ED 373 233

TITLE

DOCUMENT RESUME

CE 067 067

Record Keeping. Unit 17. Level 2. Instructor Guide.PACE: Program for Acquiring Competence inEntrepreneurship. Third Edition. Research &Development Series No. 302-17.

INSTITUTION Ohio State Univ., Columbus. Center on Education andTraining for Employment.

PUB DATE 94NOTE 27p.; For the complete set, i.e., 21 units, each done

at three levels, see CE 067 029-092. Supported by theInternational Consortium for EntrepreneurshipEducation, the Coleman Foundation, and the Center forEntrepreneurial Leadership Inc.

AVAILABLE FROM Center Jn Education and Training for Employment, 1900Kenny Road, Columbus, OH 43210-1090 (order no.RD302-17 IG, instructor guide $4.50; RD302-17student module, $3; student module sets, level1--RD301M, level 2--RD302M, level 3--RD303M, $45each; instructor guide sets, level 1--RD301G, level2--RD302G, level 3--RD303G, $75 each; 3 levels and

resource guide, RD300G, $175).?UB TYPE Guides Classroom Use Teaching Guides (For

Teacher) (052) Guides Classroom Use -Instructional Materials (For Learner) (051)

EDRS PRICE MF01/PCO2 Plus Postage.DESCRIPTORS Behavioral Objectives; *Bookkeeping; *Business

education; *Competency Based Education;*Entrepreneurship; Learning Activities; MoneyManagement; Postsecondary Education; *Recordkeeping;Records (Forms); Secondary Education; *SmallBusinesses; Student Evaluation; Systems Approach;Teaching Guides

IDENTIFIERS Inventory Control; *Program for Acquiring Competence

Entrepreneurship

ABSTRACTThis instructor guide for a unit on recordkeeping in

the PACE (Program for Acquiring Competence in Entrepreneurship)curriculum includes the full text of the student module and lessonplans, instructional suggestions, and other teacher resources. Thecompetencies that are incorporated into this module are at Level 2 oflearning--planning for a business in one's future. Included in theinstructor's guide are the following: unit objectives, guidelines forusing PACE, lists of teaching suggestions for each unitobjective/subobjective, model assessment responses, and overview ofthe three Levels of the PACE program. The following materials arecontainedn the student's guide: acti7ities to be completed inpreparation for the unit, unit objectives, student reading materials,individuaLand group Learning activities, case study, discussionquestions,;-assessment questions, and references. Among the topicsdiscussedin the unit are the following: reasons for maintainingcomprehensive recordkeeping systems, individuals who should keeprecords,records required for regulatory agencies, types'of recordsthat should be maintained, journals and ledgers, daily sales and cashsummaries, accounts receivable, accounts payable, payroll records,income and expense records, and inventory control. Sample records are

included. (MN)

RecordKeeping

UNIT 17LEVEL 2

PACETHIRD EDITION

Alb'Nu)

COREA ON EDUCATIONAND 1701040 PON EMPLOYMEXT

COLLEGE OF EDUCATIONTHE 0.0 STATE umvERS1,

air for Acquiringompetenee in

Entrepreneurship

Itmearch & Ih.Inprnerd Serie, No. 302.17

Objectives:

Explain the importance of effective record keeping.

Discuss the value of using external record keepingassistance.

Describe facility and equipment maintenance records.

Identify records used for effective human resourcemanagement.

Explain records used for financial management.

Identify records necessarycontrol

S DEPARTMENT OF EDUCATION0"-r, , .. W..naq,

EDUCATIONAL RESOURCES INFORMATIONCENTER (ERIC)

0,"Thfs document has been reproduced a,rtcolved from the person or organtiattontwootaltnyMotor change:, bare been made toinvolve reproduction qualify

Runt. of vew ,ptritow, <dated in trim,infAlf11011 dr, nn1 necessarily represent,dfic.al OE HI positron or policy

for effective inventory

INSTRUCTOR GUIDE

Unit 17

Record KeepingLevel 2

HOW TO USE PACE

Use the objectives as a pretest. If a studentis able to meet the objectives, ask him orher to read and respond to the assessmentquestions in the back of the module.

Duplicate the glossary from the ResourceGuide to use as a handout.

Use the teaching outlines provided in theInstructor Guide for assistance in focusingyc..- teaching delivery. The left side ofe.- ,n outline page lists objectives with thecorresponding headings (margin questions)from the unit. Space is provided for you toadd your own suggestions. Try to increasestudent involvement in as many ways aspossible to foster an interactive learningprocess.

When your students are ready to do theActivities, assist them in selecting thosethat you feel would be the most beneficialto their growth in entrepreneurship.

Assess your students on the unit contentwhen they indicate they are ready. Youmay choose written or verbal assessmentsaccording to the situation. Model re-sponses are provided for each module ofeach unit. While these are suggestedresponses, others may be equally valid.

