Faculty of Business and Computing

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1 Faculty of Business and Computing PROCESS ACCOUNTS PAYABLE AND RECEIVABLE BSBFIA303A SECTION 1 LEARNER GUIDE INTRODUCTION

2 The Need for Accounting What is Accounting? Accounting is the process of recording, classifying, interpreting, summarising and communicating information. The records of the financial activities of a business are called financial records. What is the difference between a bookkeeper and an accountant? A bookkeeper prepares financial records by transferring information from source documents to journals, posting this information to ledgers and preparing reports. An accountant summarises and analyses these financial records. Why is accounting needed? Accounting is needed so as to provide interested parties with information on the profitability and financial position of a business. Businesses are also required to keep accurate records that comply with government laws and regulation. The parties who are interested in the profitability and financial position of a business are: owners, management, creditors, investors, potential investors, government, employees, trade unions and the general public. Processing information through the accounting system The main elements of the accounting system are the source documents, the journals and the ledger. These devices are used to collect and summarise financial data, which is then displayed in financial reports. Accounting terms used in a business Account: is a means of recording all relevant data to a particular person or thing eg in the Cash at Bank account would only be recorded the movement of money coming into and out of the business. Aging Accounts: the process of determining the age of a debt or how long the debt has been owing. Aging a statement tells the customer and your own accounting department how long various amounts have been owing. This is especially important to the business as it can monitor customers who are not paying their accounts promptly. Assets: items of value, OWNED by the business, for USE within the business eg Cash at Bank, Office Equipment., Office Furniture Buying/Selling on Credit: the business will purchase/sell goods and services/assets without paying/receiving cash at the time of the transaction. Instead, the amount will be paid to the supplier/received from the customer within one month (30 days) of the date of the transaction. Chart of Accounts: is a complete list of accounts in the general ledger. It is a list of account titles classified and indexed according to the nature (type) of the account eg Proprietorship, Asset, Liability, Expense or Revenue. (See page 8) Credit: means to enter an amount in the credit column of the ledger card. Cross Reference: when posting from the journal to the ledger card, it is necessary to record the journal page number beside the ledger card entry and to cross reference ledger account number beside the journal entry which has been posted. Faculty of Business and Computing Page 2 of 17

3 Cycle Billing: staggering the preparation and sending of statements eg on a set date each month. Customers records are divided into groups (alphabetical or geographical) eg A-F sent on the 1 st day of each month, G-L sent on the 8 th day of each month, M-R sent on the 15 th day of each month and S-Z sent on the 23 rd day of each month. Debit: means to enter an amount in the debit column of the ledger card. Double-entry Accounting: is a system of recording transactions according to the accounting equation for which every debit entry must be accompanied by a corresponding credit entry of equal value. Drawings: withdrawals of cash and goods from a business by its owner. Expenses: the costs and/or losses incurred in the day-to-day running of the business eg Purchases, Wages, Advertising, Electricity, Bad Debts. Folio Number: page number eg S1 means Sales Journal page 1. General Ledger: contains details of all accounts relating to the business, except the trade debtors and trade creditors personal accounts. These accounts are represented in the general ledger by control accounts of the same name. Goods and Services Tax: It is a consumption or value added tax which will be applied at a flat rate of 10% on the sale of most goods and services. It came into effect on 1 July GST is added to the selling price of goods and services as they pass through the business supply chain until they are finally consumed. To avoid the tax cascading and multiplying through the sales process, each registered business is given a rebate of the GST they paid to their supplier when they on sell the goods. Liabilities: items of value OWED by the business, eg Bank Overdraft, Mortgage. Proprietorship: value of the owner s investment in the business. It is also known as Capital, Owner s Equity or Net Worth of the business. Purchases: trade goods bought for cash or on credit, with the intention of resale Revenues: the earnings or gains made during day-to-day running of the business eg Sales, Rent Receivable, Interest Receivable. Sales: trade goods sold for cash or on credit. Schedule of Creditors (Accounts Payable) Balances: the listing and totalling of outstanding balances from the Creditors Ledger. This total should agree with the balance in the Creditors (Accounts Payable) Control account in the General Ledger. Schedule of Debtors (Accounts Receivable) Balances: the listing and totalling of outstanding balances from the Debtors Ledger. This total should agree with the balance in the Debtors (Accounts Receivable) Control account in the General Ledger. Settlement Discount: a monetary reduction or deduction applicable when the account is paid and which is conditional upon the buyer paying for the goods within an agreed time. If payment is late the discount will not be allowed. Discount Allowed: allowance given by the business to trade debtors Discount Received: allowance received by the business from trade creditors Faculty of Business and Computing Page 3 of 17

