table:

PROFIT FOR EXCLUSIVE DINING TABLE
Sales		600 NU
Direct material costs	-	190 NU
Value added	=	410 NU
Direct labour costs	-	90 NU
Indirect costs	-	40 NU
Net profit	=	260 NU

If the value added in your business is falling, there can be a number of reasons. Make sure that you analyse the value added and find out the true reason.

Examples of reasons for falling value added are:

Your total sales have fallen

For example, Network Computers import and sell computers. During 2001, competition from low price importers was tough. Network Computers maintained the same value added on each machine but the number of machines sold decreased from 2000 to 2001 and the total value added fell:

Network Computers		2000
Sales		86400 NU
Direct material costs	-	59300 NU
Value added	=	27100 NU

Network Computers		2001
Sales		76000 NU
Direct material costs	-	52400 NU
Value added	=	23600 NU

You have sold more products or services than before with a low value added

For example, Builders Wholesalers sell both complete kitchen units and construction materials like cement, timber and bricks. The value added is highest on the kitchen units. In 2001 they sold fewer kitchen units but more building materials than in 2000. The value added fell:

Builders Wholesalers		2000
Sales		336000 NU
Direct material costs	-	258900 NU
Value added	=	77100 NU

Builders Wholesalers		2001
Sales		341500 NU
Direct material costs	-	301000 NU
Value added	=	40500 NU

Your direct material costs have increased but you have not increased your prices

For example, Fashion Enterprises make trousers. The price of the raw materials they use went up in 2001. Because of tough competition, Fashion Enterprises did not increase their prices. Their value added fell:

Fashion Enterprises		2000
Sales		27620 NU
Direct material costs	-	21100 NU
Value added	=	6520 NU

Fashion Enterprises		2001
Sales		28190 NU
Direct material costs	-	23680 NU
Value added	=	4510 NU

The higher your value added is, the more money there is to cover other costs and to give your business a profit. Try to find ways to increase your value added.

Examples of ways to increase value added are:

· Increase the number of items sold
If you sell more of your product, the total value added will increase even if the value added for one item of the product is the same.

· Sell more products with a high value added
If your business sells several different products, each one probably has a different value added per item. Try to concentrate on the products with the highest value added. Sometimes the price can be raised and the value added increased by improving your product, like Modern Furniture did.

· Raise the price
Try to raise your prices at least as much as the direct material costs increase.

This is how Modern Furniture analyse their value added for 2001. They compared the value added for 2001 with the two previous years:

VALUE ADDED COMPARISON
	THIS YEAR 2001	LAST YEAR 2000	THE YEAR BEFORE LAST 1999
Value added	24613 NU	22900 NU	16580 NU

Modern Furniture can see that their value added in 2001 was higher than in 2000 and 1999. They know that the reason for the increase is higher sales. The value added on each piece of furniture has been the same.

Modern Furniture want to increase the value added even more and will now try to find ways to increase the value added on each piece of furniture.

Has the value added in your business gone up or down? What is the reason for the increase or decrease in value added?

Analyse your net profit

The net profit is the amount of money left after you have subtracted all other costs from the value added. The net profit shows you the total result of your business. It tells you how well or how badly your business is doing.

Value added

-

All other costs

=

NET PROFIT

You may have very high sales and a high value added. But if your direct labour costs and indirect costs are also very high, you can end up with a very low net profit, or even a loss.

Find out if the net profit is higher or lower than before, and why. If the value added is not lower, the reason for lower net profit is higher direct labour costs or higher indirect costs, or both.

This is how Modern Furniture analyse their net profit for 2001. They compare the net profit for 2001 with the two previous years:

NET PROFIT COMPARISON
	THIS YEAR 2000	LAST YEAR 2000	THE YEAH BEFORE LAST 1999
Value added	24613 NU	22900 NU	16580 NU
Net profit	4100 NU	8550 NU	5750 NU

Modern Furniture can see that net profit has gone down in 2001 compared to both 2000 and 1999. Value added had gone up but net profit was much lower than the years before. This means that either direct labour costs or indirect costs have increased. To find out why, Modern Furniture must study their costs.

Modern Furniture found out that their direct labour costs were much higher in 2001 than in 2000. Now they must plan ways:

· to lower the direct labour costs, or
· to increase their value added.