-PERMISSION TO REPRODUCETHIS

MATERIAL HAS BEEN GRANTEDBY

TO THE EDUCATIONALRESOURCES

INFORMATIONCENTER (ERIC) 2 BEST COPY AVAILABle

Objectives Teaching Suggestions

1. EXPLAIN THE IMPORTANCEOF EFFECTIVE RECORDKEEPING

Why should you maintain a com-prehensive record-keeping system?

2. DISCUSS THE VALUE OFUSING EXTERNAL RECORDKEEPING ASSISTANCE

Who should maintain the businessrecords?

3. DESCRIBE FACILITY ANDEQUIPMENT MAINTENANCERECORDS

4. IDENTIFY RECORDS USEDFOR El-il-ECTIVE HUMANRESOURCE MANAGEMENT

What records are you required tokeep for regulatory agencies?

What records should be main-tained?

5. EXPLAIN RECORDS USED FORFINANCIAL MANAGEMENT

What are journals and ledgers?

Assuming they were business owners, ask students what theywould want to keep a record of, and why. Record theirresponses on the board and discuss.

Have the students imagine they are interviewing candidates for anew bookkeeper position in their company. What qualitieswould they look for in the future bookkeeper?

Ask the student what basic qualities they would look for whensetting up a new bookkeeping system. Tie this discussion backto the six points discussed at the end of lilt section.

Ask the students who they could go to for help in setting up andmaintaining their record-keeping system.

Have students identify regulatory agencies that require busi-nesses to keep records. Record their answers on the board.

Arrange a field trip to a local accounting service bureau. Getpermission in advance to review sample records. Include inven-tory control, maintenance, human resource management, and fi-nancial records in your tour discussion.

Ask the students to identify the difference between a journal anda ledger.

Objectives Teaching Suggestions

What is the daily sales and cashsummary?

How do you record accountsreceivable?

How do you record accounts pay-able?

How are income and expenses re-corded in the ledger?

6. IDENTIFY RECORDSNECESSARY FOR EFFECTIVEINVENTORY CONTROL

What is the inventory controlfunction?

Create several cash, charge and credit transactions for a smallbusiness. Have students record the daily sales and cashsummary.

Add several items to the accounts receivable record of AnnFlower and have students record them.

Ask students to record several more items on the Complete Sup-ply Company ledger.

Ask students the type of income and expense ledgers they mighthave if they operated a restaurant. List appropriate responses onthe board.

Ask students what inventory records a manufacturer who pro-duced bicycles would need. Refer back to the inventory andpurchasing section under What Records Should Be Maintained?

MODEL ASSESSMENT RESPONSES

1. The following external sources may offer record- keeping advice: (1) colleges and universities, (2) suppliersand trade associations, (3) government and educational organizations such as Small Business DevelopmentCenters (SBDC's) and Service Corp of Retired Executives (SCORE).

2. Business records provide the data necessary to formulate answers to the basic business performance ques-tions. Many records are required by various federal, state, county and local agencies.

3. There are a number of records needed to manage an inventory. Some of the most important recordsinclude: purchase requisitions, file of unfilled purchase orders, list of suppliers, costs, and terms of pastpurchases, item perpetual inventory record, out of stock sheet, purchase order file, return goods file andprice change book.

4. There are a number of records needed for financial management. Some of the most important financialstatements include: sales and cash summaries, accounts receivable ledger, accounts payable ledger, profitand loss statements and balance sheets.

4

5. To effectively manage employees it is important to keep records of earnings and amounts withheld,, v ith-holding exemption certificates, hours worked, expense allowances, employment applications, benefits, andreasons for termination of employment.

6. A business manager needs to keep the following records on facility and production equipment: maintenancerecords and schedules, proportion of production rejections, and reasons for rejections.

7. The records are kept of the following activities to satisfy regulatory agencies: tax withholding, unemploy-ment and workers compensation, permits and licenses, and compliance with various food and drug or agri-cultural regulations.

1mi Immo.Incorporates the needed competencies for creating and operating a small business at three levels of learning, with experiences andoutcomes becoming progressively more advanced.

Level 1 Understanding the creation and operation of a business.Level 2 Planning for a business in your future.Level 3 Starting and managing your own business.

Self-contained Student Modules include: specific objectives, questions supporting the objectives, complete content in form of answersto the questions, case studies, individual activities, group activities, module assessment references. Instructor Guides include the full textof each student module and lesson plans, instructional suggestions, and other resources. PACE,Third Edition, Resource Guide includesteaching strategies, references, glossary of terms, and a directory of entrepreneurship assistance organizations.

For information on PACE or to order, contact the Publications Department at theCenter on Education and Training for Employment, 1900 Kenny Road, Columbus, Ohio 43210-1090

(614) 292-4353, (800) 848-4815.