4 Sundry Creditor: the supplier to whom the business owes money for the purchase of an asset/services (non-trade goods/services) on credit. Sundry Debtor: the customer to whom the business has sold an asset (non-trade goods) on credit. Trade Creditor: the supplier to whom the business owes money for trade goods bought on credit (Supplier or Accounts Payable). Creditors Ledger (Accounts Payable Ledger): contains all details of suppliers from whom the business has purchased goods, services on credit. Trade Debtor: the customer to whom the business has sold trade goods on credit (Customer or Accounts Receivable). Debtors Ledger (Accounts Receivable Ledger): contains all details of customers to whom the business has sold goods, services on credit. Trade Discount: a monetary reduction or deduction in the catalogue or listed price of goods given by the seller to customer who will be using a product within their line of work eg Marathon Tyres could give a Shell Garage a trade discount on tyres to be used in its line of work. Accounting Equation The Accounting Equation: is a formula used in double-entry accounting systems which shows the relationship between proprietorship, assets and liabilities. Proprietorship (capital) is the difference between the total value of assets and the total value of external liabilities. There are three different forms of the Accounting Equation: Assets = Proprietorship + Liabilities Liabilities = Assets - Proprietorship Proprietorship = Assets - Liabilities The whole of the accounting process is based on the accounting equation. Faculty of Business and Computing Page 4 of 17

5 CHART OF ACCOUNTS 1 ASSET ACCOUNTS 4 REVENUE ACCOUNTS Current Assets 4.1 Sales 1.1 Cash at Bank 4.2 (Sales Returns) 1.2 Payroll Cheque Account 4.3 Discount Received 1.3 Accounts Receivable Control (Trade Debtors) 4.4 Interest Revenue 1.4 Inventory 4.5 Rent Revenue 1.5 Sundry Debtor 4.6 Commission Revenue 4.7 Freight and Insurance Collected Non-current Assets 4.8 Dividends/Interest on Investments 1.10 Land Buildings 1.12 Plant and Equipment 1.13 Shop Fittings (Fixtures & Fittings) 1.14 Motor Vehicles 6 EXPENSE ACCOUNTS 1.14A Accumulated Depreciation on Motor Vehicles 6.1 Purchases 1.15 Office Equipment 6.2 (Purchases Returns) 1.15A Accumulated Depreciation on Office Equipment 6.3 Discount Allowed 1.16 Office Furniture 6.4 Advertising 1.16A Accumulated Depreciation on Office Furniture 6.5 Bad Debts 6.6 Bank Charges 2 LIABILITY ACCOUNTS 6.7 Electricity Current Liabilities 6.8 General Expenses 2.1 Accounts Payable Control 6.9 Insurance 2.2 Bank Overdraft 6.10 Interest Expense 2.3 Group Taxation 6.11 Postage 2.4 Medical Insurance 6.12 Rent Expense 2.5 Superannuation 6.13 Repairs and Maintenance 2.6 Sundry Creditor (Trade Creditors) 6.14 Stationery/Office Supplies 6.15 Telephone 6.16 Travel Expenses GST Liability 6.17 Wages and Salaries 2.10 GST Collected 6.18 Freight and Insurance Paid 2.11 (GST Outlaid [Paid]) 6.19 Donations 6.20 Depreciation Long-term Liabilities 6.21 Printing 2.15 Mortgage of an Asset 6.22 Cleaning 2.16 Bank Loans 6.23 Rates 6.24 Interest on Overdraft 6.25 Gas PROPRIETORSHIP (OWNER S EQUITY) Capital (Drawings) Faculty of Business and Computing Page 5 of 17

