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Record-keeping is one of the main problems faced by small business owners. Many small and micro enterprise operators think that they can function successfully without maintaining appropriate records of their business processes. 

This practice however can only serve to limit the potential for growth of the business. It can also restrict operators’ understanding of all the factors which influence their business operation and the impact of these factors on the overall performance of the enterprises.

In many instances however, it is not that SME operators deliberately set out to avoid the preparation of their business records, it is just that, for a variety of reasons, they are unable to produce them in a simple and timely manner. The consequence of this is that many business owners find it very difficult to provide information on their income and expenses and therefore do not know whether they have lost or profited from their business activities.

The absence of records has also caused some problems in handling customer needs, particularly in maintenance services and also in collecting revenue from sales on credit. The lack of records also makes it very difficult for small and micro enterprise operators to obtain credit from the formal financial sector.


There are a number of reasons for keeping good records of your business transactions:
• It is essential to keep money from your business separate and apart from your personal funds.
• It is essential for business and financial planning.
• It helps you to monitor the health of your business and assists you in making wise and informed business decisions.
• It allows you to keep track of your cash flow, your debtors and creditors; i.e. “to have a finger on your financial pulse”.
• It enables you to present your business performance records to financial institutions and your major creditors.
• It is an essential tool to identify areas of risk in your business.
• It is required by the Board of Inland Revenue (BIR) in the filing of your tax returns and in any Pay As You Earn (PAYE) or Value Added Tax (VAT) audits.
• It provides essential data to help you to make the best use of the tax concessions available to Small and Micro Enterprises.


Regular processing of information could help to answer many questions on the effectiveness and efficiency of how the business is managed – perhaps too much money is being spent on labour and raw material or someone is stealing either cash or physical goods, in small quantities, from the business. Balancing the Cash Book daily and depositing all money received in a licensed financial institution is part of good cash management practice. Doing this also provides protection for your funds and enables interest to be earned.

In short, good record-keeping will help you solve several problems in your business as well as help you to plan for the future by identifying early and clearly any mistakes that may have occurred, and take corrective actions where needed. Furthermore, the business records, maintained and regularly processed, help to alert you at an early stage whether the expected profits will be realized or not.

Record-keeping is a way of writing down, in date order (chronologically), all of the business activities that involve purchase of assets, capital investments, loans received, creditors, revenue and expenditure. This process must begin from business start-up. Even before the first sale is made, you have to make considerable purchases at the start-up stage.

For example, machinery and equipment have to be purchased. These expenses are identified as fixed capital expenditure as they can be used for a year or more.

Moreover, to commence production, you would have to purchase raw material, labour, utilities (e.g. water, electricity, telephone, etc.) These are identified as variable expenses as they vary depending on the level of production. Rent and salaries are examples of recurrent expenditure since these items are paid on a frequent basis unlike capital expenditure.

Keeping records of both types of expenditure separately is essential. For efficient management of a business, the owner should have answers to the following questions:

What are the items purchased for the business at the beginning (Startup costs/expenses including registration of business)?

• What are the costs/expenses incurred to start production (raw material, utilities etc.)?
• What are the stock levels of raw material at the beginning of the month?
• What are the stock levels of finished goods after adjusting for sales and damages?
• How much money is utilized from borrowing, from whom it was borrowed and under what terms and conditions?
• Who are the short-term creditors (to whom you owe money for purchases) and who are the business debtors (who have purchased goods on credit from you)?
• What are the monies received daily, weekly, monthly, annually?
• What monies are to be collected daily, weekly, monthly, annually?
• What expenses are to be paid out in cash daily, weekly, monthly, annually?
• What are the unpaid expenses daily, weekly, monthly, annually?
• What was the profit earned, and what was done with it?
• What is the net worth of the business? and ;
• How is the business progressing?
Maintaining proper and up-to-date records will help you, the owner of the business, to know how much money you need to run the business, that is, what is the working capital and from where is it expected to come.

