By Prof. Kabiru I. Dandago PhD, FCA, FCTI, FNIM, FNAA, FFAR, ACS, MNES, AQIF
Book keeping is about records keeping of financial and non-financial transactions of a business, a government agency or a person. The records are kept with a view to ensuring easy remembrance of the transactions that have taken place over a specified period of time and with a view to using the summary of all the transactions over the period in order to measure performance of operations of the business, agency or person.
Business women at the micro scale, small scale, medium scale or large scale level of businesses engage in financial transactions all the times, and the transactions are expected to be remembered in the future for determination of selling prices of goods purchased for sale; the due date for repayment of loans and how much to be paid; determination of profit or loss; collection of money for goods sold on credit; deposit or withdrawal of money to or from banks; etc. Remembering all these up-head would be different in real life.
In the absence of proper book keeping, the woman entrepreneur might forget most or some of the transactions and would not be able to accurately determine: (i) the result of operations of the business and (ii) the financial position of the business at any fixed interval. It is (i) and (ii) that are needed for favorable tax assessment, possibility of winning grant from government or other organizations, possibility of getting loans from banks and other financial institutions, etc for business expansion and diversification.
Good Book keeping system is the first step towards establishing good accounting system in any organization (public or private). The ability to keep proper books of account is what would suggest the ability to institutionalize good accounting system, which would ultimately lead to ensuring proper accountability to stakeholders.
With proper book keeping it would not take long for micro woman entrepreneur to progress to small entrepreneur, and small entrepreneur to progress to medium entrepreneur and ultimately to large entrepreneur. The book keeping and accounting practices would serve as the bedrock for moving from one developmental stage of business growth to the next, as providers of different dimension of funds as additional capital would have high confidence in the business for them to extend different funding opportunities to it.
This paper aims to encourage women entrepreneurs to imbibe the culture of book keeping and accounting with a view to utilizing all the funding, counseling and mentoring opportunities that are available across the world for them to nurture their businesses from lower (micro, small or medium) levels to the large scale level. In the course of moving their businesses from one level to another, their contribution towards national economic growth and development would be enormous.
The rest of the presentation is in four parts. Part 2 describes the relationship between book keeping and accounting. Part 3 is about what it takes to keep proper records of transactions for a woman entrepreneur to be seen as a seriously minded business woman. Part 4 highlights some key items of transactions to be kept records of without necessarily being comprehensive in records keeping and still afford preparation of financial statements. Part 5 concludes the paper, emphasizing on the dimensions of prosperities book keeping leads to.
2.0 Relationship between Book Keeping and Accounting
As the American Accounting Association defined Accounting as “the process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information”, the aspect of ‘identification’ in that definition is about book keeping. A firm, an agency or a person is expected to be able to keep records of all transactions in appropriate books of account so that the transactions are not forgotten; that they are easily referred to at any point in time; and that their summary is used in the determination of many results: profit, loss, surplus, deficit, financial position, liquidity position, viability position, etc.
The records are traditionally kept in journals (books of original or prime entries), and then summarized into ledger (which is a book containing numerous accounts). The ledger accounts are classified into three main groups: personal accounts (for persons, firms and government agencies coming to a business as debtors or creditors); real accounts (which are created for assets of the business such as cash, plants, machineries, motors vehicles, equipment, furniture and fittings, stocks, building, etc.); and nominal accounts (which are created for expenses, incomes, gains, losses, revenue, profit, etc.).
Journals or books of original entries are used to record detailed information of transactions in respect of purchases and sales of goods and services (quantities, types, rates, trade discounts, etc) to arrive at the amount payable or receivable which is to be taken to relevant ledger accounts for observing double entry book keeping system.
Book keeping is, therefore, the starting point for the saying that Accounting is the language of business! When entries are made into ledger accounts in line with the doctrine of double entry, which is a proof of the fact that every transaction has a giver and a receiver, the summaries (balances from all the ledger accounts) would be extracted to what is called Trail Balance. Trial balance is simply defined as the list of all balances extracted from the ledger accounts. It is the Trial Balance that is used in the preparation of financial statements to account for the result of operations of a business and its financial position.
That is how Accounting emanates from Book Keeping and carries from it many terminologies that could only be explained by Book keepers and Accountants!
3.0 Keeping Proper Records of Transactions by a Woman Entrepreneur
Under normal circumstances, every business woman should be keeping records of her business transactions as prescribed above. First relevant transactions are to be posted to relevant journals or book of original entries (purchases journal, sales journal, general journal, discount journals, cash book, etc). At the end of the financial period, which could be end of the month, quarter or year, all the journals are to be summarized and the summaries posted to relevant ledger accounts, where double entry principle is to be observed.
Double entry principle is about the fact that every transaction must be recorded into different accounts: a receiving account to be debited and a giving account to be credited with equal amount. As the ledger entries are completed, the accounts are to be balanced off, that is for each account the difference between the debit total and the credit total should be ascertained, and the difference is to be carried down to the lower side to balance the account. That difference is to be brought down to the higher side of the account.
