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

1.0 Chapter 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



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 9

th 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


25 100

03-Apr-15 Purchases 500

600


25 575


25 550


25 525


25 500

07-Apr-15 Daily feeding 25 475

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 Opening stock 0

0

01-Apr-15 Daily collections 180

180


360


540


720


900


1080


1260

07-Apr-15 Sales

1200 60


240

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.

33

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

34

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.

37

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)

01-Apr-14 Opening stock 150 150

01-Apr-14 Daily feeding 25 125

02-Apr Daily feeding 25 100

03-Apr Purchases 500 600







09-Apr Daily feeding

25 425


25 400


25 375


25 350


25 325


25 300


25 275


25 250


25 225


25 200


25 175


25 150


25 125


25 100

23-Apr Purchases 500

600


25 575


25 550


25 525


25 500


25 475


25 450


25 425


25 400

01-May Daily feeding

25 375

02-May Daily feeding

25 350

03-May Daily feeding 25 325

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