6 THE PRINCIPLE OF DOUBLE ENTRY For every DEBIT entry recorded there must be a CREDIT entry recorded to exactly the same value. THE PROCEDURE FOR DOUBLE ENTRY ASSETS - DR Balance to increase to decrease DR CR LIABILITIES - CR Balance to increase to decrease CR DR PROPRIETORSHIP - CR Balance to increase to decrease CR DR EXPENSES - DR amounts REVENUES - CR amounts The above procedures are based on the ACCOUNTING EQUATION: ASSETS = LIABILITIES + PROPRIETORSHIP (Owner s Equity) Faculty of Business and Computing Page 6 of 17

7 THE NATURE OF TRANSACTIONS In any business, a transaction the exchange of money for money s worth of goods or services has two sides. That is, there is always someone who gives value and someone who receives value. At all times the transaction must be seen from the viewpoint of the business is the business buying or selling goods/services. The accounting equation is the relationship of proprietorship (capital) to assets and liabilities based on the concept of TOTAL DEBITS = TOTAL CREDITS. Proprietorship (capital, owner s equity, net worth) is the difference between the total value of the assets and the total value of external liabilities (the debts incurred by the business, distinct from the owner s investment which is considered to be an internal liability). There are three different simple mathematical forms of the accounting equation: Proprietorship = Assets Liabilities (P = A L) or (C = A L) or Assets = Proprietorship + Liabilities (A = P + L) or (A = C + L) or Liabilities = Assets Proprietorship (L = A P) or (L = A C) CALCULATING THE GST The GST was introduced on 1 July 2000 and is levied at the rate of 10% on taxable supplies (see page 3). If you sell a taxable item and quote a price that is GST exclusive (original cost), it must be multiplied by 10% to calculate the GST to be added to determine the final selling price. If you sell a taxable item and quote a price that is GST inclusive, then the final selling price must be divided by 11 to determine the GST component. Subtract the GST to find the original cost of the item. Faculty of Business and Computing Page 7 of 17

8 THE JOURNAL FRAMEWORK All transactions are evidenced by some sort of written document. We call these documents source documents. The source document provides us with the necessary information to write up the journals (books of original entry). Only pertinent information is taken from the source documents for entry into the journals. Journals have three main functions: a classifying sorting documents of a like nature together, b summarising consolidating relevant information, and c means of transfer posting the information into a ledger. In the ledger we keep accounts. An account is a means of recording all relevant data relating to a particular person or thing. (See Chart of accounts for accounts listing.) The journals in a typical retail business are summarised below. Event Source document Record in Journal Post to ledger cards Sale of trade goods and assets on credit Tax Invoice issued (duplicate) Sales Return inwards of trade goods and allowances on credit Adjustment Note issued (duplicate) Sales Returns and Allowances Receipt of money (cash, cheques, credit card, eftpos) ALL OTHER TRANSACTIONS: Opening Entry Interest Receivable Interest Payable Bad Debts Correction of errors Reversal entries Omission of entries Purchase of Asset Sale of Asset Purchase of trade goods or assets on credit (Tax) Receipt (duplicate) cash register listing, bank statement VARIOUS: Tax Invoices Statements Memos Tax Invoice received (original) Cash Receipts GENERAL Purchases ACCOUNTS RECEIVBLE LEDGER (DEBTORS OR CUSTOMERS) ACCOUNTS PAYABLE LEDGER (CREDITORS OR SUPPLIERS) G E N E R A L L E D G E R Return outwards of trade goods and allowances on credit Adjustment Note received (original) Purchases Returns and Allowances All cash payments (cheque) made from the business Cheque butt Cash Payments Faculty of Business and Computing Page 8 of 17