Support for PACE, Third Edition provided in whole or in part hy:

International Consortium for Entrepreneurship Educationand

International Enterprise AcademyCenter on Education and Training for Employment

The Ohio State University

The Coleman Foundation

Center for Entrepreneurial Leadership Inc.Ewing Marion Kauffman Foundation

RecordKeeping

UNIT 17LEVEL 2

Your Potentialas an

Entrepreneur

Nature ofSmall Business

BusinessOpportunities

Global MarketsThe

Business Plan

Help forthe

Entrepreneur

Types ofOwnership

MarketingAnalysis

Location PricingStrategy

Financingthe Business

LegalIssues

BusinessManagement

HumanResources

Promotion Selling

FinancialAnalysis

Customer Risk

Credit ManagementOperations

r for= Acquiring11 :Ct 1etence =in

ntrepreneurshipO

CENTER ON EDUCATIONAND TRAINING FOR EMPLOYMENT

COLLEGE OF EDUCATIONTHE OHIO STATE UNIVERSITY

6

Research & Development Series No. 302-17

RECORD KEEPING

BEFORE YOU BEGIN . . .

1. Consult the Resource Guide for instructions if this is your first PACE unit.

2. Read What are the Objectives for this Unit on the following page. If you thinkyou can meet these objectives now, consult your instructor.

3. These objectives were met in Level 1:

Discuss the reasons for keeping business records.

Identify the elements of effective record keeping.

Describe different types of records needed by small business.

Identify sources of record-keeping assistance.

4. Look for these business terms as you read this unit. If you need help with themeanings, ask your instructor for a copy of the PACE Glossary contained in theResource Guide.

AssetsBreak-even pointGross profitLiabilitiesNet profitNet worthReturn on investment

Copyright © 1994, Center on Education and Training for Employment,The Ohio State University. All rights reserved.

RECORD KEEPING

WHAT ARE THE OBJECTIVES FOR THIS UNIT?

Upon completion of this unit you will be able to

explain the importance of effective record keeping,

6 identify records necessary for effective inventory control,

explain records used for financial management,

identify records used for effective human resource management,

describe facility/equipment maintenance records, and

discuss the value of using external record keeping assistance.

WHAT IS THIS UNIT ABOUT?

Successful record keeping is essential tosound business operation. The entrepreneurneeds to take care when determining whowill maintain the business records and howthey will be maintained.

In this unit, you will explore several items,including the following: Who should main-tain the business records? What data can beprovided through the records? What recordsdo you need to keep? In addition, journals,ledgers, human resources, record mainte-nance, and inventory records will be dis-cussed.

3

WHY SHOULD YOU MAIN-TAIN A COMPREHENSIVERECORD-KEEPING SYSTEM?

Business records provide the data necessaryto formulate answers to the basic businessperformance questions identified by theSmall Business Administration (SBA):

How much business am I doing?

What are my expenses? Which expensesappear to be too high?

What is my gross profit margin? My netprofit?

How much am I collecting on my chargebusiness?

What is the condition of my workingcapital?

How much cash do I have on hand andin the bank?

How much do I owe my suppliers?

What is my net worth; that is, what isthe value of the business?

What are the trends in my receipts, ex-penses, profits, and net worth?

Is my financial position improving orgrowing worse?

How do my assets compare with what Iowe? What is the percentage of returnon my investment?

How many cents out of each dollar ofsales are not profit?

What is my break-even point?

These and other questions may be answeredby preparing and studying basic financialstatements and reports. To prepare thesefundamental statements in a timely and accu-rate fashion, you must record informationand transactions as they occur.

By keeping your records in an orderly fash-ion and in sufficient detail, you can answermany other vital questions about your busi-ness, such as: What products or services domy customers like best, next best, and soon? Do I have the right merchandise instock to give my customers what they like?Am I prepared to render the services theydemand most? How many of my customersare slow in paying their bills? How wouldmy business change if I stopped givingcredit?

In addition, good records can provide youwith data needed to compare your firm'scurrent growth rate to that of previous years,as well as compare the present year's goalswith future goals. They can also providefigures to compare your firm's progress withthat of similar businesses.

New studies of unsuccessful business ven-tures show that poor record keeping is onereason for business failure. Without the datathat good records contain, the owner cannotmake sound managerial decisions.

Record-keeping systems for businesses havemany points of similarity, but they differ insome respects due to the nature and size ofthe individual business. Your records maytake a variety of forms, depending on thenature of the business and the specific sys-tems you select. Your records are designedto document significant facts for future use.Sales and inventory records, for example,may be utilized in predicting future mer-chandising trends. In addition, they mayprovide information that will be helpful tomake decisions about purchasing.

