BOOK FOR RECORD KEEPING - latest

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RECORD KEEPING AND
FINANCIAL
MANAGEMENT MANUAL
FOR SMALL BUSINESSES
Swedish Development Partner

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TABLE OF CONTENTS
TABLE OF CONTENTS .........................................................................................................2
ACKNOWLEDGMENTS........................................................................................................5
INTRODUCTION ....................................................................................................................6
PART 1: RECORD KEEPING FOR SMALL BUSINESSES.................................................7
CHAPTER 1.............................................................................................................................7
INTRODUCTION TO RECORD KEEPING ..........................................................................7
1.0 Chapter objectives .........................................................................................................7
1.1 What is record keeping? .....................................................................................................7
1.2 Why people do not keep records ........................................................................................7
1.3 Importance of keeping records ...........................................................................................8
1.4 Filing of records..................................................................................................................9
1.5 Importance of filing ............................................................................................................9
1.6 Methods of filing ................................................................................................................9
1.7 Types of files ....................................................................................................................10
1.8 File dividers ......................................................................................................................11
1.9 Safe keeping of files .........................................................................................................11
1.10 Summary.........................................................................................................................12
CHAPTER 2...........................................................................................................................13
SOURCE DOCUMENTS.......................................................................................................13
2.0 Chapter objectives ............................................................................................................13
2.1 What are source documents? ............................................................................................13
2.2 Examples of source documents ........................................................................................14
2.3 Summary...........................................................................................................................18
CHAPTER 3...........................................................................................................................19
DOUBLE ENTRY..................................................................................................................19
3.1 Introduction to double entry .............................................................................................19
3.2 Steps in double entry ...................................................................................................19
3.3 Summary...........................................................................................................................23
CHAPTER 4...........................................................................................................................24
RECORD BOOKS..................................................................................................................24

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4.1 What are record books? ....................................................................................................24
4.1.1 Petty cash book ..........................................................................................................24
4.1.2 Purchases book...........................................................................................................26
4.1.3 Production book .........................................................................................................27
4.1.4 Stock card...................................................................................................................29
4.1.4 Daily cash record .......................................................................................................30
4.1.5 Credit sales book........................................................................................................31
4.1.6 Customer account record ...........................................................................................33
4.1.7 Asset register..............................................................................................................34
4.1.8 Donation in-book .......................................................................................................36
4.1.9 Donation out-book .....................................................................................................37
4.2 Summary...........................................................................................................................38
CHAPTER 5...........................................................................................................................39
CASH ANALYSIS BOOK.....................................................................................................39
5.1 What is a cash analysis book? ..........................................................................................39
5.2 Importance of cash book analysis.....................................................................................39
5.3 Layout of cash analysis book............................................................................................40
5.4 How to enter transactions in the cash analysis book ........................................................40
5.5 How to balance the cash analysis book ............................................................................41
5.7 Summary...........................................................................................................................48
PART 2: FINANCIAL MANAGEMENT FOR SMALL BUSINESSES..............................49
CHAPTER 6...........................................................................................................................49
COSTING AND PRICING ....................................................................................................49
6.1 Costing..............................................................................................................................49
6.2 Pricing...............................................................................................................................51
6.3 Determining the selling price per unit ..............................................................................51
6.4 Summary...........................................................................................................................52
CHAPTER 7...........................................................................................................................53
THE PROFIT AND LOSS ACCOUNT.................................................................................53
7.1 What is a profit and loss account? ....................................................................................53

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7.2 Aspects of the profit and loss account ..............................................................................53
7.3 Summary...........................................................................................................................56
CHAPTER 8...........................................................................................................................57
BUSINESS PLANNING........................................................................................................57
8.1 What is business planning?...............................................................................................57
8.2 The importance of business planning ...............................................................................57
8.3 Types of plans or forecasts ...............................................................................................57
8.4 How to prepare sales and costs plan/forecast ...................................................................59
8.5 Cash flow plan ..................................................................................................................61
8.6 How to make a cash flow plan..........................................................................................61
8.7 Summary...........................................................................................................................65
APPENDIX 1: DEFINITION OF TERMS ............................................................................66
APPENDIX 11: SOLUTIONS TO EXERCISES...................................................................67

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ACKNOWLEDGMENTS
The Swedish Development Partner (SDP) acknowledges all the people who have assisted in the
compilation of this record keeping and financial management manual.
Firstly, the organisation would like to thank all the IM-SDP staff for their support. Special
appreciation is extended to Dorcas Tarugarira, Namatai Moyo and Linda Mtetwa for
spearheading the development of this manual and to Momo Masoka, the SDP Country Director
for his guidance and support.
Secondly, SDP would like to express its gratitude to Gondai Chikangaise, Joseph
Mashingaidze, Martha Sithole, Agabu Kakamba, Peter Mashonganyika, Praise Chabona and
Tsitsi Mauye for all the hard work in the compilation and production of this Record Keeping
and Financial Management Manual.
Finally, SDP would like to thank Joseph Mashingaidze for editing the document and type
setting for its final printing.

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INTRODUCTION
The Swedish Development Partner, in pursuit of its support for long-lasting improvements in
the context in which it works towards sustainable community development, has developed a
simplified record keeping and financial management manual for use by small business
entrepreneurs.
SDP and its cooperating partners’ goal is to improve the socio economic wellbeing of
marginalized women and men. In pursuit of this goal, SDP developed this manual to improve
the business management skills of the women and men who are running small businesses
across its program implementation areas in Zimbabwe.
The contents of this manual were identified through reviews of existing record keeping and
financial management manuals and evaluation of previous training programmes conducted for
the same target groups, covering:
 Source documents
 Double entry system
 Cash analysis book
 Record books
 How to use record keeping to improve your business
 Costing and pricing
 Profit and loss account
 Business planning
Worked examples, practical exercises and answers have also been provided.
This manual has been designed for both the trainer and the trainee.

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PART 1: RECORD KEEPING FOR SMALL BUSINESSES
CHAPTER 1
INTRODUCTION TO RECORD KEEPING
1.0Chapter objectives
During the session you should be able to:
 Define record keeping
 Explain the reasons why people do not keep records
 Explain the importance of keeping records
 Explain the importance of filing
1.1 What is record keeping?
Record keeping is the orderly process of putting together the information of your business to
ensure that all the activities of the business are recorded, processed and filed. When money is
received or paid out by the business there should be a record that shows how much money was
received or paid out.
1.2 Why people do not keep records
 They do not have the time
 They lack the knowledge of how to prepare the records and think that record keeping is
difficult
 They think records are not necessary
Activity 1.1
Why do people in business avoid keeping records?

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 They assume they will remember every transaction
 People may not be able to read and write
 Some people think it is costly for them to buy stationery for the business
 Some want their business to remain private and think keeping records will expose the
business
 Some think records are only for big companies and not for small businesses
 Some business people focus more on production and marketing at the expense of record
keeping
1.3 Importance of keeping records
Record keeping helps you to:
 make better management decisions for your business eg plan for the future, control
cash;
 know how much money your business has received;
 know how much money your business has paid out;
 tell whether the business is making a profit or loss;
 inform insiders and outsiders on how your business is performing;
 comply with legal and regulatory obligations e.g. tax.
Activity 1.2
Participants brainstorm on the importance of keeping records

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1.4 Filing of records
Filing can be defined as the orderly binding and storage of source documents, correspondences,
minutes, plans and budgets in a sequence.
1.5 Importance of filing
You should file records because:
 Filing makes business records easy to find since they will be kept in one place;
 Reference can easily be made to them when a problem arises;
 Filing enables transparency as it gives classified information on the history of the
business;
 Filing provides the official evidence of the activity or transaction they document;
 Filing makes reporting easy because documents will be readily available;
 Filing improves on accountability as information is easily accessible and traceable.
1.6 Methods of filing
 Filing by date- documents are filed in date order for example October 1, 2015 would go
before December 12, 2015. Some people prefer to put the oldest documents at the back
of the file and the most recent in front
 Filing by number- documents are given a reference number and then filed in numerical
order. Low numbers usually come before the high numbers
 Filing by topic or subject- Documents are grouped by their content, category or heading
or subheading, for example all invoices are grouped together in one file and receipts are
placed in another file
Activity 1.3
Participants brainstorm on the importance of filing

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 Filing in alphabetical order- documents are filed in order by the first letter of their title.
The documents starting with ‘A’ go first followed by those starting with ‘B’ and so on
until ‘Z’. If two documents start with the same letter you then file them in order of the
following alphabetical letter.
1.7 Types of files
 Flat file
 Suspended file
 Box File

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1.8 File dividers
These are cards used to separate documents in a file. They are usually arranged in alphabetic
order or by category.
Notes on filing order are usually written and pasted to the inner file cover.
Reference numbers indicate file position while folio numbers indicate document entry number
into the file.
1.9 Safe keeping of files
For purposes of security all files that contain confidential information should be kept in a
lockable cabinet.

