Basic accountancyIntroduction to basic techniques onhow to handle money in your new business

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WHAT IS ACCOUNTANCY .......................................................................................... 3

WHY ACCOUNTANCY?..................................................................................................... 3

ACCOUNTABILITY............................................................................................................ 4ACCOUNTANCY STEP BY STEP ........................................................................................ 5SHOULD I USE PC BOOKKEEPING.................................................................................... 6BOOKKEEPING ON A PC .................................................................................................. 7ADMINISTRATION MADE EASY ....................................................................................... 8IT SYSTEMS ..................................................................................................................... 9

SAFEGUARDING YOUR ASSETS.............................................................................. 11

DELEGATED AUTHORITY AND SEPARATION OF DUTIES................................................. 11RECONCILIATION........................................................................................................... 12CASH CONTROL ............................................................................................................. 13PHYSICAL CONTROL...................................................................................................... 14

PRINCIPLES IN ACCOUNTING ................................................................................ 16

WHO IS ABLE TO DO THE ACCOUNTS ............................................................................ 16DOUBLE-ENTRY BOOKKEEPING .................................................................................... 16ACCOUNT PLAN - CHART OF ACCOUNTS ...................................................................... 18EXAMPLE OF AN ACCOUNT PLAN.................................................................................. 19VOUCHERS..................................................................................................................... 20MAKE AN INVOICE......................................................................................................... 21

INPUT TO THE DAILY ACCOUNTANCY WORK ................................................. 23

OFFICE SUPPLIES ........................................................................................................... 23DAILY ROUTINES FOR SHOPKEEPERS - AND OTHERS ................................................... 23PURCHASE TRANSACTION VOUCHER............................................................................ 25SALES TRANSACTION VOUCHER ................................................................................... 26PAYMENT TRANSACTION VOUCHER ............................................................................. 27SALARY ENTRIES AND RECORDS................................................................................... 27STOCK REGISTRATION................................................................................................... 28ADDING VOUCHERS ....................................................................................................... 30NON-CASH VOUCHERS .................................................................................................. 30RE-POSTING A VOUCHER............................................................................................... 31CREDIT SALE ................................................................................................................. 32MIS-ENTRY .................................................................................................................... 32KEEPING ACCOUNTS MEANS LESS TROUBLE ............................................................... 33

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What is Accountancy

Why accountancy?

You may have your own company or be managing a project. When you aremaking money and spending money it is necessary to know how muchmoney you make and spend.If you don’t know suddenly you have spent too much money.

Accountancy for an individualWhen you get your salary at the end of the month you probably also makeyour little accountancy in your head.• You know that you have to buy food for the family, maybe pay rent for

the house and pay back a loan.• If you have money left, you might buy a nice thing for yourself.• If you have more expenses during a month than the money you earn,

you have a problem as you have not enough money.

Then you have to consider what to do.

Are you able to cut down some of your expenses or do you have to borrowsome money?If you borrow money how are you then going to pay back the loan?Is there some way you could make more money?

These considerations you have to go through every month. It is the samefor a shop, an IT company, a workshop, a graphics designer and manyother businesses.

Accountancy for a companyThe only difference between a company and your personal accounting isthe amount of money and the number of transactions involved. With yourpersonal accountancy you can manage to keep track of the moneytransactions in your head. In a company you need to put it on paper.Otherwise you will lose track of the transactions within a week.

Tools for accountancyTo keep proper track of how much money is going in and out of thecompany you can use a computer based bookkeeping programme.In this programme you register all the money coming in the company. Andall the money going out of the company.If you do this registering in a proper way you will always be able to monitorhow the company is doing.At the same time you follow the financial legislation of the country.

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Accountability

Keeping accounts is a crucial business management tool. The way youactually it must also comply with your country´s Accounts Act andprovisions on VAT, Sales Tax and other settlement.When running a company you must keep annual accounts providinginformation on all financial activities in your firm.

Accounts must be kept on a regular basis and must be well documentedwith vouchers (invoices, receipts, pay slips, statements, etc.).

Vouchers must be kept accessible for a period of years.You do not have to keep the accounts yourself, but you are responsible forthe keeping.

As a side effect from this work, you will be able to calculate the annual taxbase and currently keep track of your VAT payable.

Annual AccountsAnnual accounts and VAT settlements are two mandatory issues in yourcountry´s tax requirements.Annual accounts must be kept in such a way that it is clear to the taxauthority how you have reached the profit of your firm.

Being a sole trader you obviously have to pay income tax on your profit.Annual accounts are basically made as follows:

Total sales of the year / turnover- less the company’s total expenses= The company’s profit, which is your wage.

Companies are also liable to pay tax, although the calculation differs fromthat of an individually taxpayer’s.

Who is to keep the accounts?If you can manage the various financial routines yourself then you have metmost of your administrative obligations.You yourself do not have to keep the books etc. Most companies let anaccountant do the job, others hire a freelance bookkeeper or have aconsultancy take care of it.

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Accountancy Step by Step

Below you see the 5 step system of accountancy. If you are able tomanage this you will get a financially well managed company.