Good use of systems and records is an es-sential part of effective management. As asmall business owner, you will need to give

careful thought to development of appropri-ate systems, procedures, and motds nec-essary to implement policies. Appropriatesystems ensure that order will be establishedin business operations.

When employees follow a system, they per-form their work and keep necessary recordsaccording to established procedure. If aregular routine is established to handle keybusiness factors, such as inventory, cashflow, bill payments, payroll, and other items,there will be no need to waste time and ef-fort in repeating and checking tentative solu-tions to problems that arise. Instead, appro-priate records and procedures will help toensure that company policy is implemented.

In addition, the small business owner whodevelops a working program of systems, pro-cedures, and records will save valuable time.In small firms, it takes only a few minutes toperform various functions. As the firmgrows, howe-',r, so do the individual operat-ing functions. Thus, a job that required onlya few minutes at one point in time maydrain more of your time as the firm grows.This enables youas a small businessownerto operate according to the "excep-tion principle" of management. This meansthat employees understand systems and pro-cedures and follow them as accepted prac-tice. As a result, youthe ownerallowthe business to operate, while you spendyour personal time looking after exceptionalsituations.

0

S

WHO SHOULD MAINTAINTHE BUSINESS RECORDS?

Record-keeping systems range from simpleto complex. The answer to the questionWho should maintain the business records?may depend upon the complexity of yoursystem and your personal experience. Re-gardless of the method you choose, remem-ber that you will need to check the recordsperiodically and use them in planning thefirm's activities. They will also provide helpin decision making.

When you first start out in business, youmight choose to keep your own records. Anaccountant and other experts can help youset up both record-keeping systems and yourbooks. However, the experience of doingyour own books will

give you a feel for the importance ofrecords,

show you how your records can help yourun your business,

give you a first-hand look at how thebusiness is operating,

help you determine what items can bedelegated to others, and

give you the experience and knowledgeto teach the system to others so they canperform the record-keeping activities.

As the business grows, you may feel thatthere are more demands on your time andthat there are more profitable things for you

6

to do than keep records. Remember that thekey to a sound record-keeping system is howyou as the manager use the records to man-age the business.

There are, however, several alternatives formaintaining the business records in morecost and time efficient ways.

Delegating selected record-keeping tasks toa well trained employee may be the mosthelpful to you in preserving your manage-ment time.

Hiring a part-time bookkeeper might be thesolution, especially at the beginning. Oftenthe new business owner simply cannot affordto go out and hire an outside firm to set upthe bookkeeping system.

As your business grows larger, you maywant to hire a full-time bookkeeper to makethe daily entries for the company. You mayalso want to consider hiring an accountingfirm to help you design or redesign yourrecord-keeping procedures, prepare your taxreports, and conduct a regular financialanalysis of your business.

Colleges with business courses very oftenwelcome the chance to use "real live" casestudies for their business students. Is therea college in your area that might like to useyour firm as a prototype for which the classwould set up a record-keeping system? Ifthis is not feasible, perhaps an instructorcould suggest a student that would like to setup your record-keeping system as an inde-pendent study. Or, you may wish to hire apart-time cooperative vocational educationstudent to set up and maintain your records.

Suppliers or trade associations related toyour type of business can provide you with

guidelines or sample accounting records.The advantage of using these services is thatthe information and forms could be tailoredto your particular business area.

Also, look at the resources available at yourlocal offir,; supply stores. Many of thesestores cany convenient single-entry systems.Simplified record keeping books can saveyou much time.

Government and educational organizationsare available to help small businesses withcounseling and training in record-keepingissues. Two such organizations are SCORE(affiliated with the U.S. Small Business Ad-ministration), and the Small Business Devel-opment Centers located in each state, alsoaffiliated with the SBA.

Many small business firms are using time-sharing computer services for one or more oftheir record-keeping needs. In a typicalarrangement with such a service bureau,source documents (sales slips, receipts, etc.)are delivered to the service bureau accordingto a schedule. The service bureau staff in-puts the transactions into the computer. Thecomputer processes the input according tothe programs established by the servicebureau.

The widespread use of the computer and itsrelatively low cost has made new technologywidely accessible to the small business.Many small business owners are using thistechnology for record keeping, reporting andmanagement analysis. The computer or ser-vice bureau will not "make up" for deficien-cies in the process you use to record andcollect your source documents or for a lackof training of your staff.

7

Good Record Keeping System

Simple To UseEasy To Understand

ReliableAccurate

ConsistentDesigned to Provide Information on a

Timely Basis

Regardless of the method you choose forkeeping records, you will want to maintaincontrol over the more vital records. Forexample, you may wish to sign all checks,review sales contracts, and randomly checkinventories. You will also need to set up asystem to spot-check records regularly foraccuracy.