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Files that do not contain confidential information and are open to public viewing can be kept in
a sequence on a shelf.
1.10 Summary
Written evidence should be provided for money paid out and money received by the business.
Records should show:
 What was done
 When it was done
 Who did it
 How much money was involved
All loose documents must be filed in the order in which each activity took place.

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CHAPTER 2
SOURCE DOCUMENTS
2.0 Chapter objectives
 Identify and list source documents for the business
 Explain the use of each source document
 Demonstrate how to make correct entries in each source document
2.1 What are source documents?
These are the original records that contain the details of the actual business activities
(transactions) that would have taken place. Source documents act as evidence that the
transaction took place. This makes you more accountable to your business and more open in
the ways in which you run it. These source documents are used to support information
recorded in your record books. Source documents are the ‘witness’ of what took place in any
financial activity involving the business.
Examples of source documents are:
 bank deposit slips,
 bank statements
 cash payment vouchers
 cash withdrawal slips
 cheque stubs
 delivery notes
 goods received voucher (GRV)
 invoices
 order books
 petty cash vouchers
 quotations
 receipt books
 RTGS copies
 sales invoice books
Source documents should be completed in full and the information should be entered in the
correct record books. After recording, all source documents should be filed for future use.
A source document should show the following information:-
 The name of the business

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 Address of the company buying or selling the goods or services
 The date when the business activity took place
 The amount of money involved (in figures and words)
 The amount of Value Added Tax (VAT) to be paid to the Zimbabwe Revenue Authority
(ZIMRA)
 Description of the transaction (what really happened?)
 The terms and conditions of the transaction (is it cash on delivery or credit)
 Signature(s) of the person completing the source document
2.2 Examples of source documents
i. Quotation
This is a document written by a supplier at the request of the potential customer indicating the
quantity, description, cost and terms of payment for goods or services. You can source several
quotations from different suppliers for the same goods or services and afterwards select the
preferred supplier.

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ii. Order
An order is a binding document that confirms what you want to purchase after considering the
preferred supplier from the received quotations.
iii. Invoice
An invoice is written by a supplier when a business transaction is done on credit. This means that
your customer will pay you at a later date but has taken delivery of the goods. Make sure you
indicate the date you are going to demand payment from your customer on the invoice. Both you
and your customer should sign on the invoice.

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iv. Receipt
A receipt is a document or slip that shows that money has been paid to or received by the
business. A receipt is issued when the customer has paid cash or when a customer pays by bank
transfer and this reflects in your bank account. Whenever you write a receipt to a customer,
remember put your business stamp and signature to certify the transaction.
v. Goods received voucher
Goods received voucher is a document that acknowledges the receipt of goods either donated to
or purchased by the business. In the case of purchased goods, items that you record in the goods
received voucher must match with the goods that you ordered and paid for.

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vi. Petty cash voucher
A business keeps a small amount of money to pay for minor expenses. This amount is called
petty cash. A petty cash voucher is a document that is used to record cash payments from the
petty cash fund. The petty cash voucher should provide space for recording the following:
 Date
 Amount paid out
 Name of person receiving the money
 The reason for payment.
 The person authorising release of the petty cash
 Signatures of both the giver and the receiver of the petty cash
Petty cash vouchers have to be pre-numbered for reference and control.
Receipts or other documents supporting the payment should be attached to the petty cash
voucher. Your business should have only one person in charge of the day to day management of
petty cash.
SOURCE: Accounting for Cooperatives; Book 5; By Anton Karsh ;( 1988:1)
vii. Deposit slip
A deposit slip is a document that shows the amount of money that you have deposited into your
business bank account or into the bank accounts of those whom you owe money, for example
suppliers and employee wages. The business retains a duplicate copy of the deposit slip which
becomes a source document for entries in the cash analysis book and for bank reconciliation
purposes. A valid deposit slip should be stamped and signed by the bank as proof that the money
was actually deposited.

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viii. Withdrawal slip
A withdrawal slip is a document that is presented to a bank official indicating the amount the
business requires from the bank to cover its expenses. The business retains a duplicate copy
which becomes a source document for entries in the cash analysis book and for bank
reconciliation purposes. A valid withdrawal slip should be stamped and signed by the bank as
proof that the money was actually withdrawn.
Activity:
2.3 Summary
Any business transaction should be recorded in relevant source documents discussed in this
chapter. These documents provide critical evidence that a transaction has taken place.
Information in source documents provides input in the books of original entry that will be
discussed in the next chapters.
Activity 2.1
List source documents that are relevant to your business and write short notes on
their purpose

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CHAPTER 3
DOUBLE ENTRY
 Explain the principle of double entry
 Outline the steps of double entry
 Make debit and credit entries from given information
 Demonstrate balancing off of accounts
3.1 Introduction to double entry
Every financial transaction has an effect on two sides of the business’ record books. There is the
giving side (credit) and the receiving side (debit). This giving and receiving takes place between
the accounts in the books of the business. Therefore every business transaction is recorded twice
in the books of accounts. For every debit entry there is always a credit entry. This is called
double entry.
An account is where the information referring to a particular transaction, be it an income or
expense, is entered into. The amounts can either be recorded on the debit or credit side of the
account.
When recording these transactions the double entry principle which is to be followed is; debit
the receiving account and credit the giving account with the same amount. In every
transaction there is a giving account and there is a receiving account. The title of the account is
to be written on top of each account.
3.2 Steps in double entry
i. Understand and explain the transaction that has taken place
ii. Identify the two accounts involved
iii. Identify the account that is giving and credit that account
iv. Identify the account that is receiving and debit that account

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v. The total of debit entries must always agree with totals of credit entries
BRIGHT STAR CIGP BOOKS
CASH ACCOUNT CA I
SALES S 1
Debit Credit
Date Details Ref no. Amount
US $
Date Details Ref no Amount
US $
13.08.14 Honey Sales
to MFS
Wholesalers
S1 300
Debit Credit
Date Details Ref no. Amount
US $
Date Details Ref no Amount
US $
13.08.14 Cash CA 1 300
Activity 3.1
Bright Star CIGP is in the business of processing and selling honey. On the 13th
of August
2014 they sold 100 bottles of honey to MFS Wholesalers at $3.00 per bottle. The double
entry in the books of Bright Star CIGP would be as follows:

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Here is how Mrs Dozva recorded the transactions in her books
MRS DOZVA’S BOOKS
CASH ACCOUNT CA 2
Debit Credit
Date Details Ref no Amount $ Date Details Ref no Amount $
01.01.15 Balance b/f 2000 01.01.15 Chinyika-
purchases of 600
chicks
PA 1 600
03.01.15 Purchases of
vaccines and stock
feeds
PA 1
750
13.01.15
Payment for
grinding mill
EXP
ACC 1
10
17.01.15 Purchases of maize PA 1 50
31.01.15 Balance c/d 590
Total 2000 2000
01/02/15 Balance b/f 590
Activity 3.2
Mrs Dozva started the month of January 2015 with $2 000 as balance brought forward from 31
December 2014.
Mrs Dozva paid $600 cash to Chinyika for the purchases of 600 chicks on 1 January 2015. The
effect on the two sides is;
 Cash account is giving $600
 Purchases account has received birds worth $600
 This means Mrs Dozva is crediting the cash account and debiting the purchases account
The following transactions also occurred during the month of January 2015
03.01.15 Purchased vaccines and stock feeds for $750
13.01.15 Paid $10 for grinding mill charge
17.01.15 Purchased maize and paid $50
 Record the double entry transactions

Here is.