Step 1Make sure that you get an invoice for all financial transaction you make inyour company. When you buy goods, get a receipt. When you sell goods,issue an invoice. When you pay out salary, make a salary statement.

Step 2Every evening you organise the invoices, receipts, salary statements andother financial documentation. File them in date order in a ring binder. Inecessary write a text that explains the content of the invoice if it is unclear.This make you remember the content of the invoice when you have to dothe bookkeeping.

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Step 3At regular intervals the invoices must be entered in a bookkeepingprogramme. If you have many invoices you may have to do it every day. Ifyou only have five invoices in a week, you can do it once a month.If you purchase a PC bookkeeping programme you can do it yourself. Youcan also outsource the bookkeeping work. Maybe to an accountant. Or toyour wife, husband or to another family member.

Step 4All the invoices are now entered in the PC bookkeeping programme. Theprogramme can now generate reports. Reports about the financial situationin the company.

Step 5Use the different reports to look critically at your company. Does it performwell? What can you do better? When you are doing this and acting on it,you are performing financial management.

Should I Use PC bookkeeping

When designing your financial system you should consider whether to usea PC bookkeeping programme, a piece of paper, a ledger book or aspreadsheet.It all depends of the number of transactions and the complexity of thecompany.

10 transactions per monthIf you are a freelancer with only 10 transactions per month you could use aledger book or a spreadsheet as the tool for keeping your accounts. Withina year you will only have to register 120 transactions.

10 transaction per weekIf you have 10 transaction per week you should consider a PC bookkeepingprogramme. In a year you will have entered 520 transactions. Using a PCwill help you make the paper work and at the end of the financial year it willbe easy to make the financial statement.You don´t have to buy an expensive and complicated bookkeepingprogramme for this purpose. You might even find freeware programmes.

10 transactions a dayIf you have 10 transactions a day you should definitely use a PC basedbookkeeping programme. You cannot keep track of 3650 transactions ayear without a PC programme.

QuestionnaireYou could ask yourself the following question before acquiring abookkeeping programme:

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• How much time do you spend keeping the books?• How much time do you spend preparing reports?• What information do you need and how quick do you need it?• Can a manual system give this information?• What programmes are available for your sized business?• How much training do you / your staff need?• What does training, programme, hardware, expertise cost?

Bookkeeping On a PC

Most of those who choose in-house bookkeeping use IT.All standard computers meeting a few minimum requirements are capableof running accounting programs. However, not all applications areoptimised for all computers.If you use a Mac you should find a bookkeeping programme specially madefor Mac´s

Knowledge of accountingYou should be aware that basic IT skills are not enough to operate anaccounting program. It is imperative to be familiar with the fundamentalaccounting rules.No matter how sophisticated and user-friendly today´s software may be, itis a fact that if you do not have basic knowledge of accounting you will notmanage.

IT tools at handCompare it to riding a bike without knowing the traffic regulations. You willonly make things worse if you replace the bike with a car.Likewise: A person who plunges into computer-based accounting withoutknowing the basic principles of accounting, will, because of the computer,make even more mistakes than if he/she did it the manual way.

But if you know basic principles of accounting, the proper accountingprogram is an invaluable assistance to streamlining the day to daybookkeeping. And today´s IT tools are so inexpensive that even a modestrequirement justifies the investment.

What accounting program should I acquire?There are numerous accounting programs available. New ones andupdated versions of existing programs keep coming. Therefore, it isimpossible to recommend one in preference to others.You should contact other business owners and inquire about theirexperiences with specific accounting programs.

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Administration Made Easy

A lot of those who start business feel confronted with bureaucraticrequirements of unreasonable proportions - especially from publicauthorities. Lumped all together as: "trouble".

There is no denying that there are many rules to be complied with andmany requirements to be met. However, the vast majority of trouble comesfrom lack of bookkeeping and accounting systematics. Many could cut thetrouble simply by outsourcing such tasks.

Service providersMany companies are specialised in making life easy for other companiesconcerning bureaucracy. Such companies differ significantly in terms ofworking method as well as product range and unfortunately not all serviceproviders have high standards of professionalism.

Here is a brief description of various groups of such service providers:

State authorised or certified accountantsTo an entrepreneur, there is no substantial legal difference between stateauthorised and certified accountants as both types of accountant aresubject to almost similar legislation.

Both types offer a range of accounting and administrative services varyingfrom one firm to another. Prices vary likewise.

Other accountantsSeveral persons offer accountancy without being neither a state authorisednor a certified accountant. This is fully legal as the title "accountant" is freeto adopt without any sort of restrictions.

This group of accountants are under no public control and customers donot benefit from the same secureness as those who consult a stateauthorised or certified accountant. In return, they often get a better price.

Bookkeeping agenciesA typical bookkeeping agency exclusively offers daily bookkeeping andsimilar administrative tasks to its customers and does not take onassignments such as annual accounts, etc. This is handled by thecustomer´s accountant.