As you design the record-keeping system foryour business, remember the following re-quirements of a good record-keeping system:(1) simple to use, (2) easy to understand,(3) reliable, (4) accurate, (5) consistent, and(6) designed to provide information on atimely basis.

WHAT RECORDS ARE YOUREQUIRED TO KEEP FORREGULATORY AGENCIES?

Because each business and locality willhave different license, permit, and tax re-quirements, your first step should be to con-tact the appropriate agency in your state.Many states maintain a program within theirdepartments of Development or Commerceto assist businesses in determining regulatoryneeds. In general these will fall under thefollowing categories:

Federal (tax-withholding, hazardousmaterials, interstate commerce, agricul-ture, food and drugs, medical products)

8

State (tax-withholding, unemployment in-surance, workers compensation, corporateregistration, industry specific permits andlicenses)

County and Local (tax-withholding andsales, vendors licenses, zoning,construction)

WHAT RECORDS SHOULDBE MAINTAINED?

In order to direct and control the firm effec-tively, you will need to obtain informationregarding each of the company's importantactivities. Such data should enable you tomaintain balance among the various businessfunctions. The Small Business Administra-tion has indicated that the following infor-mation may be necessary:

Sales. Purpose: How can I increase mysales?

Summary of orders received

List and condition of open orders

Summary of sales and comparison withearlier records

Analysis by area, product, and customeror type of customers

Historical records for each customer,recognition of major customers

List of customer complaints and sug-gestions with appropriate followupresponses

List of potential customers

Discount rates and terms for variouscustomers

Sales expense records, earnings, andpercentage cost of sales for eachsalesperson

Record of individual sales transaction

Summary of daily sales

Sales plan

Sales promotion plan

Warehouse and Shipping Control. Pur-pose: How do I avoid bottlenecks andproduction or customer problems?

Receiving reports

Receiving and placing into stock theproduction reports by packages andindividuals

Picking, packing, and shipping produc-tion reports

Bills of lading and signed shippingdocuments

Customer return reports

Back order control documents

Quality Control. Purpose: Customersatisfaction and mandated standards.

Proportion of rejections from receivingand production departments (scrap, sec-onds, and rework)

Reasons for rejections, internal andexternal

Production quality records for eachmachine or workstation

Maintenance records and schedules foreach machine

Calibration records for your gages andmeasuring equipment

Amount of stock on hand (raw materials,goods in process, fabricated parts,finished goods, consigned goods)

Amounts on order (either production inshop or purchase orders)

Amounts allocated for certain jobs orcustomers

Rate of parts or product usage andturnover

Material requisitions

Your quality control system manual

Inventory and Purchasing. Purpose: Howcan I acquire the right parts, on time, of thebest quality, at a competitive price, withoutwaste?

Purchase requisitions (vendor, receivingdepartment, and office)

File of unfilled purchase orders

. 4

9

List of suppliers, costs, and terms of pastpurchases

File indicating when suppliers mayhavespecial offerings (important for retail,warehouse, and service industries)

Inventory control record

Item perpetual inventory record

Model stock plan

Out-of-stock sheet

Open-to-buy record

Purchase order file

Open purchase order file

Supplier file

Returned goods file

Price change book

Accounts payable ledger

Cost Accounting. Purpose: How can Iconcentrate on things my company does wellat? How can I improve my cost estimatesand bids?

Labor, material, and overhead costs foreach product or job lot

Gross profit by item (applicable to cer-tain retail and Wholesale industries)

Finance and Credit. Purpose: How can Iavoid "cashflow" problems?

10

Monthly trial balance

Financial statements (profit-and-loss andbalance sheets)

Cash position

Aging of accounts receivable anda c -

counts payable

Credit limits for customers andcollectionsystem

Charge account application

Accounts receivable ledger

Accounts receivable aging list

Bookkeeping. Purpose: How can I gener-ate the timely management reports neededby the bank, my investors, and myself?

Daily cash reconciliation

Cash receipts journal

Cash disbursements journal

Bank reconciliation

General journalfor double entry

systems

General ledgerfor double entry

systems

Payroll and Personnel. Purpose: How canI manage the human resources within mycompany?

Record of employee earnings and

amounts withheld

Employee's withholding exemption

certificate (W-4)

Record of hours worked

Record of expense allowances

Employment applications

Record of changes in rate of pay

Record of reasons for termination ofemployment

Record of employee benefits

Job description

Crucial incidents record

Fixtures and Property. Purpose: How canI keep facts needed for taking depreciationallowances and for insurance coverage andclaims?

Equipment record

Insurance register

The kinds of records you will need and thenumber of different records you will keepwill depend on your business. For everyrecord you keep, you should be able toanswer these questions: How is the recordused? How important is the information? Isthe data available elsewhere in an equallyaccessible form?