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The smaller side is balanced off by finding the difference between the bigger side and the smaller
side (2000 – 1410) = 590. This means the balance carried down would cause the balancing of the
two sides and then become the opening balance for the next month.
PURCHASES ACCOUNT PA 1
GRINDING MILL ACCOUNT EXPENSE ACC 1
From the two examples we have seen that each transaction is recorded twice, first on the debit
side (receiving account) and secondly on the credit side (the giving account), this is DOUBLE
ENTRY.
Debit Credit
01.01.15 Cash-
Chinyika
Chicks
CA 2 600 31.01.15 Balance c/d 1400
vaccines and
stock feeds
CA 2 750
maize
CA 2 50
Total 1400 1400
01.02.15 Balance b/f 1400
Debit Credit
13.01.15 Payment for
grinding mill
CA 2 10 31.01.15 Balance c/d 10
Total 10 10
01.02.15 Balance b/f 10

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3.3 Summary
All businesses should understand and use the double entry system when recording financial
transactions in their books. It is very important that all accounts should be balanced off at the end
of every month. This will enable the business to know its account balances.
Activity 3.3
Kumboedza Group started with a cash balance of $500 as at January 2015. They also had a
stock of 300 chickens worth $1 800
Other transactions for the group are:
Sold 200 birds at $6 each to Chicken Inn on the 5th
of January 2015
Purchased 300 birds worth $300 from MFS Wholesalers on the 10th
of January 2015
Purchased vaccines and stock feeds on the 11th
of January 2015 worth $450
Paid $145 transport for stock feeds on 24 January 2015
Sold the remaining 100 birds to SPAR on 20 January 2015
Paid membership allowances on 30 January worth $50 per member for 10 members
You are required to do the double entry for Kumboedza Group’s books
Here is.

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CHAPTER 4
RECORD BOOKS
 List and explain all the record books that are relevant to your business
 Record all transactions that occur in the business in the relevant record books
 Identify the relationships among the different record books
 Trace income, credit sales and assets of the business through different record
books
 Use information from the record books to produce reports that help you to make
informed business decisions
4.1 What are record books?
These are the books where you record the different transactions of your business. There are
different types of record books that the business can use. The following are some examples of
record books:
 Petty cash book
 Purchases book
 Production book
 Stock cards
 Daily cash record
 Credit sales book
 Customer accounts record
 Asset register
 Donation inwards book  Donation outward book
4.1.1 Petty cash book
Petty Cash Book- is a book where you record small transactions involving small amounts. Petty
cash should be readily available and accessible to pay for day to day small business expenses.
Every petty cash payment must be supported by a petty cash voucher and a receipt. A petty cash

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limit should be set and maintained. When the petty cash levels are low they need to be topped
up to the set limit. This is called petty cash replenishment. Entries in the petty cash book are
drawn from the petty cash voucher.
Below is an example of a petty cash book.
Petty Cash Book for Kumboedza Club for June 2014
Date Details Petty cash in Expenditure Balance
$ $ $
01.06.14 Cash received from treasurer 100 100
03.06.14 Tea leaves 3 97
Cremora 4 93
Sugar 2 91
Cooking oil 4 87.
Mealie meal 10 77
Activity 4.1
In the month of June 2014 Kumboedza Club had the following small payments:
1 June the cashier received $100 from the Treasurer as petty cash for the month. The
club’s replenishment level is $25 and the limit is $100
3 June the cashier bought tea leaves for $3, Cremora $4, sugar $ 2, 2 litres cooking oil
for $4, 20 kg mealie-meal $10, 2 kg salt $2
13 June she paid 5 casual workers $5 each for digging and land preparation
17 June she gave $25 to Mrs Ndarangwa the Chairperson to travel to Harare for a
meeting with donors
17 June she requested for petty cash replenishment which she received on the 18th
of
June
This is how Kumboedza Club recorded the transactions in their petty cash book
ments

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Salt 2 75
13.06.14 5 casual workers 25 50
17.06.14 Travel- Mrs Ndarangwa 25 25
18.06.14 Replenishment 75 100
4.1.2 Purchases book
The purchases book is where you record all the items that you buy for resale or production.
Entries in this book are both credit and cash purchases. Features of the purchases book are as
follows-
 The date that you bought the items
 Name of supplier
 What items were bought
 Invoice number
 The value of the purchase
 Person who authorised the purchase (in case of group project)
 Payment date
Activity 4.2
Chipo Bushu runs a tailoring shop and made the following purchases during the month of
February 2014
Purchased 60 metres of Mandy material from Kassims Fabrics and paid $90 cash on 17
February- Receipt Number 225
Purchased 10 metres of contrast material from the same shop worth $20 cash on 17 February-
Receipt Number 225
Purchased cotton thread worth $5 cash and buttons worth $2 cash on the same date above-
Receipt Number 225
Purchased 10 metres Vyline from Essaks worth $10 cash on the 18th
of February-Receipt
Number 1043
Purchased 10 rolls of poly cotton worth $450 from Jani’s on credit on the 20th
of February
payable on the 20th
of March 2014- Invoice Number 6
Prepare a purchases record for Chipo Bushu’s tailoring business

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Purchases book for Bushu Tailors
Date Supplier Description Inv/Rec Value
$
Authorised
by
Method of
payment
Date of
payment
17.02.14 Kassims 60 m mandy 225 90 Piroro Cash -
17.02.14 Kassims 10 m cloth 225 20 Piroro Cash -
17.02.14 Kassims Cotton thread 225 5 Piroro Cash -
17.02.14 Kassims Buttons 225 2 Piroro Cash
18.02.14 Essaks 10 m vyline 1043 10 Piroro Cash -
20.02.14 Jani 10 rolls poly
cotton
6 450 Piroro Credit 20.03.14
4.1.3 Production book
In the production book you record all your daily inputs and outputs. Inputs are the materials
used in production while outputs are the goods produced.
Purpose of the production book
 Enables you to keep track of products that have been produced by the business
 Helps you to identify opening and closing stock at the end of each production period
 Minimises the risk of possible stock losses through theft, misuse and damages
 Helps in monitoring the rate of production against set targets
 Enables you to make informed management decisions
 Enables you to monitor materials used, efficiency and cost effectiveness of production
A production book must show:
 The date of production
 Amount and type of production material used
 Opening stock (items in stock at the beginning of the production day)
 Number of units produced
 Number of units sold
 Number of breakages incurred
 Number of units returned by customers
 Number of units in stock at the end of the production day
Let us take the example of Kuda. She is in the business of making candles that she sells to
schools, tuck shops and individuals in the community.

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PRODUCTION BOOK FOR KUDA’S BUSINESS
Date Quantity and
type of
Material used
Opening stock
of finished goods
(+)
Number of
Units produced (+)
Number of
Units sold (-)
Lost/
Damaged Units
(-)
Returns
(+)
Closing
Stock (=)
01.05.2015 20 kg wax 0 2000 1300 20 5 685
05.05.2015 20 kg wax 685 2000 1900 17 9 777
09.05.2015 20 kg wax 777 2000 500 23 13 2267
12.05.2015 20 kg wax 2000 1700 24 2
15.05.2015 20 kg wax 2000 1200 6 8
22.05.2015 20 kg wax 2000 1800 34 21
25.05.2015 20 kg wax 2000 2500 56 7
28.05.2015 20 kg wax 2000 2000 - 2
TOTAL 160 kg wax 16 000 12 900 180 67
Activity 4.3
Transactions from the 1st
to the 9th
have been done for you. Complete the remaining transactions by
filling in opening and closing stock for the month of May 2015.

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4.1.4 Stock card
Stocks are products meant for resale or raw materials meant for production. A stock card is a
record that shows the movement of items purchased, donated, produced, issued out or sold by the
business. Each product must have its own stock card. A business should decide the point at which
new stock needs to be ordered. This is called a reorder level.
Stock Card for Mrs Chimoyo
Product Stock feed
Reorder level 100kg
Stock
Date Details In (kg) Out (kg) Balance (kg)
01-Apr-15 Opening stock 150 150
01-Apr-15 Daily feeding 25 125
03-Apr-15 Purchases 500 600
Activity 4.4
Mrs Chimoyo has 200 layers and she records 6 crates per day. She sells 40 crates to Masamvu
Supermarket every week. On 1 April 2015 she has an opening stock of 3x50kg bags of layers
mash. On the 3rd
of April she buys 10x50kg bags of layers mash. She uses 25kg of mash per
day. On the 23rd
of April she buys 10x50kg bags of layers mash.
Details for the first seven days of the month have been prepared for you:
Complete the two stock cards to show the movement of stock feed and eggs for the month of
April. The reorder level for Mrs Chimoyo’s stock feeds is 100 kg