In some cases a bookkeeping agency will be slightly cheaper than anaccountant. This should, however, be held against the fact that byemploying the same accountant for your daily bookkeeping as well as themaking of you annual accounts you are likely to see a saving on the totalaccounting and administration expenditure.

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IT Systems

You probably need some sort of IT (a computer and accessories) forvarious purposes in your company. Also for the accounting.

Examples of the utility value a PC offers most companies:

• Letters and other documents - word processing program• Make your own accounts - accounting program• Financial calculations - spreadsheet• Internet searching - web browser• Send and receive e-mails - e-mail program

Companies´ IT requirements vary a lot and there are probably not twopersons in the world using a computer the exact same way.

The technology has developed in such a way that - along with a highdegree of standardisation - computer applications can be tailored to fit eachindividual user and his/her requirements.

Other services offered to companies by a PC and its software:

• Homepage setting-up - web design program/CM application• Customer relations follow-up - customer relationship program/CRM

application• Graphics/photo - paint and design applications

What kind of computer is required?If your company does not run extremely IT intensive tasks such as imageprocessing or other graphic assignments or heavy use of the Internet, anordinary computer will do the job, and it does not have to be brand-new.Thus, most computers from 2002 and newer are sufficiently fast andpowerful to handle day-to-day word processing, bookkeeping and otherroutines.

Do-it-yourself - within limitsOften the computer´s software set-up is far more important. If neither younor anyone from your circle of friends is a computer wizard, it is a goodinvestment to have a computer expert spend a few hours setting up yourcomputer.

Software optimisation of a relatively new used computer will in practiceoften be as good as buying a new computer. Likewise, adding morememory is no longer a costly affair and it will speed up your computer andgive it more headroom.

BackupYou have vital information of different nature (letters, customer files,accounts, etc.) in your business computer. Losing such information could

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be critical to your business.

There is always a risk that your computer is stolen, breaks down due tomalfunction, or your data could disappear or be destroyed in another way.At best, re-entering such data is time consuming, at worst, it is not even anoption because the information is not to be found elsewhere.

Back-up routinesThus, it is of utmost importance that you and your staff integrate a routineensuring that the worst case scenario depicts a few days´ work lost.Whether to backup on floppy discs, CD-roms or maybe professional datatapes, is a matter of taste and a question of the file sizes you handle.

It is also important that you establish this routine correctly to ensure thatyou backup the right data and that another computer will be able torecognise your backup files.The backup data must be stored where they are not exposed to loss due totheft, fire, etc.

Software backup is usually not normally necessary. Software take up somuch hard disk space that it will be impossible to backup unless you have aCD-rom burner or a data tape unit.

VirusYour PC will eventually get a virus. However, you can limit the probabilityand frequency significantly by installing an anti-virus program.

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Safeguarding Your AssetsWhen you start your business you also start to gather assets. You havemoney in the bank, stock of goods for sale, an office computer, chairs andother things you have bought.If your are alone in the company it is fairly easy to safeguard your assets.When getting staff, customers and others entering your company yourassets can wrongfully disappear.

The accounting system together with four different internal controlprocedures help you safeguard your assets:

1. Delegated authority and separation of duties2. Reconciliation (check written records with reality)3. Cash control4. Physical control

Delegated authority and separation of duties

If your business has grown to 5-15 persons it is not practical or time-efficient to expect that you should personally make all the decisions andauthorise all transactions. You have to delegate authority to members ofstaff.

In order to protect the ones you have delegated authority to and to avoidtemptation and mis-use of your assets there must be a separation of thedifferent duties in the company.

No one person should be in charge of all the duties:

• Ordering goods• Receiving goods• Authorising the payment• Keeping the account records• Reconciliation of the accounts

You should make procedures that include instructions for:

• Placing and authorising orders for goods and services• Signing cheques• Authorising staff expenses• Handling incoming checks and cash• Checking and authorising accounting records

Checking and authorising accounting recordsThe key responsibility for you as the owner of the company is to check and

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authorise records, count petty cash and review orders from suppliers fromtime to time.If you show too little interest for the financial control it can tempt weaksouls.

Reconciliation

To reconcile is to “check written records to see if they are in tune withreality”. If the record shows that there should be 20 $ in the petty cash boxyou open the cash box to see if it is true. Then you have reconciled thepetty cash.

The records that should be reconcile at regular interval is:• Bank Book• Petty Cash Book• Salaries and deductions schedules• Stock control records

Reconciliation of Bank BookThe Bank Book should be reconciled against the bank statement at leastonce a month. Here you will find out whether the company record is inaccordance with the bank´s records.

This you do by taking the “closing bank statement balance” for a specificperiod of time. For the same period you retrieve a report from the PCbookkeeping programme from the “Bank account”. Then you compare thetwo.

There will almost always be a difference because of time delays, such as:

• Money banked, not yet credited to the account• Cheques issued by the company but not yet drawn by the supplier• Bank charges and interest applied• Standing orders• Errors made by the bank or by the company

Reconciliation of Petty Cash BookReconciliation of the Petty Cash Book should be done every week. Itshould be easy if you use the “imprest system“.

