Basic Financial Record-keeping Simplified

Business Link Newsletter Thursday 26 November 2009
In this week’s issue: Overwhelmed by figures? No need to be. Maintaining financial records does not need to be a difficult task.

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Basic Financial Record-keeping Simplified
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The foundation for business growth is having sound systems in place. This includes managing the books. Many entrepreneurs are not experts in accounting and financial management, just like many accountants are not experts in other sectors of industry. At the same time, many small businesses, especially at the start up stage, are not in a financial position to hire expensive full time accountants.
The law requires businesses to maintain accounts books of accounts. (As per the Companies Act 24:03 and Income Tax Act 23:06).
We here present a viable solution: a simple method of maintaining basic financial records. The basic information that you need to record for your business consists of sales revenue, expenses, purchases and salaries. You will need to create four sets of books, either physical books or on a computer spreadsheet program, such as Excel. The books are as follows:

a) Cashbook: were you record all the money that comes into and goes out of your business. It will be useful to divide the cash book into two sections, one for recording receipts and the other for recording payments. The cashbook can have 5 columns, recording date of transaction, reference number, description, amount and type of expense or receipt.
b) Sales ledger: this will record all the sales your company has made. You can have the following columns in your sales ledger: date, invoice number, description, net total, VAT and gross total.
c) Purchases ledger: this will record all purchases made by your business. You can have the columns for date, invoice number, description and amount.
d) Salaries book: if you employ staff you will need to keep a record of all salary payments made, including Pay As You Earn, NSSA and Zimdef. You salaries book may have the following columns: date, employee number, employee name, gross salary, PAYE, NSSA and net pay.

These sets of books are sufficient for recording all the basic transactions of a small or medium business. Accurately recording all your transactions in the above books will enable you or your accountant to compile your business’ management accounts for each month, as well as periodic financial accounts.
Assuming that all your expenses are paid in cash and recorded immediately in the Cashbook, you can work out your taxable profit and pay the required tax as required by the law.

CASE STUDY
HOW I DO MY OWN BOOKS
Beverley, owner of a children’s clothing retailer
» I started my business in 2002. I had always planned to do my own book-keeping, even though I had no experience. I was apprehensive, but it turned out to be much more straightforward than I’d expected. Keeping my own financial records enables me to keep my costs down and maintain a close eye on my business’ financial health. This way, I can control my cashflow.
I use an accountant to do my VAT returns, annual accounts and payroll. Before I started the business, I got a free one-hour consultation with an accountant who told me what figures I needed to record. You can buy books or software packages, but I decided to set out my own accounting spreadsheets on my computer. I record all monies coming into and out of my business. At the end of each day my staff and I reconcile the till to make sure that payments received tally with the value of stock sold.
Every staff member has sales sheets to fill out each time a sale is made. Each day, I collect all sales sheets and enter the figures into a master sales spreadsheet on my computer. The spreadsheet clearly shows all money entering and leaving the business. Obviously, I retain receipts for all transactions. On my spreadsheet, the cash-in column is split into VAT-able and non-VAT-able takings.
Sales are split into product categories; not for accounting reasons, it just enables me to see which ones are selling well. All costs are entered into the spreadsheet, too. I can see the balance, which is generated automatically, as are my monthly figures. Having product categories for sales is very helpful when my accountant does my VAT returns. Making their job easier saves me money in fees.
I probably spend one day each week doing my books and admin. If I’m very busy during the day, I might end up doing some bookkeeping at night.
Doing my own book-keeping has enabled me to spot times when suppliers have tried to charge me twice or when I have been billed for goods I haven’t received. Paying an accountant to do my returns, end-of-year accounts and payroll is money well spent. All I have to do is give them a copy of the financial figures I have stored on my computer. My accountant also gives me advice on how I can make the business more cost-efficient. It’s great to have that added safety net, too, just to make sure I am doing everything I should be. It protects me against being hit with an unexpected tax bill or any other nasty surprise. «

Today’s quotes: “The Difficult is that which can be done immediately; the Impossible is that which takes a little longer.”
George Santayana
“Dream no small dreams for they have no power to move the hearts of men.”
Johann Wolfgang Von Goethe

Your comments, questions and feed back are welcome. Please email them to me on chichonip@yahoo.com.

Our publication, A Simplified Guide to Taxes for Small Businesses covers all the taxes that affect small/medium businesses and how you can make your business tax compliant. It is available at Innov8 Bookshop, 23 G.Silundika Avenue, Harare (Next to Wimpy 1st St). You may also order directly from us and we will deliver. (See our contact details below).
Please visit our website: http://admiralbiz.wordpress.com for additional resources and information on various topics that are useful to business owners.
We provide solutions to help you start or grow your business. If you need help in developing your business plan or proposal, starting a business, strategic planning for growth, setting up an accounting system, preparing financial reports or complying with tax laws, please contact me for a no obligation free consultation.

Phillip Chichoni
Admiral Business Systems (Pvt) Ltd
111 Seke Road, Hatfield Harare
Telephone 04-581230, cell 0912 414 830

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One Response to “Basic Financial Record-keeping Simplified”

  1. childrens clothing should be as comfortable as possible that is why the choice of fabric is also critical ~;*

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