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CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)1 This chapter describes the importance of keeping business records.

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Presentation on theme: "CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)1 This chapter describes the importance of keeping business records."— Presentation transcript:

1 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)1 This chapter describes the importance of keeping business records. How to keep records using journals and ledgers How to understand balance sheets, income statements, and cash flow statements How to keep inventory records

2 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)2 SET UP A RECORD KEEPING SYSTEM Types Of Records Journals Ledgers Bank Records Payroll Records Tax Records The records you will keep include:

3 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)3 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) SET UP A RECORD KEEPING SYSTEM Types Of Records…

4 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)4 Cash Receipts Journal (records goods paid for in cash by customers) Journals are accounting records of the transactions you make. They include: Purchase Journal (records purchase of merchandise on account by the company) SET UP A RECORD KEEPING SYSTEM Types Of Records…

5 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)5 General Journal (records goods paid for in cash by customers) Journals are accounting records of the transactions you make. They include: Purchase Journal (records any kind of transactionthose that dont fit in the other journals) SET UP A RECORD KEEPING SYSTEM Types Of Records…

6 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)6 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. SET UP A RECORD KEEPING SYSTEM Types Of Records…

7 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)7 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) SET UP A RECORD KEEPING SYSTEM Types Of Records…

8 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)8 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. SET UP A RECORD KEEPING SYSTEM Types Of Records…

9 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)9 A payroll register contains employees 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. SET UP A RECORD KEEPING SYSTEM Types Of Records…

10 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)10 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: SET UP A RECORD KEEPING SYSTEM Types Of Records…

11 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)11 Store and analyze data. Link records. Reduce errors. Correct errors. Advantages: SET UP A RECORD KEEPING SYSTEM Computerized Record Keeping

12 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)12 Staff resistance Unauthorized access Computer problems Disadvantages: SET UP A RECORD KEEPING SYSTEM Computerized Record Keeping

13 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)13 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

14 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)14 Assets = Liabilities + Owners 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: UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements

15 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)15 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: UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements

16 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)16 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: UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements

17 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)17 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. UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements

18 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)18 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. UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements Cash – Disbursements = Net Cash Receipts Flow

19 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)19 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. UNDERSTAND BASIC ACCOUNTING Use Professionals

20 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)20 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.

21 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)21 TRACK YOUR INVENTORY 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 stock The frequency with which you sell your inventory

22 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)22 TRACK YOUR INVENTORY Manage Your Inventory… Costs of Carrying Inventory Inventory costs can increase due to: Obsolescence Deterioration (e.g., plants) Interest fees (this applies when you cannot pay your suppliers until you sell your inventory)

23 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)23 TRACK YOUR INVENTORY Manage 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:

24 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)24 TRACK YOUR INVENTORY Manage Your Inventory… 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.

25 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)25 TRACK YOUR INVENTORY Manage 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.

26 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)26 TRACK YOUR INVENTORY Manage 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

27 CHAPTER 11 RECORD KEEPING AND ACCOUNTING February 12, 2014ENTREPRENEURSHIP (Ms. Hawkins)27 The End!


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