11

JOURNAL

A record in which theoriginal entry is posted

LEDGER

Records that repre-sent summaries ora running accountof the income andand expenses of thebusiness

The record-keeping plan you set up mustprovide the information you need to makevarious business decisions. Try to keep allyour records as simple as possible. As asmall business owner, your record-keepingsystem needs to be easily understood andaccurately maintained without difficulty.You want good data that may be assessedquickly and easily. If necessary, you canconsult an outside expert in these matters.However, for each record you must keep,three additional questions must be answeredbefore you will have a working system.

Where will the record be physicallylocated?

How long will inactive files be

maintained?

How will back up security beprovided inthe case of fire, theft, computer failure orother damage?

WHAT ARE JOURNALSAND LEDGERS?

You may find when you purchase record-keeping forms that the words journal andledger may not be used consistently or mayeven be used together. Even though the ideabehind the record-keeping system may bemore important than the terms used, it ishelpful to become familiar with the generaluse of each term. The word journal is usedfor records in which the original entry ismade or posted. Journals are "fed" bysource documents such as sales slips, and soforth. The word ledger is used for recordsthat represent summaries or a running ac-count of the income and expenses of thebusiness. Ledgers are "fed" by the corre-sponding journals.

There are several different journals thatshould be kept. They include (1) the dailysales and cash summary, (2) accounts

12

receivable, (3) accounts payable, and (4) thepayroll register.

WHAT IS THE DAILY SALESAND CASH SUMMARY?

The daily sales and cash summary is a sum-mary of the amount of cash received, chargesales, and collections from accounts receiv-able (money owed to the business from cred-it transactions) for a particular day.

Date September 15, 19

Cash sales

Charge sales

Accounts receivable

$435.00

75.00

80.00

Miscellaneous 10.00$600.00

Figure 1. Sample daily sales and cash summary

Entries must be made accurately and daily,since they provide the basis for many otherrecords. Information from the daily salesand cash summary can be used by you, theowner, in a variety of ways. It can be usedas a daily check on the accuracy of yourdaily income records to analyze your firm'sprogress toward its goals and to help youmake future plans. In addition, your salesrecords will help you analyze advertisingeffectiveness. They will help you determinethe amount of inventory your firm shouldhave on hand.

The daily sales and cash summary formsrange from simple to complex, depending onthe firm's needs. You can probably designa form that best meets the needs of yourbusiness. Figure 1 and Figure 2 are twotypes of daily sales and cash summaries. Asyou are reviewing these forms, keep in mindthe specific source documents that are col-lected to produce each type of journal. Forexample, charge sales in Figure 1 is the sumof the day's cash register tapes marked"credit sales."

HOW DO YOU RECORDACCOUNTS RECEIVABLE?

The accounts receivable journal is yourrecord of how much is owed to your busi-ness by your credit customers. If your busi-ness extends credit to its customers, you willwant to make entries in the accounts receiv-able journal daily and review the journal atleast monthly. Daily recording of any newcredit given or payments made will give youa current picture of the credit status of eachcustomer. A weekly or monthly analysis ofyour total accounts receivable records canhelp you make decisions on extending creditand prepare accurate billings. This analysismaintains good customer relations, whileevaluating your firm's credit and collectionpolicies.

13

DATE

Receipts

1.

2.3.

4.

Cash salesAccounts receivableMiscellaneous

TOTAL CASH RECEIPTS

$ 435.00$ 80.00$ 10.00

$ 525.00

Cash Count

5. Cash in RegisterChecks $ 65.00

Currency $ 695.00Change $ 25.00

6. Cash and checks in vault $ 785.007. Petty cash slips 35.008. TOTAL CASH $ 825.00

9. Less bank deposit $ 500.0010. TOTAL CASH $ 325.00

Total Sales

11. Cash sales - Line 1 $ 435.0012. Charge Sales $ 75.0013. TOTAL SALES $ 510.00

By:

Figure 2. Sample daily sales and cash summary

14

Small firms often keep their accounts receiv-able records on file cards or in a loose-leafbinder. For each customer you will need aseparate sheet or card to be filed alphabetic-ally. A typical accounts receivable record isrepresented in Figure 3.

services, and taxes due from payroll. Everyentrepreneur wants to maintain accuraterecords of the firm's liabilities.

A typical accounts payable record mightlook like Figure 4. Like the accounts receiv-

Customer: Ann Flower

Address: 23 Florence Road, Venice, FL

Phone: 455-6387

Date Invoice No. Charge Payment Balance

11/1/94 6734 $427.00 $427.00 $0.00

Figure 3. Sample accounts receivable record

Computer accounting software can be profit-ably applied by automatically "flagging"overdue accounts and generating a reminderto you (and a follow-up bill for the cus-tomer).

HOW DO YOU RECORDACCOUNTS PAYABLE

In the accounts payable journal, you recordamounts your business owes others for cashitems such as inventory purchases, repair

able records, you will keep separate accountspayable records for each supplier and servicefirm.