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4.1.4 Daily cash record
A daily cash record shows the details of the items or products that have been sold for cash. It
gives a reflection of total cash sales per day. The total sales for the day are transferred to the cash
analysis book. Sales records will also help you in the analysis of your sales. By comparing your
daily and total monthly sales, you will be able to find out whether your sales are going up or
down. A decrease in sales might be an indication of something not being done properly. This
record therefore helps you in planning.
Sarah Mwafondora runs a grocery shop at Pfidza Township. On the 15th
of August 2014, this is
her daily cash record of sales.
Stock Card for Mrs Chimoyo
Product Eggs
Reorder level N/A
Stock
Date Details In Out Balance
01-Apr-15 Daily collections 180 180
07-Apr-15 Sales 1200 60
Activity 4.5
Produce a daily cash record for your business as illustrated in the case of Sarah’s
business below

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Daily Cash Record for Sarah’s Grocery Shop
Date Details Unit cost Quantity Total $
15.08.14 2 l cooking oil 4.50 1 4.50
250 g Tanganda Tea 1.80 1 1.80
Mackerel fish 1.50 1kg 1.50
Shoe polish 2.00 1 2.00
Green bar 2.00 2 4.00
Soft drinks 0.50 7 3.50
Buns 0.25 24 6.00
Bread 1.00 13 13.00
Total for the day 36.30
4.1.5 Credit sales book
In today’s business not all sales are done on cash basis. Some sales are done on credit. When you
sell to your customers and they promise to pay you at a later date you put all the details in a credit
sales book. The credit terms must be clearly outlined to the customer. This book will help you to
know how much you are owed and when you are most likely to get the money. Repayment
periods should preferably be not more than 30 days from the date of sale.
When offering credit to customers it is important to take note of the following;
 Set a credit limit for each customer
 Set the due date for payment
 Establish whether your customer has the ability to pay on the agreed date
 Have proof of residence of your customer
 Consider trade references to check on the customer’s credit track record
 Have a plan to recover the amount owing in the event of failure to pay
 Have witnesses to the credit sale
Activity 4.6
Explain why the business should have shorter repayment periods for
credit sales

32
Let us take the example of Mrs Evelyn Gapara who sells chickens on credit to Matika Primary
School teachers. Mrs Gapara makes sure that all her customers sign in the credit sales book as
they collect the chickens.
The details that she includes in her credit sales book are:
 The date of sale
 The name of the customer who bought on credit
 Contact details of the customer
 The ID number of the customer (in case there are two people or more with similar names)
 What the customer bought
 Value of sale
 Due date for payment
 Customer’s signature
 Person authorising the credit sale and or seller
 Amount received on the due date
 Balance after payment
Activity 4.7
 T.Radya bought 3 birds on 1 March at $7 each and promises to pay on 3 April
 C. Mhembe bought 3 birds on 2 March at $7 each and promises to pay on 31 March
 V. Makuyana bought 4 birds on 3 March at $7 each and promises to pay on 2 April
 T. Jojo bought 5 birds on 4 March at $7 each and promises to pay on 31 March
 E.Tino bought 10 birds on 4 March at $7 each and promises pay on 31 March
 Z. Musewe bought 7 birds on 4 March at $7 each and promises to pay on 2 April
 B. Ziwa bought 1 bird on 5 March at $7 each and promises to pay on 3 April
 T.Chawaza bought 19 birds on 7 March at $7 each and is to pay on 2 April
 The first three customers have been done for you. Please complete the remaining
transactions.

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4.1.6 Customer account record
This is a record reserved for big and regular customers who buy on credit. The business can
reserve a page for each of its big customers to better analyse their transactions. The business can
decide a specific amount that these credit customers are allowed to borrow without exceeding that
limit. This limit will depend on:
 The customer’s capacity to pay;
 The business’ volume of production;
 Level of demand for your product or service;
 Past payment record of the customer.
Below is an example of the customer account record:
Credit sales book for Mrs Gapara
Date
of
sale
Customer
name
ID Items
bought
Value
of sale
Due
date
Customer
signature
Contact
details
Money
paid
Balance
I Mar T. Radya xxx 3 broilers $21 3
April
xxx 0779 999
000
2 Mar C.
Mhembe
xxx 3 broilers $21 31
Mar
xxx Matika
School
3 Mar V.
Makuyana
xxx 4 broilers $28 2
April
xxx Matika
School

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CUSTOMER ………………………………………… ID Number ……………………
CONTACT DETAILS……………………………………………………………………..
CREDIT LIMIT …………………………………………………………………………..
Date Details Quantity Value Amount paid Balance Signature
Depending on the nature of your business, you can choose whether to use either the credit sales
book or the customer account record or both.
4.1.7 Asset register
Assets refer to useful and valuable property that is owned by a business. Assets can either be fixed
(for example buildings) or movable (for example wheelbarrow, chairs). Whenever you buy an
asset be it a stapler, calculator, computer, working desk or office chair, make sure you record
these in your asset register. An asset register shows the assets of the business. It shows the
following details:
 The date the asset is transferred into our ownership as shown on the goods received
voucher (GRV)
 Indicate the type of the asset e.g. motor vehicle
 Record the serial number of the asset. If there is no serial number you have to create one
for example (wheelbarrow) WB1
 Record the expected useful number of years of an asset to the business (asset lifespan)
 Record the purchase value according to the receipt
 Indicate the annual rate of depreciation (see notes on depreciation below)
 Record the date you sold the asset and removed it from your books and register
 The amount that the asset was sold for

35
Depreciation
An asset loses value with time and this loss of value is referred to as depreciation. At the end of its
useful life to the project, the asset can be written off through a disposal sale. In order to get the
annual depreciation, the cost of an asset is divided by the number of years during which it would
be used. The straight line method is preferred when calculating depreciation.
The disposal value is the amount at which you expect to sell the asset at the end of its lifespan.
Activity 4.8
A sewing machine bought for $900.00 has an estimated lifespan of ten years. The estimated
disposal value after 10 years is $50. The annual depreciation is calculated as follows:
Depreciation = (Cost - disposal value) divided by estimated lifespan
= (900-50) ÷10 years
= $85.00 per year
Activity 4.9
On 01 January 2013 Bright Star bought a honey presser for $1900.00 which is expected
to have a working life span of ten years and an expected disposal value of $20.00. They
also bought an office desk and a chair for $76 with an expected life span of five years.
The disposal value is $10.
Below is Bright Star’s copy of an asset register. Develop an asset register for the assets
in your business

36
4.1.8 Donation in-book
In this book, you record all donations that you receive from your donors. The common features in
your donation record book are as follows-
 The date that you received the donation
 What was donated to you
 The value of the donation
 Person or organization donating the items and the person receiving the donation
 National Identity number of recipient
 Signature of recipient
 Person receiving the donation
 National Identity number of recipient
Copy of asset register for Bright Star
Date Type of
asset
Serial
number
Expected
life span
Purchase
Value $
Depreciation
$
Disposal
date
Disposal
value $
1 Jan
2013
Electric
honey
presser
000033678 10 years 1900 1880
($188x10yrs)
Jan 1
2023
20
01 Jan
2013
Office desk
and chair
M2DO 9 5 years 76 66
($13.20x5yrs)
Jan 1
2018
10
Activity 4.10
Hamamaoko Club received the following donations in the month of February 2013:
 $1000 cash from COPAZ on 3 February 2013
 1000 chicks from the Ministry of Women Affairs, Gender and Community Development
valued at $ 1000 on 4 February 2013
 14 work suits from MFS worth $280 on 5 February 2013
 500 kg stock feeds from the MFS Community Development Fund worth $380-00 on 8
February 2013
The first two entries have been done for you. Complete the remainder of the exercise.

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4.1.9 Donation out-book
Sometimes you make donations to the members of your community and such donations have to
be recorded properly in your donations out-book. The common features in your club donation
record book are as follows-
 The date you give the donation
 Details of donation
 Value of donation
 Name of recipient
 Identification of recipient
 Name of person handing over the donation
HAMAMAOKO CLUB DONATIONS-IN BOOK
Date Details of
donated
items
Value of
items
donated $
Name of
Donor
Name of
recipient
I.D no of
recipient
Signature of
recipient
03.02.2013 Cash 1 000 COPAZ N.
Kupangwa
xxxx xxx
04.02.2013 1000
Chicks
1000 Ministry of
Women
Affairs
E. Maonde xxx xxx
Activity 4.11
Kumboedza Club donated the following items:
 Donated 10 birds to Nerwande Orphanage valued at $70 on 7 February 2014
 Donated 5 kg chicken livers to 3 child headed families valued at $45 on 2 April 2014
 Paid $100 being school fees for 5 OVC at Manjoro Primary School on 8 August 2014
 Donated 2 bags of maize to 5 elderly women worth $30 on 12 September 2014
The first two have been done for you. Complete the remainder of the exercise.