Has the net profit in your business gone up or down? What is the reason for the increase or decrease in net profit?

If your value added or net profit is lower than before, do not just wait to see if business will improve. Always find out the reason and take action to improve your value added or your net profit

Review

Summary

A transaction is any exchange of money for goods or services. Record-keeping is a way of writing down all transactions involving:

· money coming into your business
· money going out of your business.

Record-keeping is necessary for every business. Neat, accurate records will help you find and solve business problems. Use records to:

· control your cash
· show you how your business is doing
· show others, such as the bank, how your business is doing
· plan for the future.

Your record-keeping system can have these parts:

· Customers’ Accounts Record
· Record Book
· Profit and Loss Statement.

If you sell on credit, write down all credit transactions in a Customers’ Accounts Record. Keep a separate Customers’ Accounts Record for each customer.

The Record Book is where you write down all transactions in your business. The Record Book consists of columns and you write down each transaction in two different columns.

You need a written document for all transactions. For record-keeping, receipts and other documents are called vouchers. Vouchers are the proof of all transactions entered in the Record Book.

Use your records to:

· analyse your sales
· analyse your costs
· analyse your profit.

A Profit and Loss Statement shows you if your business is making a profit or a loss. Use your Record Book to get the information you need to make a Profit and Loss Statement.

Sales

-

Direct material costs

=

VALUE ADDED

-

All other costs

=

NET PROFIT

The value added is the amount of money left after you have subtracted your direct material costs from the money earned from sales. The value added must be high enough to pay for all other costs in your business and give you a profit.

The net profit is the amount of money left after you have subtracted all other costs from the value added. It shows the total result for your business.

What did you learn in this chapter?

Now that you have worked through this chapter, try these practical exercises. The exercises will remind you of what you have learned and help you to improve the record-keeping in your business.

Compare your answers with the Answers. If you find it difficult to work out an answer, read that part of the manual again. The best way to learn is to finish an exercise before you look at the answers. Check the list of Useful Business Words.

You have learned more about record-keeping in this chapter. But what you have learned does not help you until you use the new knowledge in the day-to-day running of your business. Remember to do the Action Plan to improve the record-keeping in your business.

CREDIT SALES AT RELIABLE TAILORS Reliable Tailors make dust coats and overalls. One of their main customers is Nighthawk Security. Nighthawk Security buy on credit. These are the transactions between Reliable Tailors and Nighthawk Security for the month of April. Use this information to fill in the Customers’ Accounts Record below.
3 April	Reliable Tailors deliver 20 overalls for 60 Nil each. Nighthawk Security pay half of the total amount immediately. (This transaction is already filled in.)
15 April	Reliable Tailors deliver an order of 10 overalls for 60 Nil each on credit. No payment is received.
30 April	Nighthawk Security pay Reliable Tailors 1200 NU.
CUSTOMERS’ ACCOUNTS RECORD
Customer: Nighthawk Security Address: 12 Main Road Tel. Number: 13898 Credit limit: 1500.00 NU

Date	Details	Quantity	Credit sale NU	Amount paid NU	Balance	Signature
3/4	Overalls 60.00 NU	20	1200.00	600.00	600.00

Reliable Tailors filled in Customers’ Accounts Record should look like this:

CUSTOMERS’ ACCOUNTS RECORD

Customer: Nighthawk Security Address: 12 Main Road Tel. Number: 13898 Credit limit: 1500.00 NU

Date	Details	Quantity	Credit Sale NU	Amount Paid NU	Balance	Signature
3/4	Overalls 60.00 NU	20	1200.00	600.00	600.00
15/4	Overalls 60.00 NU	10	600.00		1200.00
30/4	Payment			1200.00	0

STAR GENERAL STORE AND THE RECORD BOOK 1. Help Star General Store to complete their Record Book below. Write the transactions on the empty lines. a On 20/2, Star General Store pay 340 NU cash for goods, b. On 22/2, Star General Store: · take out 500 NU from the business’s bank account and put the money in the cash box · pay the monthly wage of 320 NU in cash to the full-time employee · pay the monthly wage of 160 NU in cash to the part-time employee · pay the owner his monthly salary of 650 NU in cash, c. On 25/2, Star General Store receive, in total, 370 NU from sales, d. On 26/2, Star General Store pay 590 NU for various goods. They pay by cheque, e. On 27/2, they receive, in total, 520 NU from sales. f. On 28/2, Star General Store receive a loan of 2000 NU. The loan is deposited into the bank account.

Date	Details	Voucher No.	Cash						Bank						Sales		Direct material costs		Direct labour costs		Indirect costs
			In		Out		Balance		In		Out		Balance
1/2	B/i						130	_					2100	-
4/2	Sales	23	410	-			540	-							410	-
7/2	Sales	24	445	-			985	-							445	-
11/2	Bought goods	25			640	-	345	-									640	-
13/2	Sales	26	390	-			735	-							390	-
15/2	Bus fare	27			15	-	720	-													15	-
18/2	Sales	28	480	-			1200	-							480	-

2. Enter the total sales for February for Star General Store in the empty box below:
	THIS MONTH February 2001	LAST MONTH January 2001
Sales	______________ NU	2250 NU
Compare the total sales in February with the total sales in January. Were sales in February higher or lower in the month before? How much higher or lower? 3. Use the Record Book for February to make a Profit and Loss Statement for Star General Store. Do not include any amount for direct labour costs in the Profit and Loss Statement. Like other retailers, Star General Store have no direct labour costs because they do not make any products. Instead, they record all labour costs under indirect costs.

PROFIT AND LOSS STATEMENT
1/2/2001 - 28/2/2001
Sales
Direct material costs	-
Value added	=		®
Direct labour costs
Indirect costs	+
All other costs	=		®	-
Net profit				=

4. Here is Star General Store’s Profit and Loss Statement for January. Compare the Profit and Loss Statements for the two months. Answer the questions:

PROFIT AND LOSS STATEMENT
1/2/2001 - 28/2/2001
Sales		2250
Direct material costs	-	1250
Value added	=	1000	®		1000
Direct labour costs		___
Indirect costs	+	950
All other costs	=	950	®	-	950
Net profit				=	50

a. Is the value added for February higher or lower than the month before? How much higher or lower? ____________________________________________________________________ b. Is the net profit higher or lower than before? How much higher or lower? ____________________________________________________________________ c. Look at the amounts and try to explain why the net profit is higher or lower than before. ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________

1. Star General Store’s Record Book for February should look like this:

Date	Details	Voucher No.	Cash						Bank						Sales		Direct material costs		Direct labour costs		Indirect costs
			In		Out		Balance		In		Out		Balance
1/2	B/f						130	-					2100	-
4/2	Sales	23	410	-			540	-							410	-
7/2	Sales	24	445	-			985	-							445	-
11/2	Bought goods	25			640	-	345	-									640	-
13/2	Sales	26	390	-			735	-							390	-
15/2	Bus fare	27			15	-	720	-													15	-
18/2	Sales	28	480	-			1200	-							480	-
20/2	Bought goods	29			340	-	860	-									340	-
22/2	Bank to cash box	30	500	-			1360	-			500	-	1600	-
22/2	Wage	31			320	-	1040	-													320	-
22/2	Wage	32			160	-	880	-													160	-
22/2	Own salary	33			650	-	230	-													650	-
25/2	Sales	34	370	-			600	-							370	-
26/2	Bought goods	35									590	-	1010	-			590	-
27/2	Sales	36	520	-			1120	-							520	-
28/2	Loan from bank	37							2000	-			3010	-
															2615	-	1570	-	1145	-

2. Sales comparison: Star General Store’s sales were 365 NU higher in February. 2615 NU - 2250 NU = 365 NU
	THIS MONTH February 2001	LAST MONTH January 2001
Sales	2615 NU	2250 NU
3. Star General Store’s Profit and Loss Statement for February should look like the table below: 4. a. Star General Store’s value added for February is 45 NU higher. b. There is no net profit. Instead there is a 100 NU loss compared with 50 NU profit in January. Star General Store must find out why. c. From the Profit and Loss Statements you can see that the indirect costs increased from 950 NU to 1145 NU. The value added was not high enough to cover the increase in indirect costs. Star General Store must try to increase the sales or lower the indirect costs.

PROFIT AND LOSS STATEMENT
1/2/2001 - 28/2/2001
Sales		2615
Direct material costs	-	1570
Value added	=	1045	®		1045
Direct labour costs	-
Indirect costs	+	1145
All other costs	=	1145	®	-	1145
Net profit				=	-100