Involve- Bookkeeper/Accountant

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1 Involve- Bookkeeper/Accountant This article will describe: What accountancy is Why accountancy is so important to community and voluntary organisations The accounting cycle: o Recording business transactions o Helpful hints to make bookkeeping easy o Making adjustments to the general ledger o Closing the books o Preparing financial statements How this could be relevant to your community and voluntary organisation in a skills based volunteering capacity? Accountancy Today, accounting is called the language of business because it is the vehicle for reporting financial information about a business to different groups of people. Accounting that concentrates on reporting to people inside the business is called management accounting and is used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing a basis for making business decisions. Accounting that provides information to people outside the organisation is called financial accounting and refers to presenting to clients, donors, creditors such as banks or vendors, government agencies or tax authorities. Because these users have different needs, the presentation of financial accounts is very structured and subject to many more rules than management accounting. The body of rules that governs financial accounting is called Generally Accepted Accounting Principles, or GAAP. The principles of accountancy are applied in three divisions: accounting, bookkeeping, and auditing. Accountants and Bookkeepers Often people use the words accountant and bookkeeper interchangeably. Generally, a bookkeeper performs much of the data entry tasks. This includes paying bills, processing payroll data, preparing sales invoices, mailing statements to customers, recording cheques in or out, managing petty cash and expenses etc. An accountant is likely to have a degree or recognised qualification in accounting and takes over where the bookkeeper leaves off. The accountant will prepare adjusting entries to record expenses that occurred but are not yet entered by the bookkeeper. It is the accountant who prepares the company s financial statements (income statement, balance sheet, statement of cash flows.) The accountant also assists the company s management to understand the financial impact of its past and future

2 decisions. The distinction between accountant and bookkeeper keeps changing as accounting and associated software applications evolve. Small non profits generally require a certified accountant (CA) if they need their financial statements audited or reviewed in order to obtain a bank loan, to apply for a grant, share financial information publicly or with stakeholders or some other unique requirement. A small non profit may also engage a CA to review its internal controls, evaluate accounting software, obtain tax advice, and so on. Many non profits engage the services of a CA on a voluntary basis. Bookkeeping as mentioned above is the recording of the day-to-day financial transactions. Anybody can learn about bookkeeping, banking processes and income expenditure analysis. Indeed, much of the daily filing and recording of transactions is done by members of staff. However, involving a volunteer bookkeeper or CA will help you roll out best practices and processes and save you much time and legwork! If you are not experienced at it, number crunching can be very tricky and laborious! The Accounting Cycle Accounting is based on the periodic reporting of financial data. The basic accounting cycle includes: 1. Recording business transactions it s all about balance! Using a system of debits and credits, called double-entry accounting, accountants or bookkeepers use a general ledger to track money as it flows in and out of the organisation. They record each financial transaction on a balance sheet, which provides a snapshot of a business s financial condition. A daily record of all transactions is kept in what are known as sales journals, cash-receipt journals or cash-disbursement journals. Debits and credits are posted to a general ledger. A general ledger is a summary of all business journals. An up-to-date general ledger shows current information about accounts payable, accounts receivable, owners equity and other accounts. Bookkeepers or accountants record every financial transaction in a way that keeps the following equation balanced: Assets = Liabilities + Stakeholders Equity (Capital) In many non profit organisations, a volunteer bookkeeper collects all the files & paper work on a monthly basis. With this information he/she then can update the accounts ledger (in excel spreadsheets or using an accountancy software package) and ensures that all the monthly transactions add up to match the organisation s bank account statements. If any receipts are missing, a bookkeeper will notify management to track them down. It is vital to keep on top of this work. Falling behind will make preparing for an audit at the end of the year a true nightmare! Here are some helpful hints that should make good bookkeeping an easy task: Get organised In fact, bookkeeping is organising. There are only four general categories of records you need to keep: bills (accounts payable or A/P), customer invoices (accounts receivable or A/R), payroll (time sheets and pay records), and human resources (employee information not directly related to payroll). You should file all records for these categories neatly in a system that works for you, for example, one for A/P and