9 Using these Learner Guides MYOB files have been created for you to process the supplier, customer and cash transactions for each business. The Learner Guide will explain how to process a type of transaction, followed by an example. You are then required to finish processing the remaining transactions. On completion of each exercise, you are required to check your work for accuracy. Once this has been done, ask your facilitator to check this work and sign the completed column on your log sheet. Do not print any hard copy reports unless requested to do so. Competency tasks are clearly marked and must be submitted to your facilitator via . You may be asked to print selected reports as evidence of your competency. If you want to complete exercises outside of class you can book computer time in the library. Alternatively, a 30 day trial copy of MYOB can be downloaded from their website or a Student edition CD (which is transaction limited for educational purposes only) purchased online or from selected MYOB retailers. This guide and its contents are subject to copyright under the laws of Australia and, through international treaties, other countries. The copyright is owned by TAFE NSW, or in the case of some materials, third parties. You must not reproduce, transmit (including broadcast), adapt or otherwise exercise the copyright in the whole or any part of this guide.except as expressly permitted by TAFE NSW's prior written consent. Faculty of Business and Computing Page 9 of 17

10 GETTING STARTED WITH MYOB Ask your facilitator for the following company files to be copied onto a USB: ACCESSING THE PROGRAM Double Click on the MYOB icon on the desktop or Click on START Programs MYOB AccountRight V19.6 ed +MYOB AccountRight V19.6 ed + In your exercises you will click on Open to open an existing file, Create to setup a new Company file or Explore to tour the sample company. Explore to tour the sample company, Clearwater MYOB can have a password assigned for security, at this window click OK. Faculty of Business and Computing Page 10 of 17

11 At the following screen select NO Once MYOB is open Click on Setup, Company Information and key in your name after the Company Name. Click on Setup Preferences Security remove tick from warn before recording postdated transactions. Still in Setup, click on Purchases and tick show Supplier Inv numbers in Supplier Payments The Command Centre is the main screen for MYOB and all transactions are generated from this area. Title Bar and Company Name Module areas Work area Task Bar Faculty of Business and Computing Page 11 of 17

12 The Command Centre (Take a brief tour; click on the following headings) The Top Menu Bar is used mainly for company setup but most areas of the program can be accessed from here. Accounts Command Centre Accounts List (Chart of Accounts) is the area where you edit existing accounts, create new ones delete unwanted, view account balances and set budgets. Record Journal Entry gives access to the chart of accounts. Journal entries are linked to the chart of accounts; you can transfer funds between accounts and perform special transactions such as depreciation. General Journal entries in MYOB are not linked to subsidiary ledgers (Accounts Payable and Receivable) so transactions involving Trade Debtors/Creditors are best processed through Sales or Purchases. Transaction Journal allows viewing of transactions already completed. They are displayed in date order and the original entry can be accessed and edited. BASlink can be used to prepare BAS and lodge it directly with the ATO. Banking Command Centre Spend Money is generally used for cash accounting and recording payments of expenses for the business. Purchases of Goods and Services are usually recorded in Purchases that links directly with the Accounts Payable subsidiary ledger. Receive Money is generally used for cash accounting and recording receipts. Sales of Goods and Services are usually recorded through Sales that links directly with the Accounts Receivable subsidiary ledger. Prepare Bank Deposit is used to record grouped receipts for banking to keep MYOB s record the same as the Bank s making reconciliation easier. Reconcile Accounts is used to prepare the Bank Reconciliation; by comparing MYOB s records with the Bank Statement. Prepare Electronic Payments records payments being made electronically and is often used for Payroll. Transaction Journal records receipts and payments. Although receipts can be edited, cheques may have to be deleted and rewritten. Bank Register lists details of all banking transactions Sales Command Centre Enter Sales is where Sales, Orders and Quotes are recorded to Customers on invoices. The layout can vary according to the type of sale. This links to both General and Accounts Receivable Ledgers and keeps the two in balance. To change the layout of an invoice, click on Layout at the bottom of the screen. Paid Today feature allows for the recording of cash sales on invoices. Faculty of Business and Computing Page 12 of 17

