Business Financials

BUSINESS
FINANCIALS
Adewale Adeleke for MRDC Nov.2009 1

The Term Financials could be referred
to as :
n
n The whole records of an organization’s measures in

monetary terms.
n
n It could also be referred to as things or issues

pertaining/relating to finance, money or credit.


What is a financial Record?

Financial Record is a formal documentation
of business’ financial activities.
n
n
n
Truth about financial records
n

If you are in business you should keep good financial records.
n

Importance Of Financial Records
n A good financial record will n how much money is due
help determine what into the business from
income is coming into debtors (those that you
the business have made sales to on
n credit)
 n
n what money is being paid n how much money is due to

out of the business creditors (those from
 whom you have

purchased goods on
credit)

n
n how much cash is sitting in n the amount of stock and
your bank account its value sitting in your
n Adewale Adeleke for shelves, factory or
MRDC Nov.2009 5
stores
Gives you an in-depth status your
business

It will also help you determine
n the amount of money that n which products are selling
is paid for wages and the best and which are
salaries of staff slow moving
 n
n the assets that the n what profit or loss the

business owns at any business is making at
particular time any time
n n
n the liabilities or debts that n To also enable a valuation

the business owes at of the business to be
any particular time carried out based on the
results in the system.
n


n
Every business needs bookkeeping
system so that at anytime it is able to
extract information that will highlight
how the business is doing.

The Typical Small Accounting System
n
n Your accounting system should provide an accurate picture

of your business and how it is doing.

n Setting up a good accounting system and understanding

the numbers produced can make a major difference in
how your business fares in the long run.


Some Consequences Of Poor Records
n Many businesses fail because of inaccurate record keeping.
n
n Good record keeping is necessary to highlight problem


areas that could cause the failure of the business, or
enable

information to be extracted so that compliance for
taxation

can be met on time.
n

Uses Of Good Records

A good bookkeeping system will help
facilitate:
n The pricing of your product n Work with bankers
accurately 
n n
n Know if you are making n Pay big dividends in the

money future
n
n Know your cash flow


Bookkeeping basics

What is Bookkeeping?
n Bookkeeping is the recording of financial transactions.



Transactions include sales, purchases, income, and


payments by an individual or organization.
n

Bookkeeping and Accounting:
Differences
n Bookkeeping is procedural and is largely concerned with
development and maintenance of accounting records. It
is the "how" of accounting.

n Accounting is conceptual. It is concerned with the "why",

reason or justification for any action adopted.

n Accounting information is based on financial records.

n
n Accounting involves the creation of financial records of

business transactions, flows of finance, the process of
creating wealth in an organization, and the financial
position of a business at a particular moment in time.
n
Purpose of Accounting to Business
Stakeholders
Entrepreneurs read accounts to examine the
health of business, and the returns on
investment (ROI) that they can expect to make.
Employees read accounts to see how safe their

jobs are.
The Inland Revenue read accounts to calculate

how much tax businesses should be paying.
Suppliers read accounts to check that the

company they supply with goods on credit will
be able to pay the money owed when it
becomes
Adewale due.
Adeleke for MRDC Nov.2009 16
Getting Started With Bookkeeping:
What You Need
n Cash book: Cashbooks 
are simple accounting n Wages Book: Records of

books that are used to periodic payment to
record basic information workers
about cash receipts and n
payments. n

n
q Sales invoices and sales
n Purchase Invoice &
day book: First entry
purchase day book
for sales invoices issued
to customers for goods

supplied or services
rendered.
n

What You Need

General Ledger
n
n A general ledger is a set of accounts used in

accounting to keep track of all the financial
transactions of the company.


A GOOD BOOKKEEPING SYSTEM SHOULD PROVIDE THE
FOLLOWING INFORMATION THAT WILL HELP YOU IN
OPERATING AND GROWING YOUR BUSINESS

Each Day
n Balance of the cash you have in your bank account.

n Balance of cash you have on hand.


n A daily summary of all your sales and income received.


n A daily summary of all your expenses and monies paid out.


n Other daily matters that require attention.

n

Each Week

n Details of people that owe you money for sales made to

them on credit (accounts receivable).
n
n Details of people you owe money to for purchases made on

credit (accounts payable).
n
n Details of your staff and payroll.


n Details of the taxes due by your business and the Federal

Income Tax and Sales Tax due to the IRS.
n

Each Month

n Details of information extracted from your bookkeeping

system so that monthly financial reports and accounts
can be prepared by your accountant.
n
n Reconcile your bank account by doing a full Bank

Reconciliation.

n Balance your petty cash.


n Review various positions of the business especially as

regards its accounts receivable to ensure that debt
collection is not slow and that bad debts do not arise.
n Adewale Adeleke for MRDC Nov.2009 22
Keeping Records What Do I Need?
n Discipline
n Documentation
n Receipts
n Vouchers
n Invoices
n Debit and Credit notes
n Delivery notes
n Small note pads
n Dates and Documentation Preservation
n Banking, tellers and cheque books
n

n Designing a recording system:
how to organize your personal
financial records and save
money

n Label the tabbed dividers with useful categories of your
bills.
n
n Make one label for Rent, one for Utilities, Telephone and
Internet, and one for Insurance.
n
n Next, make labels for other bills you may have, Medical
Payments, and Miscellaneous expenses.

n Make a label for Bank Statements and Investments.


n Last, make a label for Tax Records.