38
KUMBOEDZA CLUB DONATIONS-OUT BOOK
Date Details of
donated items
Value of
item
Name of
recipient
I. D no of
recipient
Signature
of
recipient
Handed
Over By
07/02/14 Chickens $70 Nerwande
Orphanage
xxx xxx Xxx
02/04/14 5kg Chicken
liver
$15 Nyasha
Chinenyanga
xxx xxx xxx
4.2 Summary
Record books are essential for the success of any strong business. Knowledge and usage of
relevant record books is important in the business. Record books provide evidence of what is
going on in the business. Through record books you are able to trace and establish the
performance of the business and make informed decisions.

39
CHAPTER 5
CASH ANALYSIS BOOK
 Define the cash analysis book and explain its purpose
 Identify and record all cash in and cash out transactions
 Create cash in and cash out columns in the cash analysis book
 Demonstrate balancing off of cash analysis book
 Identify source documents feeding into the cash analysis book
 Use cash analysis entries to determine the performance of each income generating
activity
5.1 What is a cash analysis book?
A cash analysis book contains a record of all cash receipts and payments including bank deposits
and withdrawals. Cash analysis is the listing of all cash transactions that occurred during the
operating business period. It involves the recording and tracking of the movement of money into
and out of the business.
5.2 Importance of cash book analysis
The cash analysis book presents an analysed summary of all cash income and payments. You can
see at a glance the different types of expenses and income for a particular period. It becomes
easy for you to compare these with the budget estimates for your business. If there are any
significant differences you can quickly take corrective action. If your business has several
business units, the cash analysis book helps you to analyse which business unit is making more
profit and which one is making a loss.

40
5.3 Layout of cash analysis book
Activity 5.1 below shows how a cash analysis book looks like. The book is divided in two
halves. All income (cash-in) is recorded on the page on the left side of the book. This side is
called the income or receipts side. All payments (cash-out) are recorded on the page on the right
side of the book. This side is called the payments or expenditure side. You begin each page with
a column for the date followed by the details column. On the income side the third column is the
receipt number column. Whenever your business receives cash you issue out a receipt. The
receipt number is entered in the receipts columns alongside the details of the transaction. This is
followed by the cash and bank columns respectively.
However if your business does not have a bank account you need not include this column. The
cash and bank columns are also called totals columns. The cash and bank columns are followed
by the analysis columns. The main income sources become the column headings on the income
side and the major payments become the column headings on the payments side. One of the
columns on the right hand side should be a petty cash column. The last money column is a
miscellaneous or sundry column. In the miscellaneous column you record all the transactions that
do not fit in any other column heading. These should be small amounts that do not occur
regularly in your business. The last column for each page should be left for notes or comments.
5.4 How to enter transactions in the cash analysis book
All the transactions of your business are entered twice, that is once on the totals column and once
on the analysis column under an appropriate column heading. Money received in cash are
entered on the left page (income page) in the cash column and the appropriate analysis column.
Cash paid out is entered once on the page on the right hand side in the cash column and also on
an appropriate analysis column.
Money that is received into the business through the bank for example as direct deposits or bank
transfers should be entered on the left side in the bank column and appropriate analysis column.
Any payments made by the business bank using a cheque or bank transfer should be entered in
the bank column on the payments page and on the appropriate analysis column.

41
If your business deposits surplus cash into the business bank account, you first enter the amount
in the cash column and sundries column on the right side (payments) of the analysis book.
Afterwards you enter the same amount in the bank and sundry column on the left side (income)
of the analysis book. This procedure is called contra entry and this is shown by putting the letter
C in the reference column on both sides of the book. This makes it easy to identify these entries.
Amounts withdrawn from the bank other than those drawn for petty cash are treated in the same
manner. You first enter the amount in the bank and sundries column on the right side and then on
the cash and sundries column on the left hand side of the cash analysis book.
We make contra entries because a double internal entry is taking place. The business is taking
money from its cash and putting it into its bank account or vice versa. It therefore becomes
necessary to make entries twice on both sides of the cash analysis book.
Petty cash- amounts drawn for petty cash are entered on the right side in the bank and petty cash
columns or in the cash and petty cash if the money has been taken from the cash box. Further
analysis of how the petty cash was utilised is contained in the petty cash analysis book (see
chapter 4)
General rule: always make two entries in one row; that is one entry in totals column and one
entry in analysis column.
5.5 How to balance the cash analysis book
All the columns should be totalled at the end of every page and the totals should be brought
forward (b/f) to the top of the next page. At the end of every month, you should balance off
accounts (by getting totals of every column) and carry forward the balance to the next month.
This amount carried forward is recorded as the balance brought forward at the beginning of the
following month. Any unused space at the end of the month should be ruled off. In this way you
avoid any questionable entries.
To get the total amount of cash in hand you should subtract the total of the cash column on the
payments side from the total of the cash column on the receipts side. The total amount in the
bank should be calculated in a similar manner.

42
The combined totals of the cash and bank account on either side should be equal to the total of
the analysis columns of the respective pages.
Only cash transactions should be entered in the cash analysis book.
Activity 5.1
Mrs Nduna runs a tuck-shop, a grinding mill and also sells paraffin. The following transactions
took place in the month of June 2014
 1 June – Cash on hand $32
 1 June - Cash at bank $485
 6 June –Sold goods and services for $781- shop sales $224, grinding mill $245, paraffin
 $312
 8 June – Cash to bank $750
 10 June- Purchased paraffin $380
 12 June- Purchased grocery $250
 13 June- Goods and services for $721 - shop sales $268, grinding mill $225,
 Paraffin $228
 13 June- Petty cash replenishment $45
 15 June- Cash deposit into bank $700
 16 June- Purchased paraffin $150
 18 June- Sold an asset for cash $96
 20 June- Goods and services for cash total $587 - shop sales $195, grinding mill $225,
 Paraffin $187
 22 June- Cash to bank $680
 24 June- purchased grocery $220
 24 June
 27 June- Goods and services for cash total $680 - shop sales $208, grinding mill $227,
 Paraffin $245
 30 June – Petty cash replenishment $45 from the bank
 30 June $950 cash withdrawn from the bank
 30 June $300 and electricity $200 from cash
 Prepare a cash analysis for Mrs Nduna for the month of June 2014. After the examples
below, you should be able to prepare cash analyses for your business

43
CASH ANALYSIS FOR MRS NDUNA – INCOME SIDE
TOTALS ANALYSIS
Date Details Rec no Cash Bank Shop
sales
Grinding
mill sales
Paraffin
sales
Asset
disposal
Sundries Ref
No Notes
1 June Balance B/F
From May
32.00 485.00 517.00
6 June Sale of
groceries
224.00 224.00
6 June Milling sales 245.00 245.00
6 June Paraffin sales 312.00 312.00
8 June Cash to bank 750.00 750.00 C
13 June Sale of
groceries
268.00 268.00
15 June Cash to bank 700.00 700.00 C
18 June Sale of an asset 96 96.00 Book
value
20 June Sale of 195.00 195.00

44
CASH ANALYSIS FOR MRS NDUNA – INCOME SIDE
TOTALS ANALYSIS
Date Details Rec no Cash Bank Shop
sales
Grinding
mill sales
Paraffin
sales
Asset
disposal
Sundries Ref
No Notes
groceries
22 June Cash to bank 680.00 680 C
27 June Sale of
groceries
208.00 208.00
30 June Bank to cash 950.00 950.00 C
Total
balance
3867.00 2615.00 895.00 922.00 972.00 96 3597.00
= 6482 = 6482

45
Example : CASH ANALYSIS FOR MRS NDUNA – PAYMENTS SIDE
TOTALS ANALYSIS
Date Details Cash Bank Shop
purchases
Grinding mill
purchases
Paraffin
purchases
Wages Electric
ity
Petty
cash
Sundries Folio
Notes
8 June Cash to bank 750 750 C
10
June
Cash
purchases
380 380
12
June
Cash
purchases
250 250
13
June
Cash 45 45
15
June
Cash to bank 700 700 C
16
June
Cash 150 150
20
June
Cash
purchase
187 187
22 Cash to bank 680 680 C

46
Example : CASH ANALYSIS FOR MRS NDUNA – PAYMENTS SIDE
TOTALS ANALYSIS
Date Details Cash Bank Shop
purchases
Grinding mill
purchases
Paraffin
purchases
Wages Electric
ity
Petty
cash
Sundries Folio
Notes
June
24
June
Cash
purchase
220 220
30
June
Petty cash
from bank
45 45
30
June
Bank to cash 950 950 C
30
June
300 300
30
June
200 200
Total 3 862 995 470 0 717 300 200 90 3080
= 4857 = 4857

