ENTREPRENEURSHIP (Ms. Hawkins) This chapter describes the importance of keeping business records. How to keep records using journals and ledgers How to understand balance sheets, income statements, and cash flow statements How to keep inventory records March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records The records you will keep include: Journals Ledgers Bank Records Payroll Records Tax Records March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Journals are accounting records of the transactions you make. They include: Sales Journal (records sales of merchandise on account to customers) Cash Payments Journal (records cash or check payments made by the company) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Journals are accounting records of the transactions you make. They include: Cash Receipts Journal (records goods paid for in cash by customers) Purchase Journal (records purchase of merchandise on account by the company) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Journals are accounting records of the transactions you make. They include: General Journal (records goods paid for in cash by customers) Purchase Journal (records any kind of transaction—those that don’t fit in the other journals) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Businesses use a general ledger to which they post items they record in their journals. Ledgers separate business transactions by account. Posting means copying information from a journal entry to a ledger account, usually every one to two days. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… A subsidiary ledger is a ledger that is summarized in a single general ledger account. An accounts receivable ledger (money owed to you by customers) An accounts payable ledger (money you owe to suppliers) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Bank Statements Even if you already have a personal checking account, you will need a business account for all deposits and withdrawals related to your business. A check register is a book in which you record the dates, amounts, and names of people or businesses to whom you have written checks. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Payroll Records A payroll is a list of people who receive salary or wage payments from a business. A payroll register contains employee’s name, no. of hours worked, regular & overtime earnings, taxes deducted (fed., state, and local), Social Security and Medicare contributions deducted, etc. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) SET UP A RECORD KEEPING SYSTEM Types Of Records… Tax Records You will have to make several different kinds of tax payments: Income Tax (businesses that earn profits must pay income taxes) Payroll Deductions (by law you must deduct taxes from employees’ paychecks and submit to the government) Sales Tax (businesses must charge sales tax on goods and services) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Computerized Record Keeping SET UP A RECORD KEEPING SYSTEM Computerized Record Keeping Advantages: Store and analyze data. Link records. Reduce errors. Correct errors. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Computerized Record Keeping SET UP A RECORD KEEPING SYSTEM Computerized Record Keeping Disadvantages: Staff resistance Unauthorized access Computer problems March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Types Of Financial Statements UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements To run your business, you will need to know how to read and understand financial statements to determine how well your business is doing. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Types Of Financial Statements Assets = Liabilities + Owner’s Equity UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements Balance Sheet The balance sheet lists what a business owns, owes, and how much it is worth at a particular point in time. The balance sheet is based on the accounting equation: Assets = Liabilities + Owner’s Equity March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Types Of Financial Statements UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements Income Statement The income statement shows how a business performed over a period of time (usually 1 year). It shows 3 things: Revenues Expenses Profits (before taxes) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Types Of Financial Statements UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements Income Statement … The income statement has several uses: Examine how sales, expenses, and income change over time. Forecast how well your business will perform in the future. Determine where you may need to cut back. Identify categories of expenses to increase or decrease. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Types Of Financial Statements UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements Income Statement … The cost of the inventory a business sells during a particular period is called cost of goods sold. Service businesses do not have this expense. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Types Of Financial Statements UNDERSTAND BASIC ACCOUNTING Types Of Financial Statements Cash Flow Statement The cash flow statement is a report that describes the cash that flows in and out of a business. It shows how much money you have. Net cash flow is the difference between cash receipts and disbursements: Cash – Disbursements = Net Cash Receipts Flow March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) UNDERSTAND BASIC ACCOUNTING Use Professionals Many small businesses use professionals to help keep their records and prepare their financial statements. A certified public accountant (CPA) is licensed by the state in which he/she works. A CPA can also help prepare your tax return. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) TRACK YOUR INVENTORY Track Your Inventory Inventory is the stock of goods a business has for sale. Every business must track inventory levels. Take physical inventory at least once or twice a year (or periodic inventory method). Businesses that sell hundreds of items use computers for tracking. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) TRACK YOUR INVENTORY Manage Your Inventory The level of inventory you keep in stock depends on three factors: The cost of carrying inventory The cost of losing a sale because you are out of stock The frequency with which you sell your inventory March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Manage Your Inventory… TRACK YOUR INVENTORY Manage Your Inventory… Costs of Carrying Inventory Inventory costs can increase due to: Obsolescence Deterioration (e.g., plants) Interest fees (this applies when you cannot pay your suppliers until you sell your inventory) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Manage Your Inventory… TRACK YOUR INVENTORY Manage Your Inventory… Costs of Carrying Inventory… Inventory costs can increase due to: Insurance (theft, fire, etc.) Storage (may have to lease additional space for inventory if you run out of space) March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Manage Your Inventory… TRACK YOUR INVENTORY Manage Your Inventory… Costs of Being Out of Stock If you have nothing to sell, you lose sales. Your job is to weigh the cost of being out of stock versus carrying more inventory. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Manage Your Inventory… TRACK YOUR INVENTORY Manage Your Inventory… Turnover Rates The stock turnover rate is the rate at which inventory of a product is sold and replaced with new inventory. It shows how many times a year you sell all of your merchandise. A store that purchases inventory 4 times a year and sells all of it in the same year has a stock turnover rate of 4. March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

Manage Your Inventory… TRACK YOUR INVENTORY Manage Your Inventory… Determining Inventory Turnover rates can help you determine how much inventory to keep in stock. To find out how many months of inventory to keep in stock: Months in Year ÷ Stock Turnover Rate = Mos. of Inventory to Stock 12 ÷ 6 = 2 March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)

ENTREPRENEURSHIP (Ms. Hawkins) The End! March 27, 2017 ENTREPRENEURSHIP (Ms. Hawkins)