Your First Book: Cash Book
n Reconciling the records

The Basic cash book

n Inflow and outflow entries


n Cash analysis book


n Separating the bank book from cash book

n
n Tracing Different expense Heads

n
n Balancing the book



Cash Management
n Cash receipts

n Cash payments

n Petty cash
n

Sales and Account Receivables
n Accounts Receivables and n Enter any payments
sales operate much the they've made or new
same as Accounts charges they've
Payables and your incurred, and come up
purchases. with an ending balance.
 
n Under the accrual method, n That must equal the

you'll be entering sales amount you list as sales
as you earn them and receivables on your
invoice your customers. books - if it doesn't,
 your task is to figure out
n Have a simple chart that where the discrepancy
shows who owe you is.
money each month - n
have a beginning 28
n
balance which equals
Purchase And Account Payable
n At the end of any given month, you have things you have
used or purchased, but have not paid for.

n These are listed as accounts payable. When you enter

these bills, your entry is debit expense, credit accounts
payable.

n Each month, you need to make and keep a list of items

that were in accounts payable at the end of the month.
When you are closing out our sample month, you will
have paid these bills, which were in Accounts Payable
the previous month, reducing your cash.

n
PAYABLES

§Using your list, identify the cheques written for items that
were listed in accounts payable the month before. You
already listed the expenses the prior month - so you don't
list them again.
§
§
§The entry to show on your books that you have paid your
accounts payable is: debit accounts payable, credit cash.
cash
§
§

Reduce your cash; reduce your accounts payable.
Assuming you pay all your bills each month, this step will
bring your accounts payable to zero (and if not, the
accounts payable balance per your books should equal all
the outstanding bills). Later, you will rebuild a new account
Payable list for the current month.

FIXED ASSETS

Fixed Assets
n n
n Land buildings equipments n In accounting ‘fixed'

machinery, vehicles, does not necessarily
etc. mean 'immovable;'
n any asset expected to
n last, or be in use for,
n
more than one year is
considered a fixed
n
asset.
n Fixed assets are not n
consumed or sold during n On a balance sheet,
the normal course of a these assets are
business but their shown at their book
owner uses them to value ( purchase price
carry on its operations. less depreciation) 34
Adewale Adeleke for MRDC Nov.2009

n
Basic Accounting Principle

The Accounting Cycle
n Transactions that occur are n The general ledger is
evidenced by source classified into five sets
documents (e.g. an of accounts
invoice: sale to Mr. 
Adamu =N=50,000) n Assets (What business

n The transaction is recorded owns)
in a journal (Mr. n Liabilities (What business
Adamu: =N=50,000) owes)
n The journal entries in the n Capital (Equity)
individual accounts are n Sales(sales income
summarized in a book of
earned)
accounts known as a
General Ledger (e.g. n Expenses (expenditure
summary of all debtors incurred)
including Mr. Adamu)
Adewale Adeleke
n
for MRDC Nov.2009 36
n
All ledger accounts are listed in a
summary form known as the trial
balance. (e.g. cash, debtors, creditors
etc)

The Balance Sheet
n As one of the most basic of all accounting documents, the
balance sheet is simply a quick and easy to read
summary of the financial condition of a business.
n
n The focus of the balance sheet is to provide a snapshot of

all current assets and liabilities of the entity, with an eye
to understanding the net worth of the entity.
n

The Financial Statements

Financial Statements
Financial Statements consist of Revenue or
Income
Statements (also known as Profit and Loss
Statements),Balance Sheets and Cash Flow
Statements

Profit & Loss Accounts

The Profit And Loss Account
n
n The account showing the inflow of money from sale of


goods or services and the costs and expenses chargeable

against it, over an accounting period.
n

The Cash Flow Statements
n Summary of the actual or anticipated incomings and
outgoings of cash in a firm over an accounting period

( month,quarter,year).

n It answers the questions:


n Where the money came (will come) from? and where it

went (will go)?

n Cash flow statements assess the amount , timing, and

predictability of cash –inflows and cash-outflows and are
used as the basis for budgeting and business-planning.