As previously indicated, proper record-keeping involves recording/writing down all your business transactions in an orderly manner. You need to have a written record to show what you have received and what you have paid out. You must keep as evidence your receipts, invoices or payment vouchers for every transaction, even for small amounts such as purchase of stationery, etc.

Some examples of records include:
• Receipts
• Bank statements
• Supplier Invoices or payment vouchers
• Rent receipts
• Utility bills
• Customer invoices/Copies of receipts you give to customers
• Copy of loan agreements, receipts from debt repayment

In addition to keeping records of transactions, you must write down the details about the transaction in a systematic manner and include the following information:
• Date when the transaction took place
• Who was involved in the transaction (supplier/customer name)
• What the transaction was about (purchase of inventory/sale of goods)
• How much money was involved in the transaction

Levels of Record Keeping
These are some issues which the entrepreneur must take into account in the structuring of the record-keeping procedures and practices of the business. The type of records to be kept by any given business is determined by the nature and scope of the business operation. The level and detail of the records kept may be influenced by the following:

• The size of the operation
• The range of products and services provided
• The complexity of the operation
• The number of employees
• The type of business conducted

For example:

• A single service provider vs. a multiple service provider; janitorial with products as opposed to janitorial alone
• A trading entity (parlour) vs. a manufacturing entity (processing nuts or producing preservatives);
• A single-location business vs. a business with a network of locations (burger stalls, ice cream carts);
• A business located at the home of the entrepreneur vs. one located on leased or rented premises (hairdressing).

1. Store your records in an appropriate place e.g. Fireproof/waterproof cabinet to guard against theft.
2. File by financial year and by the type of transaction e.g. TSTT file, invoices file, Receipts file, etc.
3. Keep back-up copies of critical records in another physical location.
4. If you have electronic records, do keep back-up copies of those at another location.


After investing your hard-earned capital in the start-up of your business, you may not have enough money to hire many people including professionals to conduct your business record-keeping. In the event that you are unable to hire an expert, you have to make the time to do your own record-keeping. In such a case, there are two options available to you – Manual or Computerized systems.

Manual Record-keeping
The traditional method of keeping business records involves the use of very simple tools - pen, paper and a copybook, in which your own jottings can be made. Alternatively, you can purchase inexpensive daybooks, pre-formatted record books, ledger sheets or any other accounting ‘book’ designed for this purpose.

Computerized Record-keeping
Computerizing your financial records operates on virtually the same principles as maintaining your business records manually. The computer can enhance the accuracy and speed of your business record-keeping. With greater demands on your time, it may be more convenient for you to invest in a computerized system of record-keeping. Several programmes and computer software can help you to expedite your business record-keeping.

As your business grows, your paper trail increases, so too would the need for you to ensure that your financial records are kept up-to-date.

TIP: Regardless of the method employed to keep your business records, ensure that you safely file your “source” documents. These documents include receipts, invoices and bank statements, to name a few, to support the figures recorded in your record-keeping system.

The following are some of the books that you need to keep to effectively operate your small business.

1. Cash book
The cash book is a very essential component of the records to be prepared by you, the entrepreneur. You must record all cash transactions conducted by the business, showing both the cash receipts and the cash disbursements for any specified period. As part of the routine operations of SMEs, it is recommended that the cash position is balanced on a daily basis by taking into account:

• The cash balance at the beginning of the day
• Recording the transactions during the day (both receipts and disbursements)
• Calculating the cash balance at the end of the day

In larger businesses the Cash Book is divided into two sub- components:

• The Cash Receipts Book (cash inflows) in which all cash receipts such as cash sales, sales of assets, and payments for accounts receivable are recorded; and
• The Cash Disbursement Book (cash outflows) in which all cash payments such as those made for accounts payable, operating expenses, petty cash etc. are recorded.

2. General Ledger
A General Ledger is the set of accounts which provide details of the transactions conducted by the business over time. They contain all the accounts which support the figures on the Balance Sheet and Profit and Loss Statements and reflect the double-entry accounting system. Some accounts would normally have debit balances (expenses and assets) and some accounts would show credit balances (liabilities, income and owners’ equity). When added together, the accounts should balance or come to zero.

