QUANTUM BUSINESS HOUSE BUSINESS GUIDE 7. BUSINESS SYSTEM

QUANTUM BUSINESS HOUSE BUSINESS GUIDE 7. BUSINESS SYSTEM

2 Chapter 7. Implementing Computer Based Accounting System Processing business transactions using accounting system provides accurate and reliable information for business decision making. Accounting systems for small and medium sized businesses deliver many benefits including accurate transaction recording, tax calculation and most of all information collections such as financial reports, account receivables and payables, payroll report and many others. In this chapter, we will look at the softwares and their functions for general business transactions including sales, purchases, inventory and payroll. Also this chapter will briefly deal with report generations for tax and management reports. For the sake of easy understanding, we use MYOB, QuickBooks and Xero for each subject of this chapter. 7.1 Understanding Business Accounting Most businesses incur sales and purchases for daily basis. Some businesses (retail and wholesale trading businesses) deal with inventories to buy and resell the items. Also, businesses need to process payrolls for their employees. The below diagram describes the general transaction process of a business. In most business environment, businesses take orders from customers then process the sales by delivering goods and/or services. If this involves delivery of goods (inventory), then you should have enough goods on hand; or you need to back order the goods required from the suppliers in order to issue an invoice from the system. Inventory management system allows users to do this job. With this function, you can maintain systematic business inventory management with cost information (refer Cost of Goods Sold). When a business purchases inventory or any other items (such as non-inventory parts), they issue purchase order to suppliers and receive goods based on the order. Unit prices and quantities must be checked before entering into the system. Managing payroll could be very time consuming and complex job without proper system. With the system, managers can easily calculate the tax (PAYG Withholding tax) for each employee as well as accumulation of annual and personal leaves for each employee. Users of payroll system have to ensure that each employee s payroll encounter eligible leave entitlements based on awards or Federal governments regulations. Most systems allow managers to print out PAYG Payment Summary for each employee at the end of each payroll year.

3 POS WMS Account Sales Inventory Purchases Payroll Chart of Accounts Lists Tax Sales Order Sales Invoices Receipts Banking Purchase Order Purchase Invoice Payments Time Sheet Payroll Leave Entitlements Super Cheques Credit Cards Reconcile Figure 1. Computerised Accounting Transaction Process Figure 2. Dashboard of QuickBooks Enterprise Version 2011-2012

4 Figure 3. Dashboard of MYOB Premier Version 19.5 Figure 4. Dashboard of XERO

5 7.2 Implementing Accounting Systems Chart of Accounts When a business is setup the accounting system for the first time, it is also required to setup chart of accounts for the business. Chart of accounts is for the allocation of business transactions based on accounting standards and income tax calculation. Accountants and business tax advisers use the chart of accounts and trial balances when they prepare financial statements and income tax return for the business at the end of financial year. Thus, businesses should seek professional support when this is not certain for them as rectifying business transactions in later time could be quite costly and time consuming. Chart of accounts are divided by below categories: Assets Liabilities Equity Income Cost of Goods Sold Expenses Also, a proper tax code must be pre-designated to each account item before starting entering business transactions so that GST can be easily traced to Business Activity Statements. Figure 5. Sample Chart of Accounts with Xero

6 Sales When your business takes customer orders, the details of the order should be entered into the computer system including item code, descriptions, quantities of each item, unit price and tax codes. The computer system then calculates the total order value and tax amount. If there is no enough stocks on hand (in the warehouse or shop floor), then the item required to sell must be ordered (back order) from the suppliers. Sales invoice must be issued once the ordered goods and services are delivered. The computer system allows issue of the tax invoice according to the format specified under the tax administrations act. This must include the sales detail, invoice date, customer detail, supplier s details including ABN and GST. Most computer based systems allow users enabling to design the format with business logos and send with emails without printing out the invoice. This enables saving time and costs (posting) for the business. Once sales invoices are issued, then the amounts of outstanding will be under Account Receivables (Debtors) account until the amount is received and allocated to the invoices. If the amounts of sales are not received by the promised (or agreed) due dates, then you need to contact the customers by sending reminder statements or calling them directly. Managing debtors accounts directly relates to the business cashflow (see the chapter 10). Figure 6. Issuing a Sales Invoice using MYOB

7 Figure 7. Sample of a Sales Invoice with MYOB

8 Purchases Businesses buy goods and services from other businesses to generate revenue and profit. Process of purchasing with computerised system can be systematically managed and controlled. Businesses need to tightly manage the purchases especially in terms of timing and amount. If you do not have enough stocks in your warehouse when needed, then sales will be negatively affected. On the other hand, if you purchase goods more than you need for short term, your cashflow will suffer. Processing purchase is quite similar with issuing sales in computer system. You need specify the item (or service), quantity, agreed unit prices and tax. Figure 8. Processing a Purchase Bill with MYOB Once recorded as a bill, the amount will be allocated to Account Payables (creditors) account until it is fully paid. Once payment is made, you are required to send a remittance advice for the amount you paid to help reconcile with the supplier s debtor account. Often, business neglecting this

9 process put themselves into unnecessary dispute and lengthy communication with suppliers about the payment reconciliation. Figure 9. Sample of Remittance Advice using MYOB Inventory Inventory management is one of the challenging tasks for most trading (wholesaling and retailing) businesses. As explained in other chapters later, the complexity of stock treatment in tax calculation with cost of sales figure and its cashflow effect, it is important to have proper procedure and management tool to control inventory in terms of its physical condition (and whereabouts) and maintaining value. With computerised accounting system, businesses have better control over inventories. By nature, inventory account is connected with Purchases (adding inventories) and Sales (disposing

10 inventories), and most computerised accounting systems have the linked function between these accounts. Trading businesses are required to count inventories at the end of each financial year (recommended once a month) to reflect exact quantity and value of inventories on Balance Sheet. If there is a discrepancy, then the reason must be investigated before adjustment is made. Warehouse Management System (WMS) in addition to the controlling accounting software can help better management of stocks with features like bar-coding of each item and tracking their whereabouts. Figure 10. Inventory Control Panel with MYOB Payroll Processing payroll based on regulations and awards is another area that business owners and managers should put extra efforts. Gross salary must be agreed before the employee commences work. PAYG Withholding Tax must be deducted and collected by the employer to report and pay with its business activity statements. Payslip must be delivered to each employee with each payroll. Superannuation Guarantee (at least 9% of gross salary) must be shown on the payslips and paid by the employer on behalf of the employee. Also, leave entitlements must be managed for each employee. At the end of payroll year (same as financial year), PAYG Payment Summary (also previously known as Group Certificate) must be delivered to each employee within 14 days after the end of financial year. All of above functions can effectively be delivered by using computerised accounting systems.

11 Figure 11. Payroll Control Panel with MYOB Figure 12. Processing a Payroll with MYOB

12 Report Generation Using computerised accounting systems such as MYOB or QuickBooks, you can generate many reports that provide meaningful management information. Balance sheet, Profit and Loss statement and GST report are basic but most popular reports among businesses. However, there are many other useful reports that allow you to get valuable information for your daily business running: Sales Purchases Inventories Payroll and Employees Tax Cashflow and bank Other performance Monitoring Figure 13. MYOB Report Centre

13 Figure 14. QuickBooks Report Centre For further information please contact our team: Website: www.quantumhouse.com.au Email: info@quantumhouse.com.au Phone: 02 8068 6545 Fax: 02 8004 5332 Disclaimer: Although the views expressed in this document represent the general views of Quantum Business House, readers must rely on their own professional advice in respect of specific circumstances.