Report on Financial Activity BSBFIA402A

Reasons for Keeping Financial Records Management and Control of the business to ensure long term solvency and profitability. To support applications for finance (bank loans/overdraft facilities etc) To meet legal requirements (Tax laws/Corporations Law) To assist in the future sale of the business.

Characteristics of an Effective Record Keeping System Simple as possible Quick access to required information Contains accurate data Contains methods of linking records and cross-checking (an audit trail) Keeps the private finances of the business owner separate from the business finances.

Basic Guidelines for Record Keeping A business cheque account is required. Only business receipts and payments are to pass through the business cheque account. Duplicate deposit book to be used. Record sufficient details on cheque butts. Establish a petty cash system. Establish a payroll system for employees.

Basic Guidelines for Record Keeping (Cont’d) If cash register is used ensure appropriate controls in place with regards to cash security and accountability. Establish creditor (accounts payable) and debtor (accounts receivable) records to monitor moneys owed. Establish and assets register Establish an inventory control system suitable for the size of the business.

Types of Inventory Systems Periodic Inventory System Detailed inventory records are not kept. Cannot show the value of inventory on hand at any point in time. Cost of goods sold is determined only at the end of the accounting period when a stock take is undertaken. Stocktakes must be undertaken in order to determine stock levels and cost of goods sold during the year. Perpetual Inventory System Details records of the purchase and sale of each item of inventory is maintained. Shows the value of inventory on hand at any point in time. Cost of goods sold is determined each time a sale occurs. Stocktakes are used as a method of checking the system.

Record Keeping Cycle Transaction occurs Source document is generated Source document is categorised and recorded in a journal. Journal is summarised and recorded in the general ledger. General ledger is used to prepare financial statements.

Record Keeping Cycle (Cont’d) If accounts receivable (debtor) and accounts payable (creditor) records are also being kept then an additional step must be added to the previous cycle. Information from the journals must also be recorded in the individual debtor or creditor records.

Source Documents and Control Documents Source Documents Originating or starting document. Evidence that a transaction has occurred. Usually involves an external party. Expressed in monetary terms. Results in an accounting record Control Documents A document used to control the use, or prevent misuse of the source documents. Usually does not involve an external party (there are exceptions to this)

Transaction Categories Transaction CategorySource Document Sale of good/service on credit Customer Invoice Purchase of good/service on credit Supplier Invoice Receipt of cashReceipt Payment of cashCheque Butt Other TransactionsInternal Memo

Customer (Tax) Invoices Supplier (Tax) Invoices Tax invoices Refer pg 8-11 of text Adjustment notes – refer pg 11 Delivery Docket (control document) – pg 13 Account Statements (control document) – pg 14

Receipts Cash register receipts – see pg Other Receipts - see next slide Bank Deposit slip (Control Document) – pg 13

Payments Cheque Butts & EFTPOS Slips – see pg 17 Petty Cash vouchers - pg 16 Purchase order (control document) – pg 15