3. Sales/Accounts Receivable Ledger
Accounts receivable
are debts owed to your enterprise for goods and services you have provided. If your products or services are always paid for at time of delivery, you will not need an accounts receivable tracking system. However, if some people pay you at a later date, your accounts receivable records are needed to keep track of what is owed to you.

You can monitor accounts receivable by keeping copies of all invoices sent out or by keeping an accounts receivable record. Either way the information you need to capture should include:

• Invoice date
• Payment method (cash, cheque)
• Invoice number
• Invoice amount
• Terms
• Contact person
• Date paid
• Amount paid
• The name and address of the entity being billed

If you have numerous clients with outstanding payments, you must establish an Accounts Receivable Ledger account for each customer. This Accounts Receivable Ledger which can also serve as a customer statement is a record of each customer’s charges and payments.

4. Purchases/Accounts Payable Ledger
Accounts payable are debts owed by your enterprise for goods and services you have purchased. Keeping track of what you owe and when it is due will enable you to manage your business more efficiently and for example, establish good credit rating.

Whatever system you choose, you should record the following information about accounts payable transactions:

• Invoice date
• Payment method (cash, cheque)
• Invoice number
• Invoice amount
• Terms
• Contact person
• Date paid
• Amount paid
• Balance (if applicable)
• Supplier’s name and address

5. General Journal
Your business will use a Revenue and Expense Record System to keep track of how much money is going out, where it is going, and what is coming in. This will be complimented by a General Journal which will record the non-cash entries, for example, depreciation, correction to accounting entries already made, etc.

6. Inventory Ledger
Keeping inventory records of raw material and finished goods will enable you to maintain inventory holdings at a minimum level, track buying and selling trends and establish any incidence of pilferage, etc. The critical inventory information you need to record are:

• Date of purchase
• Supplier name
• Invoice number
• Number of items purchased
• Purchase price (total and per unit)
• Date of sale
• Customer name
• Invoice number
• Number of units sold
• Balance of units on hand
• Cost of units on hand
• If your business is computerized, you may wish to acquire a software system to track your inventory.

7. Fixed Assets Register
Fixed assets purchased need to be recorded in a Fixed Assets Register. All documents, including the receipts for the payments of the purchases made as well as the guarantee documents, should be kept in a separate folder, as fixed assets are expected to last for more than one year. The information recorded in the Fixed Assets Register should include:

• Date of purchase
• Details of asset
• From whom the purchase was made
• Guarantee period if applicable
• Value of assets
• How long (no. of years) they are expected
• to be in effective use
• Annual maintenance cost

The information in the Fixed Assets Register would help to decide the annual and monthly fixed costs and determine when an asset needs to be replaced.

8. Payroll
Depending on the size and nature of your business, you may have workers or employees whom you have to pay either weekly, fortnightly or monthly. In your business record-keeping system therefore, this payment would be your payroll.

A payroll is a financial record of employees’ salaries, wages, bonuses, net pay and deductions. In Trinidad and Tobago, the standard deductions, called Statutory Deductions that you, as a small business operator, would have to pay, include:

• National Insurance Scheme (NIS)
• Health Surcharge
• Pay As You Earn (PAYE)
• Income Tax (if necessary)

9. Petty Cash Float
A Petty Cash Float should be maintained to pay for small expenses, for example, travelling expenses for a worker or purchase of stationery items. All petty cash expenses, must be recorded in a petty cash book and summarized at the end of the period. As with any purchase, all cash drawn from the petty cash float must be supported with details of the amounts spent.

A float equivalent to the amount of expenses for a week or fortnight should be maintained. When the balance in the cash float is almost depleted, the amounts expended should be reimbursed from the main bank account to replenish the float. At any point, the amount of cash and the bills/vouchers for amounts spent should be equal to the amount of the float.


One of the issues SME operators must deal with in record-keeping is:

“How much time can I allocate to the record-keeping process?”
In small businesses with, for example, two to four employees, one of the major challenges could be finding the time to prepare appropriate business and financial records consistent with best practices. In such circumstances there is merit in outsourcing the record-keeping function to a third party.