As the ledger accounts are balanced off, the balances to the accounts are to be extracted to the Trial Balance, showing all the Debit and Credit balances. The Trial Balance is expected to show agreement of the Debit Totals and the Credit Totals, otherwise something somewhere is wrong!
The Trial Balance is what to be used in the preparation of Financial Statements of the Business of our Woman Entrepreneur, at the Micro, small or medium scale level! The financial statements would show the result of operations (profit or loss) and financial position (the size of the wealth of the business) and many other indicators. These are to be used by different stakeholders in taking many informed decisions that would affect the growth and development of the business as well as the growth and development of the wealth of the entrepreneur.
4.0 Must Records of Transactions for a Business Woman Be Comprehensive?
If a business woman, no matter how micro is her business, shows commitment to uphold detailed book keeping of all its transactions, in view of the advantages mentioned earlier, the accounting world would be happy with that business and financial institutions and other providers of financial supports would want to associate with the business. The benefit of proper book keeping practice is much higher than its cost.
But where the capacity to keep complete records of transactions is weak or absence, the woman business entrepreneur should ensure that she keeps records of some key aspects of the business transactions, as follows:
• Bank Statement of Account: First, she should have at least one account with a bank in the name of the business as a person, or in her natural name. Again, this suggests that no matter how micro the business is, it should be registered with the Corporate Affairs Commission (CAC) as a Business Name, and got a registration number for it. The bank would be releasing monthly statement of account for the business or the entrepreneur. The statement of account is a very important document which could be used in an effort to develop trial balance from incomplete records.
• Debtors: All sales of goods or services made on credit should be recorded down in a notebook for remembrance, with name of the debtor, amount receivable and date of the transaction. This also aids development of trail balance from incomplete record.
• Creditors: Whatever purchases made or services enjoyed on credit by the woman entrepreneur, she should not forget to record the name of the creditor, amount owed and the date of the transactions.
• Cash Sales: This should not be taken for granted. The woman entrepreneur should write down the quantity of the goods or services sold cash down and the dates of the transactions.
• Rental Payment: Payment for house, vehicle, machinery or any other equipment rented by the woman entrepreneur for her personal use or for business use should be recorded somewhere, to show the amount paid, the date of the transaction and the person paid.
• Wages and Salaries: If there are staff working for the business woman, when payment of salaries or wages is made to them, the amount paid, the date and the names of the employees paid should be recorded somewhere.
• Withdrawal: When money is taking out of the capital of the business for personal use (wedding, burial, payment of children school fees, etc) the amount withdrawn, reason for the withdrawal and date should be recorded somewhere. The same is applicable to withdrawal of goods for personal use or provision of “free service” to some relations. The value should be recorded somewhere.
Above are some of the transactions that a woman entrepreneur should be taking the pain to keep records of in some notebooks, if she cannot afford to keep proper records of all her business transactions.
The records kept on those seven items (and possibly more) could be used by accountants in developing Trail Balance, which is to be used in the preparation of financial statements for the desired period. The financial statements could be subjected to audit by a licensed external auditor and the audit report could be unqualified report, which is presentable anywhere to demand for financial interventions for the purpose of expanding or diversifying the business and for growing up the wealth of the business entrepreneur.
Book keeping is a culture that should be developed by any business, especially business run by an ambitious woman entrepreneur who is pursuing prosperity. To expand a business or diversify it to other sectors of the economy, a business woman needs additional funding from different sources. To migrate from a micro business/enterprise to small enterprise OR from small to medium OR from medium to large enterprise, a lot of creativity and financing is required. There are many financial institutions and agencies that could extend financial supports to ambitious business enterprises to expand or diversify their horizons. But the key information they need for assessment on the capacity of the woman entrepreneur to absorb their finances is the Statement of Affairs or Statement of Financial Position, which could not be developed in the absence of book keeping.
Again, the tax authorities (Federal Inland Revenue Service and State Internal Revenue Service) are at home with businesses that provide their financial statements for proper tax assessment and determination of appropriate tax liability for settlement. If the financial statements show loss position, the tax assessment might confirm the loss and approve grant of Loss Relief to the business, which might take the next four years for the loss to be relieved from the future profit of the business!
In the absence of financial statements, the woman entrepreneur would be subjected to assessment on Best of Judgement basis, which is referred to BOJA (Best of Judgement Assessment). The outcome of BOJA is always some tax liability to be settled, it doesn’t matter whether you make profit or not in running the affairs of the business for the tax year.
It is clear from this presentation that keeping records of transactions by women entrepreneurs is solid bedrock for the prosperity of their businesses, their personal prosperity and the prosperity of the economy as a whole.
Let Nigerian women entrepreneurs imbibe the culture of Book keeping!
Many thanks for listening!!!
Dandago works with the Department of Accounting, Bayero University, Kano-Nigeria, and be reached via email@example.com, +2348023360386