47
Activity 5.3
Example 2: Progressive Dairy Cooperative Project
Progressive Dairy Cooperative group started operations in July 2014. On 1 July the group
had $5000.00 in the bank that had been contributed by members as share capital
2 July Received a loan of $2 000 for construction of a milk processing centre from
CBZ bank. This was deposited into the cooperative bank account
3 July Bought building material worth $600 and paid by cheque number 0015
3 July Bought milk cans worth $300 and paid by cheque 0016 and got receipt no 1023
4 July Sold 200 litres of milk worth $250 cash to a local boarding school and gave the
school receipt number A221
6 July Sold 640 litres of milk worth $800 cash to a local hospital and gave them
receipt A222
7 July The treasurer banked $450 and she also put aside $200 Petty cash
15 July Dairy Board Zimbabwe (DZL) bought milk worth $1 000 on credit and the
group issued invoice number B125.
18 July Paid builder $200 by cheque number 000121
20 July Withdrew $150 cash from bank
21 July Sold 600 litres milk for $750 cash and issued receipt number A223. The
cooperative members shared all the money as allowances on the same day.
23 July The group arranged an official opening for the dairy project. They spent $200
cash on groceries to feed the invited guests
24 July Members of the ward development committee solicited for a donation towards
the celebrations of the rural women’s’ day. The group donated $20
28 July Paid wages through bank transfer worth $300
30 July DZL paid the $1 000 that they owed to the group through bank transfer and
were issued receipt number A224
Activity
1. Enter all the above transactions into the Dairy Project books
2. Balance off the accounts at the end of the month of July 2014

48
5.7 Summary
The cash analysis book gives you a clear picture of the performance of different business
units. It shows the movement of cash in and out of the business and provides early
pointers of business viability. It is important to note that only cash transactions are entered
in the cash analysis book. Remember to balance off the cash analysis book at the end of
each month and at the end of every page.

49
PART 2: FINANCIAL MANAGEMENT FOR SMALL BUSINESSES
CHAPTER 6
COSTING AND PRICING
6.1 Costing
Costing is the process of determining the value of both direct and indirect costs that are
incurred in running a business. Direct costs are accurately traced to the business’ goods
and services. Direct costs fall into two groups; direct material costs (for example raw
materials, stock for resale) and direct labour costs (for example wages). Indirect costs on
the other hand are costs that are not directly traced to the product. These include money
paid out for rent, water, electricity and licencing. The costing process helps you to
determine the selling price of your goods and services.
Cost classification depends on whether you are a producer (for example poultry farmer),
retailer ( for example buying and selling) or a service provider (for example welder or
miller). Costing for producers and service providers is the same whereas costing for
wholesalers and retailers also has the same characteristics. Producers and service providers
 Identify all the direct and indirect costs that are incurred by the business
 Determine the total cost of the goods and services
 Formulate a pricing strategy
 Calculate the selling price
Activity 6.1
 What are the direct and indirect costs that apply to your business?

50
have direct material costs, labour costs and indirect costs. Retailers and wholesalers only
have direct material costs and indirect costs.
The owner of the business should be able to manage the costs of running the business. High costs
of running the business eat into the profits of the business. It is therefore important to keep
tracking the direct and indirect costs of the business to avoid losses.
Activity 6.2
Shelly Mlangari incurred the following costs in running her poultry project:
$
a. Purchase of 200 broiler chicks 180
b. Purchase of stock feeds 12x50 kg bags 456
c. Purchase of vaccines and stress packs 36
d. Lighting 15
e. Packaging materials 2
f. Direct labour for 6 weeks (feeding and cleaning) 30
g. Indirect labour (marketing, selling) 30
h. Security 45
i. Communication- telephone 5
j. Food and refreshments 8
k. Transport- stock feeds and broiler chicks 30
l. Transport for selling 10
m. Sundry expenses 10
TOTAL COST 857
She reported that five broilers died before they could be sold. Therefore the cost per bird
is as follows:
Total cost ÷ Number of birds = $857 ÷ 195 birds = $4.40 per bird
From the above information, you should be able to classify direct and indirect
costs.

51
Cost classification for Shelly Mlangari’s poultry project
Direct costs Indirect costs
Direct material costs Lighting
200 broiler chicks Indirect labour
12x50kg bags stock feeds Security
Vaccines and stress packs Communication
Packaging materials Food and refreshments
Transport for stock feeds Transport for marketing
Direct labour costs Sundry expenses
Direct labour costs for 6 weeks
6.2 Pricing
It is the process of determining the amount of money charged to a customer for goods and
services. The cost and price of a product are closely related. Knowing your costs will help
you to set prices and this will enable you to compete with other businesses and make
profit. Profit therefore is the difference between your selling price and the cost of the
goods and services. Profit is important because it helps to finance expansion of your
project and to repay loans.
The following are some of the factors that determine your selling price:
 Cost of goods and services
 The level of competition
 What customers are willing and able to pay
 The desired mark-up
6.3 Determining the selling price per unit
Relook at Activity 6.2. Shelly Mlangari is selling her chickens at $7 after considering the
cost of producing one chicken, competitor prices and her mark up among other factors.
Her target mark-up is between 50% and 60%.
Activity 6.3
In addition to the above can you include other factors that affect your selling price?

52
Selling price= Cost of goods + Mark-up
Selling price - Cost of goods = Profit
$7 - $4.40 = $2.60 profit per bird
6.4 Summary
There are direct and indirect costs incurred in running a business. Pricing of goods is
determined by factors such as the cost of the product or service, the prevailing market and
the mark up.
Activity 6.4
Following the example of Shelly Mlangari above, do the same costing
and pricing for your business.

53
CHAPTER 7
THE PROFIT AND LOSS ACCOUNT
 Identify all the income and expenditure items of the business
 Record all the totals from the cash analysis book into the Profit and Loss account
 Compare and explain the relationship between income and expenditure of the business
 Assess and evaluate whether or not the business is making a profit or loss
7.1 What is a profit and loss account?
The profit and loss account is a record of your income against the record of your
expenditures for a specific period that is a day, a week, a month, a quarter or a year. The
profit and loss account shows whether the business is making a profit or a loss thus
forming a basis for good management decisions. In the case of continued losses the
business may be forced to make a decision to close or to change the way the business is
run.
7.2 Aspects of the profit and loss account
i. Sales- this is the total amount of money realised from selling goods or services both for
cash and on credit
ii. Cost of goods sold- the cost of making the goods or buying them. The cost of goods sold
can be explained with the help of the following formula:
(Cost of opening stock + cost of goods purchased) – Cost of closing stock)
iii. Gross profit- This is the amount realised from sales less direct costs
iv. Net profit- This is the amount realised from total business expenses less all business
expenditure

54
v. Indirect costs- These are costs that are not directly involved in the production process
(indirect costs) for example rent, repairs, office costs, marketing costs or finance costs
such as bank charges.
Activity 7.1
In the year of 2014, Tamuka CIGP embarked on a uniform making project and the
following transactions were recorded;
 Received $1000 cash from M2DO as a loan for the project payable over a period of 3
months at 10% interest for the 3 months
 Each of the 15 group members contributed $100 as share capital
 Received $500 cash from Internal Savings and Lending (ISAL) club as a loan at an
interest rate of 20% per month payable over one month.
 They bought an industrial sewing machine for $800
 Bought school uniform materials for $2000
 They manufactured 700 sets of uniforms
 They sold 690 sets at $10 each to M2DO
 Electricity was $20 per month
 Security $30 per month
 Member allowances @ $20/member/quarter
 Transport costs were $150
 Food and refreshments costs were $180 for the whole year
 Tools and equipment costs $50
 Communication – telephone costs for the whole year $60
 Loan repayment from M2DO $1 000
 Interest on loan from M2DO $100
 Loan repayment from ISAL $500
 Interest on loan from ISAL $100
 Provision for depreciation $160
 Cleaning materials for the whole year $20
 Stationery for the whole year $50
 Donations out to OVC $200
Draw-up a statement of profit or loss for Tamuka CIGP for the year ended 31 December
2013

55
Statement of profit or loss for the year ended 31 December 2014
INCOME $
Sales (690 sets of uniforms x $10) 6 900.00
TOTAL SALES 6 900.00
LESS COSTS
Cost of goods sold
Cost of opening stock 0
Purchases (school uniform materials) 2 000.00
Less cost of closing stock (2000÷700 uniforms) x 10 uniforms 28.57
Total cost of goods sold 2 028.57
Gross profit (Total sales-cost of goods sold) 4 871.43
EXPENDITURE
Communication-Telephones (amount given) 60.00
Cleaning Materials (amount given) 20.00
Depreciation-sewing machine (provision for depreciation given) 160.00
Donations to OVC (amount given) 200.00
Drawings-member allowances ($20 x 15 members x 4 quarters) 1 200.00
Electricity ($20 per month x12) 240.00
Food and Refreshments (amount given) 180.00
Interest on M2DO loan (10% of $1 000) 100.00
Interest on ISAL loan (20% of $500) 100.00
Security ($30 per month x 12) 360.00
Stationery (amount given) 50.00
Transport (amount given) 150.00
Total expenditure 2 820.00
Net profit/loss for the year ($4 871.43 - $2 820.00) 2 051.43

56
Note that the following are not to be included in the profit or loss statement because they are not
expenses related to running the business.
 Loan repayments
 Share capital
 Money paid for assets and equipment
7.3 Summary
The profit or loss statement shows you whether your business is making a profit or a loss. This
enables you to make good management decisions about the business.