Outsourcing here refers to the assignment of certain activities within the record-keeping process to an individual or company with the relevant expertise, for example, the preparation of the financial statements, tax, NIS and VAT returns. It must be emphasized however, that you, the business operator, must take direct responsibility for the proper recording of the primary information. It is useful for you, a new business owner, to seek guidance from an accountant to ensure that the record-keeping forms and other routine processing procedures are well established prior to the startup of the business.

In a larger business, however, internal personnel can be assigned the responsibility for record-keeping and preparation of financial statements. The type of records to be prepared for any given business is determined by the nature and scope of the business operation, but also by Statutory requirements.

Advantages of Outsourcing
The advantages of outsourcing your business record-keeping include:

• More time to concentrate on core business activities
• Over time, you the business owner, can acquire the expertise of record keeping
• Fixed rate for services rendered by the expert

Disadvantages of Outsourcing
• The expert’s services could be expensive
• Risk of trade secrets being shared with likely competitors
• Lack of control if you do not take direct responsibility

TIP: If you allow anyone else to keep your books, be sure you monitor them regularly.


The strength or weakness of a business is reflected in its Balance Sheet.
The balance sheet presents the financial position of a business as at a specific date, (e.g. as at December 31, 2007). It is a summary of what the business owns (assets) and what it owes (liabilities) at a particular point in time.
The difference between assets and liabilities is called the owner’s equity or capital. Capital is the resources invested in the business by you, the owner.
This follows the fundamental accounting equation:

Assets = Liabilities + Owner’s Equity
Assets – Liabilities = Owner’s Equity

The main elements of the Balance Sheet

Current Assets
– include cash and those assets which, in the normal course of business, can be turned into cash in the short-term, generally within a year from the date of the balance sheet. These consist of:

• Marketable securities or short-term investments (e.g. Fixed Deposits and Treasury Bills).
• Accounts receivable (payment due from debtors [customers] usually within a year e.g. goods sold on credit).
• Inventories (e.g. stock of finished goods for sale or raw materials).
• Prepaid expenses (payments made before the due date from which the business has not yet received benefits e.g. Insurance on your stock).
Therefore, current assets are mostly working assets that can be quickly converted into cash.

Fixed Assets – These represent those assets not intended for sale, that are used over a period of time in order to manufacture, display, warehouse and transport the product. Examples of fixed assets are land, buildings, machinery, and office equipment.

Depreciation – For accounting purposes, depreciation is defined as the decline in useful value of a fixed asset due to wear and tear from use over a period of time. Fixed assets may also suffer a decline in useful value (obsolescence) because new and more advanced technologies are introduced. The cost incurred to acquire the property, plant and equipment must be spread over the expected useful life of the assets. The most common method used is straight-line depreciation . Freehold land is usually not subject to depreciation.

You purchase a small packaging machine for your preservatives business. It cost $3,000 and has a realistic estimate of 3 years useful life. You expect a salvage value of $1,500 when you eventually dispose of it. The depreciation for this item would be calculated as follows:

Initial cost of Asset: $3,000
Salvage Value of Asset: $1,500
Useful Life of Asset: 3 years
Depreciation = (Initial Cost of Asset – Salvage Value of Asset) ÷ Useful Life of Asset =
= ($3,000 $1,500) ÷ 3 = $500
The small packaging machine therefore depreciates by $500 each year.

Current Liabilities – Generally include all debts that fall due in the coming year. Payments to settle current liabilities/debts are usually made from current assets.

Some examples of Current Liabilities are: 

Accounts Payable – This represents the amounts that the business owes to its regular business creditors for goods and/or services purchased.
Notes Payable – This is money owed to a bank or other lender for which a written promissory note has been given by the borrower.
Accrued Expenses Payable – These are amounts owed but not yet paid as at the date of the balance sheet.
Income Taxes Payable – These are amounts owed and due to the Board of Inland Revenue.
Long-term Liabilities – Money owed /debts due after one year from the date of the balance sheet; e.g. a loan.
Owner’s Equity – Also called capital, it is the difference between assets and liabilities. Capital is the resources invested in the business by you the owner.

