Strand 1: Nature of Business

Unit 2: Entrepreneurship and Business

Topic 3: Keeping Records
Learning objective: By the end of the topic students will be able to:
Recognize that entrepreneurs must establish, maintain and analyses appropriate records to make business decisions.
There are three lessons in this Topic. The topic teaches you what records to keep for a business’s daily activities.

Lesson 1: Introduction to Keeping Records

This lesson is all about record keeping in a small business. You will learn about the methods small businesses use to
help them in keeping proper records. You will learn about reasons and importance of keeping records.
Learning outcomes: By the end of this lesson students will be able to:
 Explain record keeping and identify the methods used in record keeping
 Explain the reasons for keeping records
 Identify the records kept in a small business
What is business? Business is an institution that produces goods and services needed by society and consumers. It is
as an activity involving regular production or purchase of goods and services for sale, transfer and exchange with an
object of earning profit.
What are records? Records refer to any written information about how a business operates. In business, information
about what is bought and sold is written down. Where is this information written down? The information is recorded
in books.
Keeping records is a very important part of running a successful business. If a business is to run smoothly proper
records must be kept of all of its business activities. There are many reason for this.
1. For Information (Calculating profit)
People get into business to earn a profit. If a business does not record every item of its revenue and expenses, the
owner(s) will not know if they are making a profit. Bookkeeping therefore provides the business owner(s) with
information from which the profit of the business can be calculated.
2. For Decision Making
Decision making will be made easier if business records are in order. If you are selling different products, and you keep
separate records of the sales and costs for each of the products, you can easily see which one is the most profitable.
The records may even show that you are making a loss on one product. If you see that you are making a loss on a
particular product, then you may decide to stop selling that product. This will help your business to become even more
profitable. Decisions for the future can be made by studying the records of the past.

3. For Accountability (Legal and Business requirements)

Accountability refers to the duty to keep and give records of the business activities and its financial reports. Proper
recording system in a business will give an accurate report of the flow of cash into and out of the business.
Accountability is very important if the owner intends to get assistance from organizations outside of the business. The
accountability of the business will be measured by the following groups of people or organizations:
 The other owners of the business, for example; the partners and the shareholders.
 The Government, for example; The Internal Revenue Commission (IRC) for tax purposes
 The banks, finance companies and other creditors.
For example, a manager is accountable to the shareholders and the partners of the business. This means that the
managers must make sure that at the end of the business period financial reports such as the Profit and Loss
Statement and Balance Sheet are presented to the people who require them.

4. Better Control over Assets – Assets are anything of value that are owned by a business. They include such things as
your cash, stock or inventory, equipment, buildings or motor vehicles. By having a record of what assets the business
owns, you are better able to control and protect them.
The main assets you need to control and protect are your cash and stock, also sometimes called inventory.
Stock (inventory)- this refers to those things that are bought by a business with the intention of selling them again at a
profit. It also covers any materials used in the production of goods. If you do not keep a record of what stock you
should have, you will not know if any has gone missing or has been stolen.
Different Records kept by a Business
In business all the transactions should be supported by documentary evidence called source documents. A source
document refers to a document which provides details of a business transaction that has taken place, for example,
receipts, invoices and credit notes. These documents serve two purposes. They provide:
1. written evidence of a transaction.
2. particulars of transactions to be recorded into record books
These record books help to prepare financial reports at the end of the business accounting period.
So, what are the records that the business should keep?
The three important records that businesses use to help prepare their financial reports are:
1. The Cash Book - refers to the recording of cash, notes and coins, coming into and going out of the
business. (The record book that keeps track of goods or services that are bought with cash)
2. The Stock record - refers to the record showing the quantity and the value of stock of the business.
3. The Journals - refer to the record where information concerning credits are recorded. There are two
types of journals that small business can keep.
i. Credit Purchases Journal
Credit Purchases Journal refers to a record of goods purchased on credit by the owner. It is necessary
for the owner of the business to keep this journal so that he or she knows what goods have not been
paid for. This is especially for small businesses that have gained the suppliers‟ trust who in turn allow
the small business owners to establish accounts with them.
ii. Credit Sales Journal
Credit Sales Journal refers to a record of goods sold on credit by the owner. The owner only gives credit
to those who are his or her trusted customers.
Summary
 Record keeping is very important for all businesses as it provides information, accountability and
decision making for businesses.
 Accountability refers to the duty to keep and give records of the business activities and its
financial reports.
 The two methods of record keeping are:
1. The Single Entry Bookkeeping
2. The Double Entry Bookkeeping
 The Bookkeeping process helps businesses to record all transactions.
 The cash book, the stock record and the journal helps the small business to prepare financial
reports.

Lesson 2: Records Used in Cash Transactions

In this lesson, you will learn about cash transactions and identify the records used in cash transactions.
You will further learn the terms shortages, surpluses and drawings and how they are recorded.
Lesson 3: Records used in Credit Transactions
In this lesson you will learn about credit transactions and identify the records used in credit transactions. You will
further understand the importance and reasons for keeping these records.

In this lesson you will learn about keeping records and why they are important for a small business.