57
CHAPTER 8
BUSINESS PLANNING
Determine whether your business is going to make a profit or loss in the future
Identify areas that will need attention in the future
Analyse the relationship between the sales and costs of the business
Decide whether to continue with your business idea or change it
8.1 What is business planning?
Business planning is a process of thinking ahead and working out how the business is going
to be in the near future. Some business people do not make business plans so when problems
come they do not know where they went wrong and what to do.
8.2 The importance of business planning
Business planning is important because it shows you;
 How much money you need to inject into the business
 If your business can expect to make a profit in the future
 Which part of your business needs attention
 What money you expect to come into the business
 What money you expect to go out of your business
 How to budget and distribute your resources
 How to sell the business idea to potential funders
 How much shareholders can contribute to the business compared to the total capital
required for the business
 The total capital required for the business
8.3 Types of plans or forecasts
There are 2 types of plans: a sales and costs plan and a cash flow plan

58
Activity 8.1: Preparing a sales and cost plan
Mrs Masibango is starting a poultry project and she has carried out a business study. She has
injected share capital of $857. She also received a loan of $1 000 from DOMCCP at 10%
interest per annum. She signed a contract with TM Supermarket to supply 180 dressed chickens
at a wholesale price of $5.50 per bird. She also sells chickens within her community at $7 per
bird. According to her business plan, she will be having 200 birds for sale on the market every
month. She gets 9kg chicken livers and 9kg gizzards after slaughtering 200 birds which she sells
at $2 per kg. Intestines and chicken feet are given out to chicken dressers. Demand for chickens
is high during public holidays
Business requirements
Mrs Masibango carried out an exercise to determine her business needs and established the
following:
CAPITAL INVESTMENT
BUSINESS PREMISES $ $
Construction of fowl run 800
Total 800
EQUIPMENT
16 drinkers and 16 feeders 150
Wheelbarrow 40
Shovel 5
Fork 5
Total capital investment 200
TOTAL CAPITAL INVESTMENT 1000
DIRECT COSTS
Purchase of 200 broiler chicks 180
Purchase of stock feeds 12x50 kg bags 456
Purchase of vaccines and stress packs 36
Packaging materials 2
Direct labour for 6 weeks 30
Transport- stock feeds and broiler chicks 30
TOTAL DIRECT COSTS 734
INDIRECT COSTS
Lighting 15
Indirect labour (marketing, selling) 30
Security 45
Communication- telephone 5
Food and refreshments 8
Transport for selling 10
Sundry expenses 10
TOTAL INDIRECT COSTS 313
TOTAL CAPITAL REQUIRED 1857

59
A sales and costs plan is a projection of future income from the selling of the business’s
goods or services and the total money to be paid out of the business to cover the costs of
producing and selling the goods and services. It shows the profitability of the business.
8.4 How to prepare sales and costs plan/forecast
Step 1- Forecast how much total indirect costs will be per month for the following year
Step 2- Forecast how much the total direct material costs will be for each product per month
for the following year
Step 3- Forecast the direct labour costs per month for the following year
Step 4- Prepare the sales and costs plan
Here is how Mrs Masibango prepared her sales and costs plan:
After going through the sales and costs plan below, you should be ready to do a forecast for
your business.

60
Sales and Cost Plan For the 12 months ending December 2015
Details Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TOTALS
Sales
TM -Contract 990 990 990 990 990 990 990 990 990 990 990 10890
Community 105 105 210 105 105 105 210 105 105 105 350 1610
Livers 18 18 36 18 18 18 36 18 18 18 45 261
Gizzards 18 18 36 18 18 18 36 18 18 18 45 261
Total Income 1131 1131 1272 1131 1131 1131 1272 1131 1131 1131 1430 13022
Direct Material costs
Broiler chicks 200 200 200 225 180 180 180 225 180 180 180 250 2500
Stock feeds 456 456 456 524 456 456 456 524 456 456 456 592 5744
Vaccines and Stress Packs 36 36 36 46 36 36 36 46 36 36 36 56 472
Packaging 2 2 2 3 2 2 2 3 2 2 2 4 28
Transportation –Feeds/ 30 30 30 30 30 30 30 30 30 30 30 30 360
Direct Labour Costs
Labour 30 30 30 30 30 30 30 30 30 30 30 30 360
Total direct costs 754 754 754 858 754 754 754 858 754 754 754 962 9464
Gross profit -754 377 377 414 377 377 377 414 377 377 377 468 3558
Indirect labour costs
Communications 5 5 5 5 5 5 5 5 5 5 5 5 60
Food and Refreshments 10 10 10 10 10 10 10 10 10 10 10 10 120
Sundry Expenses 10 10 10 10 10 10 10 10 10 10 10 10 120
Lighting 15 15 15 15 15 15 15 15 15 15 15 15 180
Security 45 45 45 45 45 45 45 45 45 45 45 45 540
Marketing & Selling 30 30 30 30 30 30 30 30 30 30 30 30 360
Transport for selling birds 10 10 10 10 10 10 10 10 10 10 10 10 120
Total Indirect Costs 125 125 125 125 125 125 125 125 125 125 125 125 1500
Net profit -879 252 252 289 252 252 252 289 252 252 252 272 2058

61
8.5 Cash flow plan
A cash flow plan is a calculated estimate of the amount of money you expect to come in
and out of your business within a given period of time. A cash flow plan helps you to
ensure that your business does not run out of cash at any time. It helps you to plan your
cash resources and where the plan shows insufficient funds, the cash flow plan shows how
much you may need to borrow or to inject as share capital.
8.6 How to make a cash flow plan
STEP 1: Cash at the beginning of the month
This is the amount of cash you expect to have at hand including cash in your bank account
at the beginning of your business in the first month. The sources could be in the form of
member’s contributions, loans and donations for the first month. From then on balances
are brought forward from the end of the previous month.
STEP 2: Cash in from sales
This is money that we receive from selling our goods or services including cash in from
credit sales.
STEP 3: Any other cash in
This is the amount of cash your business will receive from any other source such as a loan
from a bank, donations, grant or members’ contributions to help you to run your business.
STEP 4: Total cash inflow
Add up all the cash from steps 1, 2, 3. This is the total cash amount you expect to come in
your business during that month.
STEP 5: Cash out for the direct material costs
This is the amount of cash that your business will pay out in that month to buy goods and
materials. Use your sales and costs plan to find the amount you forecast for direct material
cost for that month and write it under this section.
STEP 6: Cash out for direct labour costs
This is the amount of cash your business will pay out in that month for wages to
employees working in production. Use your sales and costs plan to find the amount you

62
forecast for direct labour costs for that month. Remember that retailers and wholesalers do
not have direct labour costs. Therefore you leave this line blank.
STEP 7: Cash out for indirect costs
This is the amount of cash you forecast your business will pay out in that month for
indirect costs such as rent, electricity, transport, indirect labour and stationery. Use your
sales and costs plan to find the amount you forecast for indirect costs for that month. Write
this amount on your cash flow plan.
STEP 8: Cash out for planned investment
If you are going to buy any equipment, machinery or invest in buildings during that month
then write the amount in this section.
STEP 9: Any other cash out
This is the amount of cash your business will pay out in that month, such as a loan
repayment. Write the amount in this section.
STEP 10: Total cash outflow
Add up all the Cash Out amounts from steps 5, 6, 7, 8 and 9.This is the total cash amount
that you expect to go out of your business during that month.
STEP 11: Cash in at the end of the month
Subtract the total cash outflow from the total cash inflow to get the amount of cash you have
at the end of that month. Cash at the end of the month is carried forward as cash at the
beginning of the next month.
Activity 8.2
From the details in Activity 8.1, use Mrs Masibango’s sales and costs forecast to prepare a cash
flow forecast. Note that 3 entries, capital expenditure, interest on loan and loan repayment do not
appear in the sales and costs plan