Imprest means that the petty cash box gets a specific amount in advance.You add or subtract the entries in the petty cash book since lastreconciliation. You count the cash in the petty cash box.The two figures have to add up to the advance given to the petty cash box.

Reconciliation of Wages BookThe wage records and specially the deductions records are notorious forcontaining inaccuracies. They must be reconciled every month to ensure

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the correct deductions are being made.

Reconciliation of stock recordsStock must be checked against the supplies held in the store and receiptsfrom sales.An example:• You have 60 computer games in stock in your Game Shop at 1 January• From 1 January to 31 March you buy another 16 games• From 1 January to 31 March you sell 26 games• 31. March there should be 50 computer games in stock• You go to the Shop and count how many games there are in stock• You only find 49 games. 1 is missing• 1 computer game cost you 50 $. You sell it for 100 $

A simple stock control system could look like this:

Product: Computer games

Value of stock at 1 January

Item Costvalue

60 3.000

Resalevalue

6.000Add: Value of purchase between 1 Jan. to31. March

16 800 1.600

Deduct: Value of sale during periodExpected stock value

Actual stock value

26 1.30050 2.500

49 2.450

2.6005.000

4.900Difference

Cash Control

-1 - 50 - 100

You have to introduce good control procedures concerning cash. “Cash inhand” is very tempting for humans. Good cash procedures avoid temptinghumans.

Open a company accountYou have to separate company money from your personal money. Theeasiest way is to open a company account. And get a company credit card.Then you will know if you withdraw company money for personal use.

Keep money coming in separate from money going outNever put cash received into the petty cash box. Or in your purse. It willlead to error and confusion in the accounting records. All money cominginto the company must be paid into the bank promptly and entered into therecord.If you have a shop the money must be entered into the cash register assoon as you receive it.Money not registered is “burning in the hands of the beholder”.

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Always give receipts for money receivedGiving a receipt protects the person receiving the money. S/he hasdocumentation. It also assures the person handing over the money that it isproperly accounted for. Receipts should come from a numbered receiptbook and written in ink.

Always obtain receipts from money paid outSometimes it is not possible. For instance when purchasing materials fromthe market. In this case the amount should be noted down straight away.Then it can be remembered when coming home. Remember when noreceipts there is there are no proof that a purchase was made.

Pay surplus cash into the bankHaving surplus money laying around the office is a temptation for thieves. Acasual approach to cash on the premises might also make people ´borrow´from it.Every attempt should be made to pay cash into the bank every day or atleast every third day.

Proper procedures when receiving uncounted cashTo protect those who are handling money, there should always be twopersons present when opening cash collection boxes, pay phones andother boxes with uncounted cash. Both should count the cash and sign thereceipt.

Restrict access to petty cash and safeRestrict access to petty cash and safe to as few people as possible.

Keep cash transaction to an minimumPetty cash should only be used as payment when all other methods areinappropriate. Whenever possible use cheque or electronic bank transfersto pay bills. The advantage of this is that it produces a parallel set ofaccounts. It will show when you receive the bank statement.It also minimises unauthorised staff to make payments. It reduces theft andfraud.

Physical Control

Besides the other more administrative control mechanisms you could alsosafeguard your assets by physical control.

Having a safeYou could buy a strong safe to keep cash, cheques, legal documents etc.At least use a safe place.If you often hold large sums of cash you should consider a strong safe.Alternatively go to the bank daily and deposit the money.

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Insurance coverSecuring sufficient insurance cover is a way of safeguarding the assets youalready have acquired. Go through your assets and evaluate whether youwill take the risk of losing it. If not you can take out an insurance.

You could have the following assets insured:

• Inventory - all risk cover of the content in the buildings• Buildings - cover for fire, storm, flood damage etc.• Vehicle - cover for theft, damage etc. of cars and other vehicle• Employers liability - claims from workers who had an accident• Public liability - covers injury, loss and damage made by company staff

towards others

Management and control of fixed assetsYou should implement a system for control and management of your fixedassets. Little by little, you - or more precise your company - become theowner of cars, computers, office equipment, nice modern lamps, stock ofpapers and pencils, office chairs etc.

If these assets are not managed properly they will loose value because oflack of maintenance. They could also be stolen.Draw up a list - an Assets Register - and make a policy on how to check upon your assets.

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Principles in Accounting

Who is Able to do the Accounts

To be a good bookkeeper you do not need to have 12 years of education.Although it is nice to have education, but it is more important to be anhonest person and have a careful and cautious way of thinking. Basicknowledge of using a PC would also be appropriate.

Most of the mistakes made in accountancy are made because the one whomakes them does not take the time to look properly at the voucher and totransfer the right figures from the vouchers into the bookkeepingprogramme. This you do not learn in school. It is a part of your personalityand way of thinking.

With a basic education and a careful and cautious way of thinking mostpeople should be able do the accounts of a small company.

Delegation of authorityIf your business has grown to 5-15 persons it is not practical or time-efficient to expect that you should make all the decisions and authorise alltransactions yourself. You have to delegate authority to members of staff.

In order to protect the ones to whom you have delegated authority and toprevent temptation and to mis-use of your assets there must be aseparation of the different duties in the company.

Double-entry Bookkeeping

The Double-Entry System is a world wide used system to keep track ofmoney.

The double-entry bookkeeping system is based on the principle of doubleregistration in the bookkeeping programme of all income and expenses , -one debit and one credit entry.

1. A debit for something coming in - money or other value2. A credit for something going out.

Every time you debit an amount you have to credit it too. And the other wayround.

Things you buyYou can think of it like this: When you pay out money from the cash box itdoes not just disappear from you. The value of the thing you have bought is

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coming into your company.

So in the PC bookkeeping programme you register the amount of moneythat was “paid out” on the Cash/Bank-Account (credit).And you register the value that was “put into” the company in return, on therelevant account from the account plan (debit)

• Example: If you buy 12 computer games to your shop, you take moneyout of the cash box or the bank (which you credit the Cash/Bank-Account).Then you enter value (12 computer games) into the shop (which youdebit on the Shop Purchase-Account account in the PC bookkeepingprogramme).

Things you sellAnd opposite, the money that comes into the company does not just comeout of the blue.When money comes in, some value goes out of the company.So when you in the Cash/Bank-Account register the amount of money thatcame in, you also register the value that was taken out of the projectinstead on the relevant account in the account plan.

• Example: The sale for a full day in the PC Game Store is registered inthe PC bookkeeping programme (which you debit the Cash/Bank-Account). Since you have taken the value of the computer games out ofthe shop you also credit the Shop Sale-Account .

Always both a debit and a creditWhen you enter a debit on the Cash/Bank-Account you must enter a crediton the relevant account from the account plan.And opposite, when you enter a credit in the Cash/Bank-Account you mustenter a debit on the relevant account from the account plan.

The debit in the Cash/Bank-Account balances with the credit on therelevant account from the account planThe credit in the Cash/Bank-Account balances with the debit on therelevant account from the account plan

The PC helps youIf the registered accounts in the debit and credit sides do not balance thereis a mistake somewhere in the registration. The PC bookkeepingprogramme will usually attract your attention to the is-balance in the entries.

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Account Plan - Chart of Accounts

A chart of accounts is a tool to categorise a company´s financial activities,thus creating a better overview.

Companies must have a suitable chart of accounts and there are noprovisions as to the contents and structure of a chart of accounts. Only anoutline provision stating that a company must have a chart of accountsdesigned for its individual requirements. This means that you are allowed todesign your own account numbering.

Structure of the accountsThe purpose of a chart of accounts is to secure a fixed structuring of theaccounts created in the bookkeeping.Typically, the chart is structured like this:

• Accounts concerning the day-to-day running of the company - showthe company´s earnings and expenses (Profit and loss)

• Asset accounts - show the values in the company (Assets)

• Liability accounts - show the debt/financing of the company(Liabilities)

Standard chart of accountsIn all bookkeeping programmes for PC there is a standardised chart ofaccounts. Therefore, you need to adjust it to suit your company´s specificrequirements.However, in many aspects it suits most small companies as it is. There areprobably a lot of unnecessary accounts for your specific needs. Just deletethem.

Account and informationWhen you make an account plan for your company you need to knowwhich activities you want to have information about. The shortest accountplan you can make consists of two accounts:

• 001 Income• 002 Expenses

If you have only got these two accounts for registering information aboutyour company´s economy, you will not be able to find out which activitiesare working well or badly. The only thing you can see is if the company ingeneral is loosing or making money. This is too little information for amodern project or company.

Consider carefully what information you need from your new business. Theinformation you need should be shown in the account plan.

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Account and numberingEach account has - besides its name - its own number. It makes it easier towork with in the daily work with the accounting.

Example of an Account Plan

This is an example of an account plan for a company called Kafue Super.Kafue Super runs a shop and a tailoring workshop.

The account plan is structured like this:

• Asset accounts - show the value in the company (Assets)• Liability accounts - show the debt/financing of the company

(Liabilities)• Income and Expenses accounts - show the day-to-day running of

the company - (Profit and loss)

Account Plan for Kafue Supermarket

ASSETS INCOME AND EXPENSES

000 Cash in hand Activity centre: Shop010030040

Cash in bankStaff debtorsOther debtors

300310320

Shop saleShop purchaseShop salary

Buildings Activity centre: Tailors100110

ShopTailoring workshop

400410420

Tailoring saleTailoring purchaseTailoring salary

Tools and equipment120 in the shop130 in the tailoring workshop

Fixed costs500510

StationarySalary

LIABILITIES Administration200210220230

Creditors, OwnerOther creditorsDonationsCapital account

520530540

SundryCash deviationsFuel/transport

240 Sale tax

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Maintenance of buildings600 Shop610 Tailoring workshop

Other income700 Interest710 Other income

Jump in the numberingIn the account plan there are two “jumps in the numbering”• 100-200-300… This helps you remember the structure of the account

plan• 500-510-520…. This gives you the possibility to divide the accounts in

even more detailed accounts.For instance: 511: Salary Mr. Vijay, 512: Salary Mrs. Gian, 513: Mr. Wu

Vouchers

Bookkeeping means registration of all financial transactions of a company.A voucher is required to register a transaction.

You must have a voucher:• Whenever you buy something• Whenever you sell something• Whenever you settle an invoice for something you have bought on

credit• Whenever a customer, whom you have granted a credit, settles

his/her debt

Vouchers, receipts, invoices etc. are the foundation of the accountingsystem. Without vouchers, receipts, invoices etc. there could not be anaccounting system.

This may appear overwhelming. Usually, it is just a matter of once and forall getting the routines straight, thus securing a correct registration.

DefinitionA voucher is a piece of paper featuring information on the transaction.Various requirements apply to a voucher depending on the nature of thetransaction. Some transactions do not require a voucher.

Numbering vouchersWhen documenting a posting by a voucher, you give the voucher anumber. When using a PC bookkeeping programme the programme willissue the number, when you do the bookkeeping. You write this number onthe voucher.When auditing the accounts you can use this number to identify thevoucher. Vouchers are filed in numerical order in a ring binder.

When no receipt is availableSometimes it can be difficult to get a voucher from a supplier. It is thereforea good idea that staff, who are sent out to buy small items for the company,carry a receipts book.

• Example: The company´s driver or the shop assistant goes to themarket to buy a special item. The salesperson at the market may not be

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able to give a receipt.In this case they can take out their own receipt, write the proper textand figure and get the sales person´s signature on it. They also sign itthemselves and now the company has a voucher for the accountancy.

Issue An Invoice

Whenever you purchase items you usually receive an invoice from yoursupplier. Whenever you sell products, you have to issue an invoice, unlessyou are a retailer.

If you want to be a perfect law obeying businessman your invoices to acustomers should at least follow these rules:

• If you sell to consumers you only have to issue an invoice on request• If you do not make out an invoice you must use a cash register instead• If you sell to businesses you must always issue an invoice with the

customer´s name on it

As only retailers and restaurants normally use cash registers, it means thateverybody else must make out an invoice to each customer.

Text on an invoiceTo a large extent you can design an invoice as you wish, as long as youmeet a few basic requirements:

1. The customer´s name must be stated on the invoice.

2. Your company name must be stated on the invoice.

3. An invoice must be numbered.The number must either be pre-printed or done by a computerprogram. You can also do your own numbering in a text processingprogram, but it takes a good load of order and discipline.

4. Numerical orderEach invoice, no exceptions, must be made out in numerical order.You must have a really good reason for using more than one seriesof numbers.

5. An invoice must be dated.In theory, rules prescribe that you must date the invoice with theactual date you make it. However, in practice it is often accepted toissue invoices in the beginning of one month and date them end ofprevious month. But the time lag must be no more than two weeksat the most.

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6. Delivery date for goods or service if it does not correspond withinvoice date.

7. The name or description of the sold goods, the total price

8. Possible price reductions or bonuses must be stated if it can not beseen from the total price

File invoicesYou must file copies of the invoices you issue. The copy must be either acarbon copy, a photocopy or an additional computer print-out. The wordingjust has to be identical to the original, except for the word "copy" andcolours, paper quality, etc.

Your invoice copy is a very crucial and fundamental part of keeping yourown accounts.

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Daily Accountancy Work

Office Supplies

Your office routines must suit your company. However, some generalfeatures apply.On start-up you must purchase a suitable number of ring binders for filing ofyour vouchers. Index dividers also facilitate clarity. Sheet protectors, etc.are no good.

Generally, you need to file your documents according to the below system:

• Sales invoices (if you are primarily carrying out cash sales using acash register you must file your cash register rolls)

• Journal vouchers (vouchers of daily receipts and expenses)

• Purchase voucher (if your business is not a trading company, youcan probably do without this file)

• Bank statements (on your company´s bank accounts)• Agreements and other confidential documents• Insurance certificates• Tax documents

The list is not exhaustive. Depending on which activities your businesscarries out you may need additional files. However, the above listconstitutes the basic needs of most companies.

It is not imperative to have a ring binder for each of the above. Many suchdocuments can easily be filed in the same ring binder, as long as they areseparated by index dividers.

Daily Routines for Shopkeepers - And Others

To ensure proper management of your day-to-day business operations youmust establish a number of office routines. Which specific routines youneed of course depends on your business format.

Some crucial routines are connected to your company´s accounting. Firstand foremost it is important to establish a daily routine in registering yourcompany´s income and expenses.

ShopkeepersIf you receive cash payment from your customers - typically retailers, youmost likely need a cash register in order to keep track of the numerous

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daily payments. But a cash register alone does not do the job.

All retailers have a daily turnover in terms of a combination of cash,cheques, and credit card transfers.So, besides a cash register, you must employ a routine of registering themoney from it leaves your cash register until it is safe in the bank. As wellas registering cash out of the cash register, if any.