Net Worth of a Business
Net worth is the value of the business. It is the value of the net assets or net capital of the business. If there are losses in the process of carrying out the business, net worth will be eroded over time and may become less than the owner’s equity or capital used to start the business.
Therefore, the net worth of a business is calculated as:

Owner’s Equity at the beginning ± Profit or Loss for the period =
Owner’s Equity at the Balance Sheet Date

A business is considered insolvent if its net asset value or net worth is negative, that is, its liabilities are greater than its assets and it is unable to pay all of its debts. In such cases, the accumulated losses would have eroded the capital or equity entirely.


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31st 2008
 DEC 31st 2007




Land and Building

15 ,000

12 ,000

Motor Vehicle









Furniture and Fittings



Total Fixed Assets












Accounts Receivable



Pre-Paid Expenses



Total Current Assets



Total Assets








12 ,000




Accrued Expenses Payable



Income Taxes Payable



Total Liabilities



Showing entries


The Profit and Loss Statement, also called the Income Statement, shows the financial results of operations over a period of time. It is usually prepared on a monthly, quarterly, or annual basis and records the level of profit or loss of the business during the reporting period. The profit or loss is determined by matching the income received and the expenses incurred in the provision of the goods and/or services. If income exceeds expenses a profit is realised, whereas if expenses exceed income, a loss is realised.

The Profit and Loss or Income Statement is the accounting statement prepared from the information available from the records of the business. It is drawn up from source documents such as the Cash Book, Sales Book, Purchases Book and any other supporting documentary evidence. This underscores the need to maintain a certain minimum level of accurate record-keeping.
The Profit and Loss Statement is one of the tools employed by a business to track its financial performance. This is used by business owners to monitor the efficiency of their business strategies and where necessary, take appropriate action. The statement is also important for financial institutions as it allows them to check business viability before extending credit.

The Profit and Loss Statement is made up of the following components:

Gross Sales: This represents the total value of sales which is obtained by adding cash sales (obtained from, for example, a cash register) and credit sales (invoices).

Sales Returns and Allowances: This represents the value of damaged goods that are returned by customers for refund or, payments that are made as sales commissions, discounts, etc. The total value of these items are deducted from Gross Sales to result in Net Sales.

Net Sales: This represents the primary source of income or revenue received by the business from its customers for goods sold and/or services rendered.

Cost of Goods Sold: This represents costs that include direct labour, direct material and overhead costs related to the sales made. The cost of goods sold is deducted from Net Sales to arrive at Gross Profit.

Gross Profit: The difference between net sales and the cost of goods sold before deducting overhead costs and other operating expenses such as administrative and selling expenses.

Administrative and Selling Expenses: These include costs incurred for certain administrative purposes and for the distribution of products. These are deducted from Gross Profit to arrive at Operating Profit. These expenses include salaries of management and support staff, expenses related to utilities, transportation, marketing, as well as office rental and other expenses.

Operating Profit: This refers to net sales less all operating costs.

Interest Income: This refers to additional sources of revenue from investments.

Interest Expense: This represents the amount of interest paid and/ or payable on the amount of loan(s) obtained.

Profit before tax: Refers to the profit of the business after all expenses but before taxes.

Estimated Income Tax (if any): Refers to provision for Income Tax and the amount of tax that has to be paid after any tax concessions.

For a SME that is involved in the manufacturing industry, these additional items would be included in the Profit and Loss Statement.
• Direct Material: Refers to those material costs directly incurred in the production process, such as raw material and energy cost.

Direct Labour: Refers to costs of all labour inputs directly used in the production of goods/services. The direct labour costs are measured on unit rates on a daily basis.

Overhead Costs: Refers to those production overhead costs incurred, but which are not directly related to the manufacturing/production process. E.g. depreciation of machinery or equipment, factory rent etc. 







