There are two vital reasons for keeping financial records. The first is to provide the information required for your financial statements, which show whether or not you are making a profit and help you make management decisions. Secondly, records of your co-op’s financial transactions serve as the basis for your co-op’s income tax return, which is required by Canada Revenue Agency.
Remember, it’s easier to start with a good set of books and to keep them updated than to try to reconstruct them at the end of the year.
Elements of a financial record keeping system
A current account
All monetary exchanges should go through your bank or credit union account, so they are recorded on your monthly bank statements. Record all transactions in your cheque book and deposit book.
Keep invoices for all financial transactions, that is, all purchases and sales made by the co-op.
A Bookkeeping system.
This provides you with the means of recording all your financial transactions. The complexity of the bookkeeping system will depend on the complexity of the business. For many small co-ops, a very simple set of accounts will be sufficient.
How to organize your accounts
Every financial transaction affects at least two or more accounts. For instance, payroll reduces cash and increases wage expenses, sales increase cash or receivables and reduce inventory.
The five basic categories of accounts are:
1. Assets (what you own):
- current account
- accounts receivable
- prepaid insurance
- buildings and land
2. Liabilities (what you owe others):
- accounts payable
- line of credit
- long-term loan
3. Member Entitlements and Retained Earnings (assets minus liabilities):
- members’ share accounts
- members’ loan accounts
- collective reserve (retained earnings), some or all of which may be an indivisible reserve
4. Revenue (money you receive):
5. Expenses (operating costs):
- office supplies