In practice, this would typically be a cash account (paper) or a computerbased accounting system kept as part of the day-to-day operations.

OthersMany companies never receive cash payments. They handle all incomeand expenses exclusively via their bank account. Such companies do nothave the same need for a daily registration routine as retailers do. But theystill need a routine adjusted to their size and format.Some examples:

• A wholesaler (selling to other companies), probably rarely or neverreceives cash payments. Still, there will be numerous daily orderexecutions, sales as well as purchases. Sales are probably creditsales, which must obviously be registered to ensure that thecompany recovers all its outstanding debts.

Such a company is very dependent on a daily accounts routinemodified for its business practice.

• For a minor consulting business with no staff except for the ownerdaily routines will be rather simple. There might be days or evenweeks between the invoicing. However, such minor businesses alsoneed proper routines, otherwise the accounts won´t come right.

How do I establish proper routines for my company?The best to do is to discuss the matter with your accountant before youstart up. This is particularly relevant for companies with daily sales and/orpurchase operations. They must establish proper routines that are not toounmanageable from day one.

Your accountant is an expert in this field as s/he, besides his/her education,has hands-on experience from numerous other companies.

Purchase-, Sales- or Payment Transactions

There is a distinction between three types of transactions, even if the threeterms are not used in the day-to-day bookkeeping.

1. Purchase Transaction is when you buy a product or a service

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2. Sales Transaction is when you sell a product or a service

3. Payment Transaction is when you settle your account with a supplier,when a customer pays you, or when you transfer money from one bankaccount to another.

If a purchase or sales transaction is made in cash, a payment transaction ispart of that transaction. Oppositely, if the transaction is made on credit, thesubsequent payment transaction is an isolated transaction as it is madelater.

One of the reasons for making a distinction between the three types oftransaction is that the requirements for vouchers differ.

Purchase Transaction Voucher

When buying a product or a service, you receive a bill (an invoice) from thesupplier. This invoice, the original invoice that is, must be used as avoucher for the bookkeeping.This applies whether you buy cash or on credit - i.e. whether the payment ismade on purchase or later.

Thus, a receipt, a copy of a cheque, etc. will not qualify for a voucher of apurchase transaction. It must be a bill - a so-called invoice, and it must bethe original document, not a copy.

Only original vouchersThe reason for the requirement of an original invoice as documentation forexpenses or purchase of goods, is, that usually there will only be one singleoriginal.It is easy to make numerous copies of the same invoice. So, using onlyoriginal invoice as a voucher for a purchase transaction you make sure thatthe transaction is only entered once into the accounts.

Of course you may risk losing the original invoice for which reason you willhave to obtain a copy and use that for a voucher of the purchasetransaction for the bookkeeping. This is inappropriate, but obviously betterthan no voucher at all. As long as this is only a one-off event, no harm isdone. Just make sure no mis-entries are made because of it.

A typical mistake in such cases is that the original invoice had actuallyalready been entered, and by using a copy you thus end up having enteredthe same purchase transaction twice.

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Sales Transaction Voucher

When you sell goods you issue a bill - in principle, that is. The type of billnecessary depends on the type of business you are running. Most retailersonly make out bills to customers on request.

As the original bill has been handed to the customer, you use a copy(carbon copy, photocopy, or an additional print-out) for a voucher for yourbookkeeping.

When entering purchase transactions into the accounts, you use theoriginal invoice as a voucher. And as there exists only one single originalversion of the invoice, you are sure to enter the transaction only this once.

Likewise, you must also make sure to enter sales transactions into theaccounts only once. You do this by printing out all your sales invoicesconsecutively numbered. You must ensure an uninterrupted chronologicalsuccession.

Numerical orderThese sales invoices must be filed in numerical order. At your owndiscretion you can make more copies of these invoices for other purposes.You may want to file copies of invoices along with your correspondencewith the customers.

Cash registerWithin retailing, e.g. shop sales, bills are issued to the customers onlyrarely. Thus, in order to comply with the rules, sales must be registeredelsewhere.

Normally, a cash register is used to register regular sales. The cashregister accumulates the daily sales and registers each sales transactionon a cash register roll. At the end of the day the cash register totals theday´s registered sales.The cash register can group sales into two or more product lines dependingon the structure of the company´s bookkeeping.

So, as there are no real sales invoices, the cash register roll works as avoucher for the bookkeeping of the daily sales transactions.Usually, the total sales of the day are entered as one transaction or one foreach product line if the cash register groups the sales into product lines.

Market tradeMarket trade and similar sales from stands are a bit special. Traditionally, itis legal to register such sales indirectly.

To register sales indirectly means that you determine the day´s sales by

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deducting the morning cash balance from the day-end cash balance,factoring in payments received or made not relating to sales.

This is not a very precise way to register sales, but when it is accepted allthe same, it is probably out of recognition of the fact that such sales fromstands would never work otherwise. The daily sales statement worked outthis way functions as a regular voucher for the company´s bookkeeping.

Thus, you always use sales registration copies as vouchers for the enteringof sales transactions into the accounts. So, the type of sales registration ismerely a matter of business type.

