In the first part of this article, I introduced the importance of figures, record keeping and accounting concepts. I told you that even though it is not a crime to hate figures, yet, the reality of life is that you cannot successful run your business without keeping good and effective records. And this involves figures.To explain the basics of Financial Business Record Keeping, I introduced a hypothetical but true story of Glory Peterside (not the real name), a person starting a new business and the introduction of myself as a professional accountant who is also skilled in explaining Financial Business Record Keeping to someone without the Financial Business Record Keeping background.
At our first meeting, Glory asked me for an overview of Financial Business Record Keeping, financial statements, and the need for accounting software. Based on Glory’s business plan, I observed that there will likely be thousands of transactions each year. I explained that Financial Business Record Keeping software model will allow for the electronic recording, storing, and retrieval of those many transactions. Financial Business Record Keeping software model will permit Glory to generate the financial statements and other reports that he will need in running his business.
Glory seems puzzled by the term transaction, so I gave him five examples of transactions that Direct Delivery Ltd. will need to record:
1. Glory will no doubt start his business by putting some of his own personal money into it. In effect, he is buying shares of Direct Delivery’s common stock. In other words, he is investing his own money in the business.
2. Direct Delivery will need to buy a sturdy, dependable delivery vehicle.
3. The business will begin earning fees and billing clients for delivering their parcels.
4. The business will be collecting the fees that were earned.
5. The business will incur expenses in operating the business, such as a salary for Glory, expenses associated with the delivery vehicle, advertising, etc.
All these transactions will be recorded by the Record Keeping and Accounting model that is put in place.
“What Is Record Keeping and Accounting Anyway?” Glory asked me
“Anyone who has worked in an office at some point or another has had to go to accounting department.” I continued: “They’re the people who pay and send out the bills that keep the business running. They do a lot more than that, though.
Sometimes accountants are referred to as “bean counters.” Why? Well…, In the olden days, beans are used as tools or instruments to account for the business transactions. Time has changed! Today, they are “computer counters” Not only do they record and keep watch on the activities of the business in the computers and other modern business machines, they also keep their eyes on profits, costs and losses. Unless you’re running your own business and acting as your own accountant, there is no way of knowing just how profitable – or not – your business is without some form of accounting and business record keeping.
No matter what business you’re in, either individually and corporate, you engage in one form of accounting or the other – even if all you do is to balance your cheque-book, that’s still accounting. Even a kid keeps account. How? Well… give a kid N20 allowance, and he or she is thinking immediately whether to save it or spend it either partly or all at once – all these are accounting practices.
What are some other businesses where accounting is critical? Well, farmers need to follow careful accounting procedures. Many of them run their farms year to year by taking loans to plant the crops. If it’s a good year, a profitable one, then they can pay off their loan; if not, they might have to carry the loan over, and accrue more interest charges. If care is not taken, such loan may become a serious burden on their finance.
Every business and every individual needs to have some kind of record keeping and accounting system in their lives. Otherwise, the finances can get out of their hands and they lost control. For example, without proper record keeping and accounting, they won’t know what they’ve made, in terms of income, how much they’ve spent, or whether they can expect a profit or a loss from their business.
Staying on top of your finance and accounting, whether it’s for a multi-billion dollar business or for a personal checking account is a necessary activity on a daily basis if you’re smart. Not doing so can mean anything from a bounced cheque (which is a serious criminal offence in Nigeria and many other countries that can land you in jail – God forbids!) or posting a loss to a company’s shareholders. Both scenarios can be equally devastating.
Record Keeping and Accounting is basically information, and this information is published periodically in business as a profit and loss statement, or an income statement.
With thousands of such transactions in a given year, Glory is smart to start using Financial Business Record Keeping software model right from the beginning. Financial Business Record Keeping software model is an integrated accounting model that updates your financial activities and gives you instant results.
By getting into the habit of entering all of the day’s business transactions into his computer, Glory will be rewarded with fast and easy access to the specific information he will need to make sound business decisions. I told him that Financial Business Record Keeping’s “transaction approach” is useful, reliable, and informative.
I informed him that I have worked with other small business owners in the past, who think it is enough to simply “know” their company made N3,000,000 during the year (based only on the fact that it owns N3,000,000 more in their bank accounts than it did on January 1). Those are the people who start off on the wrong foot and end up in my office looking for financial advice. Many a times, it is too late to prevent financial disaster for their business.
If Glory enters all of Direct Delivery’s transactions into his computer, good Financial Business Record Keeping software model will allow Glory to print out his financial statements with a click of a button.
In subsequent parts, I will explain the content and purpose of the three main financial statements:
1. Income Statement
2. Balance Sheet
3. Statement of Cash Flows
I will also show the process of getting these statements in the past and how you can get it now with ease. Until then, I say God bless you.
James Olu Gbolagoke is a Chartered Accountant, a Financial Consultant, a Pension Practitioner, an Investment Adviser, a Pastor and an Entrepreneur. He is the Executive Director of Gbola Empower Consult and BizExpert Consult. He consults, teaches, trains and develops small business owners and their staff. He can be reached on firstname.lastname@example.org 234-802-311-7940, 234-807-059-0705.