Less Sales Return






Net Sales






Less Administrative & Selling Expenses



Administrative Expenses



Interest Expenses



Operating Costs



Utility Expenses






Total Expenses



Net Profit/Loss before Tax



Income Tax Payable



Net Profit/Loss after Tax



Showing entries


Cash Flow Poor cash flow management is found to be a major cause of failure for many SMEs.
Cash in the business can be compared to water in a reservoir. Cash flows into the business from sales, loans and equity. In the process of producing goods and services, cash flows out of the business to pay for material, salaries (including the entrepreneur’s), rent, electricity, water, loan payments, other supplies, transportation, etc.

If there is more water flowing out than flowing into the reservoir, then it may soon dry up. A business having more cash outflows than cash inflows may soon experience financial difficulty. Such a business may not be able to pay for its expenses when they fall due, a situation that should be avoided. Hence, managing the cash flow in the business is an essential part of financial planning and must be practised by an entrepreneur.
Many entrepreneurs fail to realise this and frequently run the risk of being unable to settle their bills on time. A business may be generating profits but because of its poor cash flow management it may have difficulty in paying its bills and remaining solvent.

The Cash Flow Statement

The Cash Flow Statement is used to analyze the cash flows associated with income and expenditure of the business during a particular period as it identifies the timing of cash coming into and going out of the business. Without it, you will have an incomplete picture of your business.
The main use of the Cash Flow Statement is to report the sources and uses of cash during the reporting period. Several formats can be used to record your cash flow statement.

For example, you can create one that is divided into the following three sections:

1. Cash Flows from Operating Activities: These refer to activities related to your principal line of business and include cash receipts from sales and/or the provision of services, payroll and other payments to employees, rent and utilities payments.

NOTE: Accounts Receivable and Accounts Payable are normally excluded from the Cash Flow Statement at the time when they are established because they do not include the actual movement of cash. However, they are reflected in the Cash Flow Statement whenever they are received (in the case of Accounts Receivable), or paid (in the case of Accounts Payable).These anticipated payments and receipts form part of the Cash Flow Projection and will be entered at their due times.

2. Cash Flows from Investing Activities: Activities recorded here include capital expenditures - disbursements that are not charged to expense, but rather are capitalized as assets on the Balance Sheet. For example, purchase or sale of property, plant and equipment, purchases of stock and shares or other securities, and proceeds from the sale of any other investments including investments that are not part of your normal line of business.

3. Cash Flows from Financing Activities: Cash flows relating to the business’ debt or equity financing are recorded here. These include proceeds from loans, notes, and other debt instruments, instalment payments on loans or other forms of debt repayment. Also included are cash received from the issuance of shares in the business and/or dividend payments.


The cash flow management process begins by assessing the current situation.

It identifies how much cash is generated from:
• Receipts from cash sales
• Receipts from debtors
• Proceeds from loans
• Other cash inflows

The total of the above represents cash inflows.

It identifies how much cash is used in:
• Purchase of stock or material
• Rent
• Utilities
• Debt repayment
• Capital Expenditure
• Other cash outflows

The total of the above represents cash outflows.

Cash Outflows
are what you pay for the various items of expenditure.

Cash Balance
The difference between cash inflows and cash outflows represents the cash balance. The cash balance at the end of one period, for example at the end of the month, will become the beginning balance for the next period.

Cash Flow Projections
Cash Flow Projections consist of cash inflows (or cash receipts) and cash outflows (or cash payments) for the future periods. They are largely based on the historical data on receipts from cash sales or accounts receivable and accounts payable. Anticipated receipts from a credit institution, due to a loan application already made, can also be a source of funds and should be included in a cash flow projection.

The aim of cash flow projections is to ensure that the available cash would be sufficient to meet the needs and obligations of the business. If there are more cash outflows than inflows in the cash flow projections, measures should be taken to avoid a cash deficit situation. These include but are not limited to:

• Selling more products
• Reducing expenses
• Obtaining an additional loan
• Increasing an existing loan
• Reviewing of pricing strategy
• Converting personal assets into cash (last resort) 

Record Keeping

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Business Planning

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