WHAT PAYROLL RECORDSDO YOU NEED?

It is important that you, as an employer,keep accurate employee payroll records.These records are not only important for youand your employees, but the informationthey contain is needed at tax time.

Name:

Address:

Date:

9/11/93 6734

Complete Supply Company

45 Elm Street Welsmore, Ohio

Invoice No

Phone: 457-1234

Charge Payment Balance

$427.00 $427.00 -0-

Figure 4. Sample accounts payable record

Payroll records for both part-time and full-time workers also show total hours worked(if applicable), wages, and all deductionsfrom wages. A sample entry form for anhourly wage employee is shown in Figure 5.Payroll records might include the firms'sinformation shown in Figure 6.

You might add or delete items from the fol-lowing samples, depending on your firm'spractices and employee benefits programs.

HOW ARE INCOME ANDEXPENSES RECORDEDIN THE LEDGER?

Ledger entries can be used for preparing thefinancial statements needed for financialplanning and decision making. Informationcan be transferred to the various ledt insummary form. One method of using led-ger is to record summaries or balances ofassets, liabilities, and net worth of yourbusiness.

Income and expense entries are also record-ed in ledgers. The entries in the incomeportion of the ledger will include accountsthat describe income items of the business.The expense ledger entries probably reflectthe largest grouping of accounts, which, inturn, reflect groupings of your most frequentexpenses.

Note the account numbers next to each itemin a ledger. These numbers sequence andclassify the accounts, making it easier toenter transactions and summaries from yourjournal. For example, in an income ledger,each business will have a sales account thatwould show the amount of sales. For exam-

15

ple, the journal entry in Figure 2 for totalsales ($510) would contribute to the incomeledger in Figure 7, Account No. 500 (Sales).You might also want to record the ledger ac-count number on the stub of your check tomake record keeping easier. Figure 7 alsoillustrates some additional accounts thatmight be included in income and expenseledgers.

WHAT IS THEINVENTORY CONTROLFUNCTION?

Inventory is the raw materials, goods to beresold, parts, shop and office supplies, andmachinery and equipment needed by thebusiness to perform its functions. Depend-ing upon the type of business that you areopening, you will need some type of controlsystem to keep track of your inventory.

These records will also supply you withinformation for use in purchasing, maintain-ing appropriate stock levels, and computingstock turnover ratios. The information youget from your from your inventory recordswill help you make many business decisions.For example, it will help you decide whetheryou have much or too little stock.

Having too large an inventory may tie uptoo much capital and cause you to losecapital, since the stock may become outdatedand of little value. The cost of maintainingan unnecessarily large inventory because ofthe lack of proper control records may putyou out of business. In addition, storagecosts can be expensive, so that storing moreinventory than is necessary can be a drain onyour business's income.

16

Pay PeriodWork Status

Name

THE JOHNSON-FRISBY CORPORATION

From To(check one)

Classified 0 Temporary Student Casual

ID NumberLast Name First Name

Date Days

TimeHours

Worked

HoursSick

LeaveHours

Vacation

Overtime

In Out In Out ProgCode Hours

Mon

Tues

Wed

Thur

Fri

Sat

Sun

Mon

Tues

Wed

Thur

Fri

Sat

Sun

Total Hours

EmployeeSupervisor

I hereby certify that the information above is completeindicated.

and accurate

Assoc. Dir.Overtime

for the time period

Approval

DO NOT WRITE IN THIS AREA INSTRUCTIONS

1. Indicate total hours v.,' i'red eachotherwise specified).

2. Report absences to Personnel ServicesForm.

3. All hours worked over 40 hoursovertime.

day (lunch hour is assumed unless

using Application for Leave

PayrollSick LeaveVacation

during a week are to be marked asOvertimeOvertimeExcusedChecked

RateHours

Absence Codeby

Hours

Figure 5. Sample entry form for hourly wage employee

1

17

Name of employeeNumber of ExemptionsEnding Date of the Pay PeriodHours Worked (if applicable)Rate of PayTotal Wages

Deductions (Itemized to include: federal tax, FICASocial Security, state and/or localincome tax, and state disability insurance, if applicable. Other deductions might includehealth insurance and retirement fund.)

Figure 6. Sample payroll register

INCOME LEDGER EX ?ENSE LEDGER

Account Number Item Account No. Item

500510

590

SalesRepair ServiceIncomeMiscellaneousIncome(for example, saleof stock)

600601610620630640650690

Salaries & WagesPayroll TaxesRentOffice SuppliesInsuranceUtilitiesTravelMiscellaneousExpense

Figure 7. Sample income ledger

18

ACI1VITIES

The following activities are designed to helpyou apply what you have learned in thisunit.