13 Receive Payments records Account Customer Payments. Receipts can be grouped together for a Bank Deposit on banking day or deposited directly to the bank. Sales Register groups transactions according to Type. Returns and Credits can be applied to the correct transaction from this window. The Purchases Command Centre Enter Purchases is used to record purchases, quotes and backorders from Suppliers. The invoice layout varies according to the type of transaction. It is linked to the General and Accounts Payable Ledgers and keeps the two in balance. Pay Bill is used to record payment of accounts to Suppliers. Prepare Electronic Payments allows for the recording of payments made over the Internet or electronically. Purchases Register allows viewing of all purchases and changing of their status from Quote to Order or Bill (Invoice). Returns and Debits can be applied to the correct transaction. Card File Command Centre Details of Customers, Suppliers, Employees and Personal contacts are kept in the Card file. Card List displays a list of all cards in the system. They can be grouped according to type. Credit Limits are recorded on Cards and MYOB will warn if the transaction will exceed the limit the limit can be changed at any time. The Task Bar The To Do List is used to record Recurring Transactions and can give an alert when inventory items are running low or discounts are about to expire. Reports is used to generate reports. The Index to Reports will be displayed and the required report selected and customised if necessary. Find Transactions displays all transactions within a date range. The window can be customised to display particular types of transactions within a given date range. Analysis is an accounting tool that gives valuable information on the business. Visual representation of the data file in the form of graphs from many of the reports can be projected into this feature. Faculty of Business and Computing Page 13 of 17

14 Some tips for using MYOB Adjusting the date To advance the date, or go back to a previous one click on date currently in Date field and press plus (+) or minus (-). Using the calculator A pop-up calculator can be activated to calculate an amount and automatically add it to a transaction. To activate the calculator, press the +, -, *, /, or = key in an amount field. The Chart of Accounts The Chart of Accounts in MYOB is set up as follows: Header Accounts specify the title for a group of accounts (detail) that are similar in purpose Detail Accounts represent a particular type of transaction which can be used to record transactions When a company file is created for the first time an initial chart of accounts is selected. This reflects what the accounts most commonly used by this type of business. New accounts can be added through the Accounts module. Asset accounts start with 1- Liability accounts start with 2- Equity accounts start with 3- Income accounts (relating to daily business) start with 4- Cost of sales (purchases) accounts start with 5- Expense accounts (relating to daily business) start with 6- Other Income accounts (not directly related to daily business) start with 8- Other Expense accounts (not directly related to daily business) start with 9- Header account Detail account Faculty of Business and Computing Page 14 of 17

15 Checking the current financial year When completing class exercises it is important that the transactions are processed in the correct financial year. MYOB will automatically default to the date and financial year of your computer system. As the exercises are set for a particular month, you need to make sure that the dates entered for transactions are for the month given and reflect the relevant financial year. To check the current financial year: Setup (top tool bar) Company information Conversion month beginning month for current financial year June 2013 computerised transactions i.e. no entries i.e. transactions can only be entered can be made prior to this time from conversion month (07/10) to last month of financial year (06/13) Faculty of Business and Computing Page 15 of 17

16 Correcting errors In a business, best practice principles have the security settings on MYOB for transactions with accounting errors to be reversed, not deleted. This provides an audit trail. For learning purposes, settings have been altered to allow transactions to be deleted if accounting errors occur. If amendments are required for data entry errors, transactions may be altered to reflect the correct information. The most common method of finding the details of transactions processed to-date is to use the Transaction Journal located at the Command Centre. Once you have opened the transaction journal, you can click on the relevant tab or ALL to show all transactions processed. You need to make sure that you have the correct date range entered. Remember, MYOB will automatically default to the current range as per your computer system. Faculty of Business and Computing Page 16 of 17

17 To make changes, click on the white arrow to the left of the transaction. The original date entry screen will open and you can make the necessary adjustments. Remember to record these before closing the screen. The original entry will now be replaced by the amended one. If a transaction is to be deleted follow the steps above to open the original entry. Once the screen opens, go to the top tool bar and click on Edit. A range of choices will appear. Select Delete to erase the original transaction. You may also use Find Transactions from the Command Centre for information regarding transactions. This is particularly useful for specific supplier or customer transaction information. Use Card for access to supplier/customer ledger cards. Remember, to make sure that you have the correct date range entered Faculty of Business and Computing Page 17 of 17