Costing Your Product

Costing your products
n Know how much you will be charging your customers

n This means you will create a break even analysis:


n In other words, what amount of profit will you require to

keep the business running smoothly, and how many sales
will you need to make to do that?

n The break even point for a product is the point where total
revenue equals the total costs associated with the sale of
product (TR=TC)


Financial Planning

Financial Planning
n Financial planning is the long-term process of wisely
managing your finances so you can achieve your goals
and dreams, while at the same time negotiating the
financial barriers that inevitably arise in every stage of
life.

n Remember, financial planning is a process, not a product.


n In general usage, a financial plan can be a budget, a plan

for spending and saving future income.

n This plan allocates future income to various types of

expenses , such as rent or utilities, and also reserves
some income for short-term and long-term savings. 47
Adewale Adeleke for MRDC Nov.2009
n
n A financial plan can also be an investment plan, which
allocates savings to various assets for future income,
such as a new business or product line, shares in an
existing business, or real estate.

n In business, it is created within a business plan.


n Financial forecast or financial plan can also refer to an

annual projection of income and expenses for a
company, division or department.


Creating A Financial Plan

Things to do:
§Assess the business environment

§
§Confirm the business vision and
objectives
§
§Identify the types of resources needed to
achieve these objectives
§
§Quantify the amount of resource (labor,
equipment, materials)
§
§Calculate the total cost of each type of
resource

§ Summarize the costs to § Performing Financial
create a budget Planning is critical to the
§ success of any
§ Identify any risks and organization.
issues with the budget §
set § It also helps the business
owner to set financial
§ targets for the business,
and reward staff for
n
meeting objectives
within the budget set.
n

Bookkeeping software useful for you
§ Quick book

§ Intuit Quick books


§ Simple Bookkeeping Software


§ Instant Cashbook™ 2007


§ Simple bookkeeping
n

What software will do for you

n Help you to simply enter your daily purchases, expenses

and receipt transactions.

n No accounting knowledge required.

n

Case Study
n

Jonny & Sons International

QUESTION TIME


QUESTION FOR YOU
WRITE IN SEVEN SENTENCES WHY YOU NEED TO KEEP
FINANCIAL RECORDS AS A BUDDING ENTREPRENEUR?

THE END!

THANK YOU!
58
PAPER PRESENTED AT MRDC,IKEJA
BY
MR. ADEWALE ADELEKE (FCA, FCIT)
PARTNER
17, UNITY ROAD IKEJA

Tel: 01-950-4874
0803-578-4693
0802-853-4304
e-mail: adelekeadewale@waprofessionals.com
website: www.waprofessionals.com info@waprofessionals.com
59

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BUSINESS

Adewale Adeleke for MRDC Nov.2009 1

n The whole records of an organization’s measures in

n It could also be referred to as things or issues

Adewale Adeleke for MRDC Nov.2009 2

Adewale Adeleke for MRDC Nov.2009 4

n what money is being paid n how much money is due to

Adewale Adeleke for MRDC Nov.2009 6

n the assets that the n what profit or loss the

n the liabilities or debts that n To also enable a valuation

Adewale Adeleke for MRDC Nov.2009 7

Adewale Adeleke for MRDC Nov.2009 8

n Your accounting system should provide an accurate picture

n Setting up a good accounting system and understanding

Adewale Adeleke for MRDC Nov.2009 9

n Good record keeping is necessary to highlight problem

Adewale Adeleke for MRDC Nov.2009 10

Adewale Adeleke for MRDC Nov.2009 11

n Know if you are making n Pay big dividends in the

n Know your cash flow

Adewale Adeleke for MRDC Nov.2009 12

Adewale Adeleke for MRDC Nov.2009 13

n Bookkeeping is the recording of financial transactions.

Adewale Adeleke for MRDC Nov.2009 14

n Accounting is conceptual. It is concerned with the "why",

n Accounting information is based on financial records.

n Accounting involves the creation of financial records of

Employees read accounts to see how safe their

The Inland Revenue read accounts to calculate

Suppliers read accounts to check that the

are simple accounting n Wages Book: Records of

Adewale Adeleke for MRDC Nov.2009 17

n A general ledger is a set of accounts used in

Adewale Adeleke for MRDC Nov.2009 18

Adewale Adeleke for MRDC Nov.2009 19

n Balance of cash you have on hand.

n A daily summary of all your sales and income received.

n A daily summary of all your expenses and monies paid out.

n Other daily matters that require attention.

Adewale Adeleke for MRDC Nov.2009 20

n Details of people that owe you money for sales made to

n Details of people you owe money to for purchases made on

n Details of your staff and payroll.

n Details of the taxes due by your business and the Federal

Adewale Adeleke for MRDC Nov.2009 21

n Details of information extracted from your bookkeeping

n Reconcile your bank account by doing a full Bank

n Balance your petty cash.

n Review various positions of the business especially as

Adewale Adeleke for MRDC Nov.2009 23

Adewale Adeleke for MRDC Nov.2009 24

n Make a label for Bank Statements and Investments.

n Last, make a label for Tax Records.

n Adewale Adeleke for MRDC Nov.2009 25

n Inflow and outflow entries

n Cash analysis book

n Separating the bank book from cash book

n Tracing Different expense Heads

n Balancing the book

Adewale Adeleke for MRDC Nov.2009 27

n Under the accrual method, n That must equal the

n These are listed as accounts payable. When you enter

n Each month, you need to make and keep a list of items