Understanding accountancy. Presented by John Ball 28 November 2013

Transcription

1 Understanding accountancy Presented by John Ball 28 November 2013

2 What is the process Recording Collating Summarising Monetary transactions

3 Purpose of accounts Reporting to stakeholders on what has happened Assisting decision makers

4 Frequency Financial accounts - annually Management accounts - depends

5 Accountancy Art or Science? Principally science but art too Judgements on accounting policies Judgements on account headings Judgement with non-cash transactions But only within limits

6 Main Statements

7 Profit and loss What has come in and what has gone out over a period of time Income and expenditure accounts Receipts and payments SOFA

8 Balance sheet What is owned and what is owed: Fixed assets Current assets Current liabilities Long term liabilities Share Capital and equity

9 Principles Double entry Accruals concept Capital and revenue Going concern

10 Double entry principles Debits and credits if omitted or misstated then two errors

11 Accruals concept The inclusion of a transaction depends on when the related service was carried out Applies to both income and expenditure Adjustments particularly at year end for on going services or late invoices

12 Capital and revenue expenditure Most expenditure is revenue purchasing for resale or overheads Capital items thought to last a number of years Need to allocate the capital expense fairly over expected life - depreciation

13 Going concern Assumption the organisation will continue If this is inappropriate consider extra expenses that will be incurred

14 Ledgers Purchase ledgers Sales ledger Above record transactions before the bank receipt of payment made Nominal Ledger All transactions of the organisation

15 Associated Reports Sales ledger aged debt, open item report Purchase ledger aged creditor, open item report Nominal ledger trial balance, transaction listing

16 VAT Input VAT on purchases Output VAT on sales Transactions will be recorded net of VAT, the difference between input and output being ring fenced and paid or received quarterly Partial exemption

17 Control accounts Sales (rent) and purchase ledgers PAYE Net salary Bank reconciliation

18 Bank reconciliations Should only be a timing difference To reconcile the difference between the amount on the bank statement and the theoretical amount in the books. Should only be a timing difference Other differences would indicate an error

19 Errors on bank reconciliations Replaced cheques Bank originated transaction Bounced cheques Error of entry e.g also consider if old cheques are stale Once reconciled and any adjustments made; Print out, approve, initial and file

20 Accounts package Benefits: Reporting facility, good permanent record reflecting published accounts able to export Able to send electronically Linked to statements to customers, remittance advices Add-ons like VAT returns, interaction with payroll

21 Account packages But Overkill if small organisation False sense of security looks good must be right Learning curve does not get rid of need to understand the process Expensive

22 Error spotting in Accounts Income & expenditure Account Comparison Last year Budget Broader knowledge e.g. Event not reflected

23 Error Spotting Balance Sheet Aged creditors / debtors - old balances - wrong way balances control accounts not reasonable Remember double entry

24 Conclusion An overview of accountancy What accounts are The transaction level The reporting level The various ledgers Controls Accounts packages Error spotting

25 Contact John Ball MHA MacIntyre Hudson New Bridge Street London EC4V 6BJ T: (0) M:(0) E: