Introduction of Financial Records


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Introduction of Financial Records

  1. 1. Gaphor M. Panimbang Introduction of Financial Records Logo
  2. 2. Tools in Records Keeping 2 Major Tools Records Keeping Cash Record Income Statement
  3. 3. Important Points <ul><li>Both the cash records and a regular Income Statement are a necessity for every entrepreneur because: </li></ul><ul><ul><li>It help the cash position at anytime; </li></ul></ul><ul><ul><li>It helps the entrepreneur in detecting fluctuations in prices, market demands for goods, and in production; </li></ul></ul><ul><ul><li>It enhances the entrepreneur's business consciousness and control over his enterprise; </li></ul></ul><ul><ul><li>Regular evaluation of the business is important for planning purposes; </li></ul></ul>
  4. 4. Important Points <ul><li>The cash record should be kept separate from the household and other business accounts; </li></ul><ul><li>The cash record should provide specific information such as volumes and prices to be able to prepare the income statement and to analyze the result; </li></ul><ul><li>In preparing the income statement, we need to check the data in the cash record carefully, and ask about the non-cash transactions as well. A periodic inventory record is also needed; </li></ul>
  5. 5. Important Points <ul><li>The income statement covers a logical period such as one production cycle (for production and processing enterprise) or a time period ( for trading and service type of enterprise); </li></ul><ul><li>From the income statement, strengths and weaknesses of the business can be identified; </li></ul><ul><li>The beginning balance is the cash status at the beginning of the period for which the record will be kept </li></ul><ul><li>If the enterprise’s account is mixed with other accounts, it is very difficult to compute the enterprise income </li></ul>
  6. 6. Exercises Answer 1. Inflow 2. Outflow 3. Outflow 4.Outflow 5. Inflow 6. Outflow 7. Non-cash 8. Non-cash TRANSACTIONS Tell whether inflow, outflow or a non-cash transaction 1. Loan from the group 2. Repaid loan to the group 3. Bought equipment 4. Bought materials 5. Husband paid back money he borrowed from enterprise 6. Deposit additional savings to the group 7. Goods consumed by husband 8. Harvest reduced by half
  7. 7. Dealing Non-cash Transactions Situation 2 Situation 3 Situation 1 <ul><li>Goods consumed by the household </li></ul><ul><li>The value of these goods must be treated as income & be added to the net profit. </li></ul><ul><li>Sales on Credit </li></ul><ul><li>Credit sales that can be paid by the buyer must be treated as income </li></ul><ul><li>Credit sales cannot be paid should be treated as loss </li></ul><ul><li>Use of own raw materials </li></ul><ul><li>The value of the raw materials should be treated as costs & be deducted from the net profit </li></ul>
  8. 8. Net Cash Income Profit Sales Income Costs
  9. 9. Net Cash Income Fixed Assets Working Capital Capital It shall be used for the production costs/ costs of goods sold Production Costs are the costs incurred each time the output volume is produced. These are variable costs.
  10. 10. Components of Production Costs Production Costs These are costs like rent or fees paid to use land or facilities like drying facilities. Use of facilities Paid Labor Materials These are the costs we have to make the output volume ton purchase the materials that are consumed in producing the estimated output volume . These are the costs of hiring external labor force or for paying members to do a certain tasks.
  11. 11. Important Points <ul><li>Total income is gross sales plus other income; </li></ul><ul><li>Gross profit is the total income minus production costs; </li></ul><ul><li>Gross profit determines whether production costs can be recovered from the total income that business generates; </li></ul><ul><li>Net cash income is gross profit minus other expenses; </li></ul><ul><li>Net cash income is what remains from the income after deducting all costs and expenses of the enterprise </li></ul>
  12. 12. Net profit <ul><li>Net Profit – is the net cash income minus depreciation minus interest on loans; </li></ul><ul><li>Depreciation – is the amount of money the enterprise should generate to be able to replace the fixed assets on time. </li></ul><ul><li>The net profit reflects the entrepreneur’s return on his/her labor, management and capital investment </li></ul>
  13. 13. Profit can be utilize in several ways Savings for child education 1 Consumption 2 Expansion of enterprise 3 Investment in new enterprise 4
  14. 14. Gaphor M. Panimbang Wassalam !