The importance of book keeping and record keeping in business Enterprise

The imperative of business records cannot be overemphasized. Every serious entrepreneur must as a matter of fact be able to maintain proper records of his or her business transactions. Proper book keeping is important to sustaining and expanding a business. Without it, the entrepreneur run the risk of hitting cash flow crunches, wasting money, and missing out on opportunities to expand his business. When you keep proper records of your business transactions, you will be properly positioned to carry out proper business evaluation and see how your business is fairing.  

The purpose of book keeping is to help you manage your business and also to enable tax agencies to evaluate your business activity. As long as your book keeping achieves both of these objectives, you are in the right direction. Any financial institution who wants to do business with you must demand for your business records. Your ability to produce it means you are serious about your business.




Business records are important because it prevents theft and keeps things organized. The practice of keeping accurate record of your inventory makes it easier to reorder products and also to enable you see whats selling and those that are not selling. It is important to keep business records because without them you would not know how to break even, or even how much each different product is really making you. Effective and efficient record keeping practices secures your business internal thief and dishonest employees.Additionally, tracking the transfer of money is important so that the wise business owner can know who received money, how much they currently have or if there are any inconsistency that need to be investigated or corrected. Keeping accurate records is highly fundamental for a successfull business to stay organized and profitable.

Many small business owners choose to use business software to keep track of various aspects of their business, while others do it manually. The key to taking full advantage of book keeping software is to determine if it saves you time and frees you up to concentrate on running your business. In many cases it will, but be careful not to fall into the trap of wasting time setting up computer book keeping that could be more efficiently handled on paper. Some book keeping functions are best relegated to an accountant. While it is essential for you to retain a thorough knowledge of your business by reviewing your books frequently, an accountant or book keeper should be hired to handle it so that you can concentrate on expanding your business.

Here are the basic records you should keep:

REVENUE AND EXPENSES

Every business needs a Revenue or Expense Journal or a Ledger to keep track of how much money is going out, where it is going, and what is coming in.

A Revenue and Expense Journal is used by most small businesses and is single-entry accounting - recording receipts and expenditures only.

Double entry accounting involves a ledger and necessitates that each activity be recorded as a debit and a credit on your books. In the past it was thought that all businesses needed to use the more cumbersome method of double-entry, but the single entry system is now used for many small business owners. Single-entry accounting can be kept on paper or computer. Programs that perform single-entry accounting include Quicken by Intuit and Microsoft Money among many others.

A ledger is used to record every transaction twice based on the idea that each transaction has two halves that affect your business. For example, if you sell an item, your books would reflect a decrease in inventory (a credit) and an inflow of payment (debit). If you use double-entry accounting you may want to use a computer program or a book keeper to keep your ledger up to date. If you allow anyone else to keep your books be sure you review them regularly. You may want to use a program to do your double entry, here are some useful ones: M.Y.O.B by Teleware, Peachtree Accounting by Peachtree Software, and Quick books by Intuit.

Consult with your accountant to know which type of record keeping you should choose. Also consult your tax adviser about whether you should use a cash or accrual-based bookkeeping system. 

CASH EXPENDITURE

The cash spent in your business needs to be accounted for if you want to record all business expenses in a given year. This will enable you to calculate how profitable your business has been over the year. There are at least two ways to do this:

• Write yourself reimbursable checks

• Keep a petty cash record.

If you choose to pay yourself back with a check, simply keep track of all cash receipts and total them weekly, biweekly or monthly, depending on your volume of expenses. Keep a log of each category of expense, for tax purposes and write yourself a check for the total. Write cash reimbursable in your check register to differentiate this from taxable income. Alternatively, you can keep a petty cash record by writing a check to petty cash and keeping a log of each expense paid out of petty cash.

INVENTORY RECORDS

Proper inventory records will enable you to keep inventory holdings to a minimum, track buying trends, and prevent pilferage among other things.

If you sell a large number of small-ticket items -- for example, as in a stationary store -- you might want to use a computer system to track inventory or tie your computer system into your sales by having a POS (point of sale) inventory system. If you sell larger ticket items you may be able to do it yourself on paper.The crucial inventory information you need to capture is: date purchased, stock number of item purchased, purchase price, date sold, and sale price.

ACCOUNT RECEIVABLE

If your products or services are paid for at time of delivery, you will not need an accounts receivable tracking system. However, if you provide services or products for which people do not pay you immediately, but pay at a later date, accounts receivable records will help you to keep track of what is owed to you. You can monitor accounts receivable by holding on to a copy of all invoices sent out or by keeping an accounts receivable record. Either way, the information you need to capture includes: invoice date, invoice number, invoice amount, terms, date paid, amount paid, and the name of the entity being billed.

Many software programs are available to help you generate invoices and track hours and expenses incurred for each client. These programs can save hours of time for a business owner and create professional-looking invoices. However, I will still advice that compliment technology with the common sense of maintaining a hard copy. According to Ed Slott, author of "Your Tax Questions Answered", (Plymouth Press) keeping your accounts receivable on computer is sensible if it enables you to collect payment more quickly or get a better handle on where your money comes from. Otherwise a paper system is very effective.”

Software programs that will create invoices or track hours include: Quick Invoice by Intuit software; Time slips and Win Invoice by Good Software; and PerForm Pro Plus from Delrina.

In addition to using a computer to track all your accounts, I will advice that you have a back up and a printed hard copy for the sake of data integrity. If all your transactions are store on your computer had drive, you may lose them in the case of technical malfunction of you hard disk. In the event of hard disk crash, you will lose everything if you do not have a printed hard copy or a back up.

ACCOUNT PAYABLE

Accounts payable are debts owed by your company for goods and services, and or other financial debt like business loans. Keeping track of what you owe and when it is due will enable you to establish good credit and hold onto your money as long as possible.

Some business owners with few accounts payable items use accordion file folders labeled with dates to keep track. Other small firms simply pay bills twice per month and keep all bills in a "To Pay" folder. Larger companies use accounts payable paper records organized by creditor. Regardless of the system you choose, you should retain the following information about accounts payable: invoice date, invoice number, invoice amount, terms, date paid, amount paid, balance (if applicable), and clients names and address.

From the above it is evident that the keeping of financial records is importance for effective management of a business enterprise. No business man can effectively evaluate, appraise and manage his business whether small or big without a proper book keeping and record keeping system.

Thanks very much for taking out time to lean this simple book keeping truth. Try your best to implement what you have in your business and you will for ever be grateful for having effective financial record system in place. If this article make sense to you kindly share it with your friends. I will also appreciate your comment and or contribution to this content.


Wishing you the best in your business endeavors!


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