Bookkeeping & Recording Transactions – JSS3 Agricultural Science Lesson Note (Second Term)

Bookkeeping is the day-to-day recording of the financial transactions of a business, each supported by a document.

Behavioural objectives

By the end of the lesson, students should be able to:

1. define bookkeeping;
2. explain how transactions are recorded;
3. list the documents that support a business transaction;
4. distinguish bookkeeping from accounting;
5. define farm records and name the types of farm records;
6. state the importance of farm records.

What is bookkeeping?

Bookkeeping is the recording, on a day-to-day basis, of the financial transactions and information of a business.

• Purpose: it keeps the records of each transaction correct, up to date and complete.
• Accuracy: a wrong entry gives wrong information, so care is vital.
• What is recorded: every purchase and every sale, however small.
• Quality controls: set checks that help keep records timely and accurate.
• Use: it provides the information from which accounts are prepared.

What is a transaction?

A transaction is any exchange of money, goods or services in a business.

• Purchase: a farmer buys feed, seedlings, fertiliser or drugs.
• Sale: a farmer sells eggs, maize, yams or broilers.
• Payment: a farmer pays wages to a labourer or pays a supplier.
• Receipt of money: a farmer collects money from a buyer.

What is the difference between bookkeeping and accounting?

Bookkeeping is the recording of transactions as they happen. Accounting uses those records to prepare reports, such as a profit and loss statement, and to interpret them.

How are transactions recorded?

Transactions are recorded daily in the books or the accounting system, with a document for each one.

1. Carry out the transaction, for example a sale of eggs.
2. Get or issue a document that describes it, such as a receipt.
3. Enter the date, details and amount in the book on the same day.
4. Check the entry against the document to make sure both agree.
5. Keep the document safely in a file.
6. Add up the entries at the end of the week, month or year.

What documents support a business transaction?

The documents that support a transaction include invoices, receipts, payment records and journals.

• Sales invoice: a bill given to a buyer, listing the goods sold and the price.
• Sales receipt: proof that the buyer has paid the seller.
• Supplier invoice: a bill the farmer receives from a supplier for goods bought.
• Supplier payment: a record showing that the farmer has paid the supplier.
• Bank payments: bank records of money paid in or out, such as a teller or transfer.
• Journals: books in which transactions are first written in the order of their dates.

Why must every transaction have a supporting document?

• Proof: the document shows that the transaction took place.
• Audit trail: the documents let a person trace each entry back to its source.
• Audit: an audit is a check of the records, and the documents make it possible.
• Accuracy: the document helps to find and correct mistakes.

What are farm records?

Farm records are written accounts of the work, expenses and income of a farming enterprise.

What are the types of farm records?

There are several types of farm records, and each one covers a different part of the farm.

What are the qualities of good farm records?

• Accurate: the figures and details are correct.
• Simple: the farmer and workers can understand them easily.
• Complete: no transaction or activity is left out.
• Up to date: entries are made on the day they happen.
• Safe: the books are kept where they will not be lost or damaged.

Why are farm records important?

Farm records help a farmer to plan, control and judge the farm business.

1. Tax: they enable the farmer to make proper returns to the boards of internal revenue for correct tax assessment.
2. Cash control: they show how much money is coming in and how much it is wise to spend.
3. Profit or loss: they show whether the farmer is making a profit or a loss.
4. Loans and subsidies: they help the farmer to obtain loans and subsidies from the government.
5. Planning: they help the farmer to make budgets and plan the business.
6. Management: they enable the farmer to make good management decisions.

Evaluation

1. Define bookkeeping.
2. Why must every transaction have a supporting document? Name four such documents.
3. What are farm records? Name three types of farm records.
4. State four reasons why a farmer should keep farm records.
5. State two differences between bookkeeping and accounting.

Assignment

State any five importance of farm records. Explain how farm records help a farmer to obtain loans and subsidies from the government.