INDIVIDUAL ACTIVITIES

Start developing a list of resources and/or alibrary of resources regarding record-keepingfor use in your business.

A.

Identify a small business owner. Interviewthis person to determine the following infor-mation about the nature of the small busi-ness owner's record-keeping system. Con-sider the following questions:

How does your system of records keeptrack of your income and expenses, whatyou owe other people, and what otherpeople owe you?

How do you keep track of your inven-tory so that you will always have enoughon hand for your customers but not morethan you can sell?

How do you keep your payroll recordsso that they take care of tax reports andpayments?

How are your financial records main-tained?

B.

Identify the types of records that you willwant kept as a small business owner.

C.

Determine who will keep the records foryour business and how they will be main-tained.

GROUP ACTIVITIES

A.

Invite the following people to your class totalk about record-keeping systems for smallbusinesses:

Cash register salespersonAn accountantA computer salesperson

B.

Using the lists of records provided in thisunit, prepare a corresponding answer to thisquestion: How would you use each particu-lar bit of information to better manage yourbusiness?

C.

Using the information obtained through thesecond individual activity, prepare a classreport about the nature of record-keepingsystems in small businesses in your home-town. Identify the number of small businessfirms that are using computers and specifythe systems that are being used.

',., 3

CASE STUDY

Jay Allen has always been interested insports. He is planning to open a sportinggoods shop when he graduates from the localjunior college in May.

DISCUSSION QUESTIONS

19

Jay has enrolled in a few accounting courses,but he doesn't consider himself an expert inthe area of accounting. His major interest issports.

Assume the role of advisor to Jay, a poten-tial small business owner. He will need helpanswering the following questions.

1. What records will Jay need to maintain?

2. Initially, who will keep the records?

3. Should Jay use a computer-based records system?

4. What payroll records need to be maintained?

20

ASSESSMENT

Read the following questions to check your knowledge of the topics presented in this unit.When you feel prepared, ask your instructor to assess your competency on them.

1. Identify external sources of assistance for keeping the business records.

2. Why is it important to keep accurate, up-to-date, and complete records?

3. Describe records that are needed to manage your inventory.

4. What records are needed for financial management?

5. Identify specific records that you would use in managing your employees.

6. What records would you keep on your facility and production equipment?

7. Give some examples of records that are kept to satisfy regulatory agency requirements.

REFERENCES

Cohen, William A. The Entrepreneur and Small Business Problem Solver, 2nd ed. New York:John Wiley and Sons, 1990.

J. K. Lasser Institute. How to Run a Small Business. New York: McGraw-Hill, Inc., 1994.

Lasselle, Richard C. Record KeepingThe Total Concept. Boston: Houghton MifflinCompany, 1982.

Lerner, Joel J. Bookkeeping and Accounting. New York: McGraw-Hill, Inc., 1988.

Pinson, L., and Jinnett, Jerry. Keeping the Books, 2nd ed. Dover, NH: Upstart PublishingCompany, Inc., 1993.

Ragan, Robert C. Step-by-Step Bookkeeping. New York: Sterling Publishing Co., Inc., 1982.

Riehm, Sarah L. The Teenage Entrepreneur's Guide, 2nd ed. Chicago: Surrey Books, 1990.

Steinhoff, D., and Burgess, J. Small Business Management Fundamentals, 5th ed. New York:McGraw-Hill Book Company, 1989.

Tate, Curtis Jr. Managing for Profits: A Guide for the Growing Business. Homewood, IL:Dow Jones-Irwin, 1984.

U.S. Small Business Administration. Record Keeping in Small Business, No. FM 10, SBA, P.O.Box 15434, Fort Worth, Texas 76119, 1988.

U.S. Small Business Administration. Financial Record-keeping Systems for Small BusinessManagement Series, No. 32. Washington, DC: U.S. Government Printing Office, 1985.

Level 2

PACE

Unit 1. Your Potential as An Entrepreneur

Unit 2. The Nature of the Small Business

Unit 3. Business Opportunities

Unit 4. Global Markets

Unit 5. The Business Plan

Unit 6. Help for the Entrepreneur

Unit 7. Types of Ownership

Unit 8. Marketing Analysis

Unit 9. Location

Unit 10. Pricing Strategy

Unit 11. Financing the Business

Unit 12. Legal Issues

Unit 13. Business Management

Unit 14. Human Resources

Unit 15. Promotion

Unit 16. Selling

14> Unit 17. Record Keeping

Unit 18. Financial Analysis

Unit 19. Customer Credit

Unit 20. Risk Management

Unit 21. Operations

Resource Guide

Instructor's Guide

Units on the above entrepreneurship topics are available at the following levels:

Level 1 helps you understand the creation and operation of a businessLevel 2 prepares you to plan for a business in your futureLevel 3 guides you in starting and managing your own business