VI. Rural economic activity management
This question will elicit numerous ideas and replies from participants and the trainer should carefully note these down. He will then sort his notes out and summarize the answers rather like this:
SUMMARY An economic venture or activity possesses assets: i.e. its capital, stocks and buildings. To protect these assets and, especially, to make them grow, managers of income generating economic activities often have to decide how to use their enterprise's resources in a coordinated and cost-effective way. For instance, for the purchase and sale of goods, for bank loans and for profit distribution.... Careful thinking must be done before the decision is taken. This is what we call management. Good management means having accurate information on which to base decisions. This is why all transactions or operations (date, type, clients, suppliers) should be recorded on basic documents such as invoices, receipts, purchase and sales books, delivery orders and cheques. Management means using that information to satisfactorily "pilot" the activity. |
Definition
As we have just pointed out, all operations should be recorded and used as a basis for decision-making. If we do this we will be able to keep our accounts in an orderly fashion. This is called BOOKKEEPING.
Bookkeeping is an essential management tool, a requisite for good management.
Bookkeeping consists mainly of establishing accounts from the entries of the enterprise's various operations. First, each operation is recorded daily in a journal. The journal entries are then transferred by the bookkeeper to the accounts (clients' account, suppliers' account, bank account). All these accounts form the account book. The journal, often also called the day-book, may be kept in card form: there may be cash cards, stock cards, etc.
Income-generating activities are living operations: they are born, develop and die. The promoters usually bring them to life by providing the capital. They develop (make purchases, spend, pay salaries, buy goods and produce goods and/or services for sale); and die when they cease their activities: the goods, buildings, furniture and equipment are then sold and the bottom line, which may be positive or negative (profit or loss) established.
The BALANCE SHEET shows the financial situation of an enterprise at a given date. |
In order to establish a balance sheet, we must know:
- what the enterprise owns: its assets
- what the enterprise owes: its debts.
The formula is: | |
Assets - Liabilities = Bottom line | |
+ Profit | |
- Loss | |
Assets are made up of:
* real estate
* capital goods, merchandise and cash
* receivables.
Liabilities are the initial capital expenditure plus debts.
This is a table showing the type and amount of receipts and expenditure, and how the enterprise's stock has varied over one financial year.
The operating account is said to be estimated when it is established prior to the start-up of the proposed operation. It estimates the various receipts and expenditure and shows the balance. The actual operating account is established at the end of the financial year and based on real receipts and expenditure.
Receipts are obtained mainly from the sale of purchased, processed or manufactured goods (e.g. lengths of cloth in a dyeing operation, or vegetables in a market gardening venture). They are also called the proceeds.
Expenses are the various purchases and other costs (raw materials, staff). These are referred to as costs or disbursements.
The bottom line at the end of the financial year (or bottom line of the estimated operating account), is the difference between proceeds and costs (see table).
Table |
Estimated operating account | ||||
Costs |
Proceeds | ||||
Quantity |
Unit price |
Amount |
Quantity |
Unit price |
Amount |
TOTAL |
TOTAL |
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Result
P (proceeds) > C (costs) = positive
P (proceeds) < C (costs) = negative
Just how many essential management documents we should keep depends on the type and complexity of our operation, but a number of basic documents should always be kept for every activity:
- day books (or journals)
- stock cards (or books) receipt books
- sales books purchase books
- delivery orders.
Depending on the type of operation and how it is organized, documents may be kept by the bookkeeper, treasurer or secretary, or directly by the owner, in the case of an owner-managed, personal venture. All records must be kept in writing in the interest of good management and so that the right decisions may be taken as and when necessary. For instance, if we know exactly how much of a particular item we have in stock, we can place new orders sufficiently in advance to take account of the delivery times. We can thus avoid running out of that item, which would have a negative impact on our turnover.
Failure to enter receipts or disbursements in the receipt book would make the situation very difficult to monitor and may even be interpreted as a deliberate attempt to misappropriate funds.
When the operation works with a bank (which is highly recommended), it should also keep:
- a cheque book
- a bank book.
Model
- Cash book -
Date |
Reference |
Designation |
Receipts |
Disbursements |
Balance |
Total to be carried forward |
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What it is and how it is used
The cash book is a bookkeeping record in which all cash receipts and disbursements (debits and credits) are entered, and from which we can obtain the balance at any time. When well kept, this book is an excellent management and monitoring tool: we can check the accuracy of the entries against the relevant documents and, at any time, make sure that the balance in the journal tallies with the content of the till or safe.
The cash journal is usually completed in duplicate (often a simple duplicate book can be used for this purpose).
Each entry is made on the basis of the relevant documents, listed in chronological order. The designation should be very clear.
Model
Type of product: |
- Stock card - |
Unit of measurement: | |||
Date |
Reference |
Designation |
Receipts |
Disbursements |
Stock in hand |
Total to be carried forward |
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What it is and how it is used
The stock card is a bookkeeping record giving details of receipts and deliveries of stocks of a given item or material, from which the balance can quickly and easily be obtained. The cards may be bound together to form a stock book.
The stock book, like the cash book, is a management record that should always be carefully kept, as it shows the stock situation at any given time. The balance on the stock cards may also be checked against the actual stock in the warehouse.
Entries on the stock card are backed by relevant documents. The designation column should contain a clear explanation of the movement. The reference column should contain the references of the relevant documentary evidence (delivery order number, receipt order number). Entries must be made in chronological order. The stock cards provide an ongoing stock inventory. Should any overs or shorts be shown on the inventory they have to be justified by the person in charge of the stock. When the stock cards are well kept, the theoretical balance shown on the cards reflects the actual amount of each item in stock.
Model
No. |
- Delivery/receipt order - | |||
Date |
Designation |
Quantity |
Unit price |
Total price |
Stock-keeper/delivery man |
Purchaser | |||
Name - Signature |
Name - Signature | |||
What it is and how it is used
The delivery or receipt order or note is documentary evidence accompanying the commodities or goods that the storekeeper receives from the supplier (receipt order) or delivers to clients (delivery order).
The reference numbers of these orders (receipt or delivery) must be shown on the stock card.
Copies of delivery/receipt orders are retained in the pre-numbered delivery or receipt book. The delivery/receipt orders are completed in duplicate or triplicate, as necessary.
Model
RECEIPT No. | |
Amount | |
Received from |
|
the sum of |
|
For |
|
Place: |
|
Date: |
|
Name |
Signature |
What it is and how it is used
The cash receipt is a counterfoil document on which the details concerning receipts of funds are entered.
It gives a full explanation of the cash operation and is documentary evidence for the cash book (see Chapter 7.1).
It is generally completed in triplicate: one copy goes to the person paying in the cash, one is the documentary evidence for the cash book and the third remains in the receipt book for control purposes.
The cash receipt book contains numbered receipts, one copy of which may be detached and handed to the payer.
Model
- Purchase book -
Date |
Type of merchandise |
Supplier |
Quantity |
Unit price |
Total |
What it is and how it is used
The purchase book is the document that records day-to-day purchase operations, showing the quantity and value of the merchandise purchased. It tells us the total quantities of each product purchased and the total sums disbursed for such purchases.
Model
- Sales book -
Date |
Type |
Client |
Quantity |
Unit price |
Total | |||
Cash |
Credit |
Cash |
Credit |
Cash |
Credit | |||
What it is and how it is used
The sales book is a bookkeeping document that records daily cash and credit sales, showing both quantity and value.
It tells us the total quantities of each product sold for cash or credit, the amounts received for the cash sales and the amounts expected for the credit sales.