3 one for A/R. Choose a filing system that fits your volume and your budget. Using a different colour file folder for each category of record will make it that much easier to keep things organised. Get an accounting software program Either devote some budget or download free online software. Ask your volunteer accountant to help you select the best program for your needs. An accounting program will collate information you input and present it in helpful reports almost instantly, so you don t have to hunt through your check register or deposit log for the information. Some of these reports can help you pinpoint problem areas, e.g. overtime policy abuse. With a good program, you can get customised reports that will tell you almost anything you want to know. If software is out of the question, you can keep track of everything in a computer spreadsheet or good old traditional ledger books. Even if you are provided with monthly services from your accountant, it s a good idea to keep track of everything yourself. That way, if you need some information in the middle of the month, you ll have it at your fingertips, instead of having to spend a lot of time searching. Keep one spreadsheet/ledger for A/P and one for A/R. If you pay all of your bills every month, your ledger for A/P can simply be your check register. Keep detailed records of all payments and deposits As soon as you write a cheque, make a note of when it was written, to whom, for what, and how much it was for. Cheques should always be signed by two individuals, one non-executive board member and another executive member of staff (CEO). Most accounting programs have a cheque writing feature, and all of this information will automatically be recorded. If you do not have software to do this, invest in a business desk set cheque book. The cheques have large stubs on which you can write down all of the important information. Record as much detail as possible for your deposits, including if they were cash or credit card, and what kind of credit card. Keep your cheque register reconciled to your latest bank statement If a cheque or deposit does not clear the bank within a couple of months, contact the bank or the payee to find out why. If necessary, stop payment, void and re-issue uncleared cheques. Schedule a day of the week for paying bills and for reviewing unpaid invoices Paying bills on time saves you money by avoiding late charges, and some vendors may give you a discount if you pay by a certain time.. Send out monthly reminders for monies owed, and set up a policy for when you will send a bill to a collection agency. If you are a retail seller subject to sales tax, keep detailed records of sales So that you do not collect or pay sales tax on non-taxable items. Labour and freight are non-taxable. If you sell to a tax-exempt entity, make sure that you get a copy of their exemption certificate. Keep them in a separate file, preferably with a list showing each customer s name and exemption number. Make sure you are in compliance with record-keeping standards There are some things that you only need to keep for three years, like individual copies of time sheets. Others items need to be kept for much longer. For example, all records pertaining to an employee s compensation claim need to be kept forever. Regulations and recommendations change periodically, so ask your volunteer accountant. Go to some seminars Think about what you want to learn ahead of time, and ask questions. Oddly enough, meeting other people who also have lots of questions can be a real confidence builder. You are not alone. Take advantage of the many resources that are available Online forums exist for almost any topic. The business section of your local bookstore should have plenty of books for small businesses, or you can check materials out from the library. The Revenue has a variety of publications for the small business owner, free of charge, available on their website. As you get more accustomed to keeping your books organised and accurate, you will be better able to determine what information is really important, e.g. what receipts to keep, and how much detail to enter in your ledgers. You will save time and money because you will be

4 getting your bills paid on time, and you will be able to collect more money that is owed to you, without having to dig. Ask yourself What are the pain points in my organisation with regard to bookkeeping and organisational finances? Am I getting enough support and help from experienced volunteer accountants or bookkeepers? Am I spending too much on hiring accountant throughout the year? Could I be doing more during the year to streamline the financial reporting processes? Could any of the above processes or improvements be applied to my organisation? Are there any more areas we could outsource to a volunteer accountant or bookkeeper? 2. Making adjustments to the general ledger Periodically, accountants need to compile the information in the general ledger into the basic financial statements: the balance sheet and income statement. How often should this happen? Basic financial statements should be prepared in a timely fashion so any unexpected trends in revenues and expenses can be detected and addressed. Most businesses find monthly statements adequate, although firms operating under very stable economic conditions find quarterly or annual financial statements sufficient. Compiling and preparing financial statements usually necessitates making adjustments to general ledger account balances. No matter how diligent and efficient the accountant, adjustments will be needed to correct certain account balances. For example, it is customary to analyse accounts receivable to determine if individual outstanding accounts are actually collectable. Any accounts deemed uncollectable are written off, and this requires an adjustment. Accounts involving fixed assets and depreciation almost always require some adjustment. Aggregating account balances on a worksheet called a trial balance facilitates the adjustment process. Patterns in Adjusting Entries Adjusting entries follow the same debit/credit form used for recording transactions during the year. The entries themselves are first recorded in a general journal and then posted to the appropriate general ledger account. Unlike other recorded transactions, these adjusting entries are also posted on the trial balance. These entries usually involve standard pairings of balance sheet and income statement accounts. For example, an adjustment to Accounts Receivable almost always requires an offsetting adjustment to a Revenue or Sales account. Here is a list of typical account pairings found in adjustment entries: Balance Sheet Account Offsetting Income Statement Account Accounts Receivable Revenue or Sales Prepaid Insurance Insurance Expense Inventory Purchases or Cost of Goods Sold Prepaid Rent Rent Expense Deferred Revenue Revenue Accounts Payable Varous Expense Accounts

5 3. Closing the books The final step in the year-end adjustment process is the preparation of closing entries that bring the income statement accounts to zero. Why is this needed? Generally, organisations want to track balances in these accounts for one year at a time. It would not do for current year revenues and expenses to be aggregated with prior year amounts. After all revenues and expenses are accounted for, any net profit gets posted in the organisations equity account. So, at the beginning of each new accounting period, the income and expense balances should be zero. 4. Preparing financial statements At the end of a period, either annually or more frequently depending on the length of a organisations accounting cycle, accountants create financial statements that show the financial health (or decline) of the organisation via: Financial reports Income statements Statements of capital Balance sheets Cash-flow statements and other reports that summarise all of the financial activity for that period. Many stakeholders both inside and outside an organisation use the information found in financial statements. The board of directors use the data in financial statements to chart the course of their organisation, project revenues and expenses, monitor cash flow, keep tabs on costs and plan for the future. Accurate financial statements also make it easier for accountants to prepare tax returns and report financial information to Revenue. In fact, so many stakeholders rely on these documents that it is important to get a handle on all the common financial reports your non profit organisation is required to produce. Many non profit organisation opt for 100% transparency and post their annual financial reports online so all staff, volunteers and interested parties can review them. Ask yourself Is my board of management adhering to financial regulations and reporting stipulations required of an organisation with charitable status? Do the monthly and annual financial reports provide me with the right information to make sound business decisions do I need more help understanding the implications? Is our organisation up to date and knowledgeable on Charity legislations? Is our volunteer accountant somebody who understands our objectives and helps us make sound business decisions? Are there more work processes we could outsource to a volunteer accountant or bookkeeper?

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