63
CASH IN
MONTHLY CASH FLOW FORECAST
Jan Feb Mar April May June July Aug Sep Oct Nov Dec TOTALS
O/B 0 1049 1148 1247 1393 1492 1591 1690 1836 1935 2034 2133 17548
Own contribution 857 0 0 0 0 0 0 0 0 0 0 0 857
Other income 1000 0 0 0 0 0 0 0 0 0 0 0 1000
Sales 1131 1131 1131 1272 1131 1131 1131 1272 1131 1131 1131 1430 14153
TOTAL CASH IN 2988 2180 2279 2519 2524 2623 2722 2962 2967 3066 3165 3563 33558
CASH OUT
Capital expenditure 1000 0 0 0 0 0 0 0 0 0 0 0 1000
Communication 5 5 5 5 5 5 5 5 5 5 5 5 60
Day old chicks 200 200 200 225 200 200 200 225 200 200 200 250 2500
Deliveries-chicks, feeds 30 30 30 30 30 30 30 30 30 30 30 30 360
Feeds 456 456 456 524 456 456 456 524 456 456 456 592 5744
Food & refreshments 10 10 10 10 10 10 10 10 10 10 10 10 120
Interest on loan 0 10 10 10 10 10 10 10 10 10 10 10 110
Lighting 15 15 15 15 15 15 15 15 15 15 15 15 180
Loan repayment 0 83 83 83 83 83 83 83 83 83 83 83 913
Marketing & selling 30 30 30 30 30 30 30 30 30 30 30 30 360
Packaging 2 2 2 3 2 2 2 3 2 2 2 4 28
Security 45 45 45 45 45 45 45 45 45 45 45 45 540
Sundry expenses 10 10 10 10 10 10 10 10 10 10 10 10 120

64
Transport 10 10 10 10 10 10 10 10 10 10 10 10 120
Direct labour 30 30 30 30 30 30 30 30 30 30 30 30 360
Vaccines 36 36 36 36 36 36 36 36 36 36 36 36 432
Wages (labour costs) 60 60 60 60 60 60 60 60 60 60 60 60 720
TOTAL CASH OUT 1939 1032 1032 1126 1032 1032 1032 1126 1032 1032 1032 1220 13667
Balance at end of
month 1049 1148 1247 1393 1492 1591 1690 1836 1935 2034 2133 2343 19891
Activity 8.3
After going through the above, develop a cash flow forecast for your business

65
8.7 Summary
Business planning through sales and costs helps you to determine whether your business is
going to make a profit or loss in the future. You will be able to identify areas that will need
attention in future by analysing the relationship between the total income and expenditure of
the business. The Cash Flow will show you how much money you will have at the end of
each month. This will help you in making important decisions on allocating the available
cash for competing demands of your business. Business planning helps you to decide
whether to continue with the business idea or change it basing on returns on capital invested.

66
APPENDIX 1: DEFINITION OF TERMS
Word Meaning
Capital Money invested in the business by an individual or individuals
Cash Money that is in the business that can be used in exchange for goods and services
Creditor An individual or business whom we owe money for goods and services that have
been supplied to the business
Debtor An individual or a business owing money to the business for the goods or services
sold to them on credit and to be paid on an agreed future date
Depreciation Loss of value of an asset over its useful life
Double
entry
An accounting principle where we enter a business transaction twice, once as a
debit and second as a credit
Drawings Goods or money taken from the business by the owner for personal use
Expenses Costs related to the day to day running of the business
Expenditure The total of expenses and purchases
Petty cash Small amount, readily accessible cash kept on hand by a business to pay for minor
expenses
Profit The positive difference between the income and expenditure of the business
Purchases Goods bought for resale or for use in the production of other goods or services in
the business
Receipt A document that shows that money has been paid to and received by the business
Sales Money that is realised from goods and services sold by the business
Share
capital
Money contributed by members who come together to form a business
(shareholders)
Stock Items that the business has either bought or produced so that they can be sold later
on or used in the business
Transaction Any activity that takes place in a business and is recorded in the books of
accounts.
Voucher Written proof of expenditure, disbursement or completed transaction to be written
down in a record book

67
APPENDIX 11: SOLUTIONS TO EXERCISES
1. Solution to activity 4.4 (Part of the solution has been done in the example)
Stock Card for Mrs Chimoyo for stock feeds
Date Details Stock in
(kg)
Out (kg) Balance (kg)
02-Apr Daily feeding 25 100
03-Apr Purchases 500 600
23-Apr Purchases 500 600
01-May Daily feeding 25 375

68
2. Suggested solution to activity 3.3
KUMBOEDZA GROUP'S BOOKS
CASH ACCOUNT CA 3
Debit Credit
01.01.15 Balance b/f 500 10.01.15 Purchased 300 birds from
MFS Wholesalers
PA 2 300
05.01.15 Sales of 200 birds to Chicken
Inn @ $6 each
STA 1 1 200 11.01.15
Purchases of vaccines and
stock feeds PA 2 450
20.01.15 Sales of 100 birds to SPAR @
$6 each
STA 1 600 24.01.15
Payment of stock feeds
transportation
TA 1 145
30.01.15 Payment of membership
allowances for 10 members @
$5 each MA 1 50
31.01.15 Balance c/d 1 355
Total 2 300 2 300
01.02.15 Balance b/f 1 355

69
PURCHASES ACCOUNT PA 2
STOCK ACCOUNT STA 1
Debit Credit
10.01.15 Purchased 300 birds from MFS
Wholesalers
CA 3 300 31.01.15 Balance c/d 750
11.01.15 Purchases of vaccines and stock feeds CA 3 450
Total 750 750
01.02.15 Balance b/f 750
Debit Credit
01.01.15 Balance b/f 1 800 05.01.15 Sales of 200 birds to Chicken Inn @ $6
each
CA 3 1 200
20.01.15 Sales of 100 birds to SPAR @ $6 each CA 3 600
Total 1 800 1 800

70
TRANSPORT ACCOUNT TA 1
MEMBERSHIP ALLOWANCE ACCOUNT MA 1
Debit Credit
24.01.15 Payment of stock feeds
transportation
CA 3 145 31.01.15 Balance c/d 145
Total 145 145
01.02.15 Balance b/f 145
Debit Credit
30.01.15 Payment of membership allowances for
10 members @ $5 each
MA 1 50 31.01.15 Balance c/d 50
Total 50 50
01.02.15 Balance b/f 50

71
3. Suggested solution to Activity 5.3: Cash Analysis Book for Progressive Cooperative
INCOME
Date Details Receipt
no
Cash Bank Share
capital
Loan Sales Sundry Ref Notes
1/07/14 Share capital B/F 5000 5000
2/07/14 CBZ bank Loan 2000 2000
4/07/14 Sold 200litres milk A221 250 250
6/07/14 Sold 640litres milk A222 800 800
7/07/14 Cash deposit- bank 450 450 C
20/07/14 Bank withdrawal 150 150 C
21/07/14 Sold 600 litres milk A223 750 750
30/07/14 DZL paid debt A224 1000 1000 Inv B125
Totals 1 950 8 450 5 000 2 000 2800 600
10 400 10400
31/07/14 Balance c/d 330 6 900

72
PAYMENTS
TOTALS ANALYSIS
Date Details Rec
no
Cash Bank Building
costs
Equip
ment
Member
fees
Wages Petty
cash
Sundry Ref Notes
3/07/14 Bought building material 600 600 Chq no 0015
3/07/14 Bought milk cans 300 300 Chq no 0016
7/07/14 Cash to bank 450 450 C Cash deposit
07/07/14 Cash to petty cash 200 200
18/07/14 Payment of builder 200 200
20/07/14 Bank withdrawal to cash 150 150 C
21/07/14 Paid member fees 750 750
23/07/14 Official opening grocery 200 200
24/07/14 IWD donations 20 20
28 July Paid wages 300 300
31/07/14 Totals 1 620 1 550 800 300 750 300 200 820
3170 3170

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