Payment Transaction Voucher

There are many types of payment transactions. Payment Transactions -other than purchase or sales transactions - include:

• When your customers settle their credit sales invoices• Similarly, when you pay your supplier at a later time than on delivery• When making bank deposits (cash)• When paying installments on your bank loan

Common for these examples are that, contrary to purchase and salestransactions, they do not set off an entry on a purchase, cost, or salesaccount. Payment transactions only set off entries on balance sheetaccounts under assets and liabilities.

The bookkeeping of payment transactions does not require an originalvoucher (nor a copy of your own sales invoice) - just some sort ofverification of the transaction.

Vouchers of payments received from customers could be copies of receiptsyou may have produced. It could also be an entry on your bank statement,or maybe just an entry in your cash book.

Vouchers for payments made, which are not purchase transactions, aretypically just carbon copies of cheques, entries on a bank statement, etc.

Salary Entries and Records

It can be troublesome to prepare the salaries for staff. The amount oftroubles depends on how many different allowances and bonuses you areusing and how many credit facilities are offered to the staff.Besides these there are all the different insurance, tax and other tasks youhave to do because of the national legislation.

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Legal obligationYou as the owner of a company have a statutory duty to maintain recordsof all wages paid and deductions made. Failure to do so could result in aheavy fine. Be sure to familiarise yourself with the arrangements of your taxauthority and get hold of the latest tax deduction book.

Business owners are responsible for ensuring that proper statutorydeductions are made from an employees salary. The deductions must bepassed on promptly to the relevant authority.

Do not tempt to disregard the Tax Department in relation to temporary, parttime or casual employees. All wages must be included in the financialreturns to the tax office.

Wage BookYou should keep a separate Wage Book which brings together all theinformation on staff salaries and deductions. They can often be purchasedfrom stationery suppliers in a pre-printed format.

The transactions in the wage-book also have to be registered in your PCbookkeeping programme.

Stock Registration

To keep proper track of company´s goods you could introduce a stockregistration.

You need to have a system which can help you keep track of the goodsbought and sold. Without a stock keeping system you will not notice ifgoods are disappearing by wrong channels.

• Example: If a shop buys 12 containers of cooking oil the shop keeperwill put them on the shelves and the cooking oil is now considered asstock in the shop.These 12 containers have to be registered on a stock card.If the shop sells 4 containers of cooking oil this sale has to be registeredon the stock card.

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The stock card and the registration of the cooking oil could look like this:

STOCK CARD

ITEM: Cooking oil UNIT: 2,5 l container

Date

Supplier/consumer

Quantity

IN OUT

Balance

Purchase value

Unit Total

1.1.05 Opening stock 3 2 6

2.1.05 Omar Wholesale

5.1.05 Shop sale, 2-4.1.05

12

4

15

11

2

2

30

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The stock card has the following headings:

DateUse the date stated on the invoice.

Supplier/consumerWrite the name of the supplier of the item. If selling an item you write thename of the customer, if possible.

Quantity:Received: When you buy e.g. 12 containers of cooking oil it is registeredhere.Issued: When you sell e.g. 4 containers of cooking oil it is registered here.

BalanceThe balance shows how many containers of cooking oil the shop shouldhave on the selves.The balance is found by:• adding the received goods to the previous number or• subtracting the issued goods from the previous number

The Opening balanceIn this case the stock comes from the stock taking made 31. of December2004. At stock taking you go to the shelves and actually count the numberof each item of goods. The counted goods should be the same as stated onthe stock card. If not, something is wrong.

Purchase ValueUnit: Here you register the unit purchase price (not the price when you sellit from the shop but the price when you bought it from the wholesale). E.g.the unit price of the cooking oil is $ 2 per container. You always have to usethe actual purchase price.

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Total: You find the total value like this:For each new line on the stock card you calculate the value of the items,i.e.: the number of items x unit value. This sum you add to the total value ofthe above line and you then have the new total value.

Note! You may have in stock a number of identical items which you havebought at different prices due to general rise.When you register incoming goods you - as mentioned above - always usethe actual purchase price.When you register the value of items going out of the stock you mustalways use the latest purchase value. You should not begin to think abouthow much the different containers actually was bought at and use the oldprices for calculation.

BookkeeperThe registration on stock cards is usually done by the bookkeeper. Sowhen you receive the vouchers from the cashier after the cashreconciliation it is a good idea to do the stock registration.

Adding vouchers

Sometimes it is a good idea to add vouchers with small amounts together.E.g. the driver from a company has been to town to buy at lot of differentitems in different wholesale shops. These items are to be sold in thecompany store. All the receipts/invoices from the different wholesale shopsare added and clipped together.

All the vouchers just get one voucher number. When entering in the PCbookkeeping programme a proper text could be "Purchase for shop".The total amount is credited in the Cash/Bank-Account and debited on theShop Purchase-Account. By doing this the bookkeeper saves a lot of timewhen making the entries.

However, you must be aware that if you choose to do this, it will be moredifficult to find detailed information about the purchase if it is needed lateron. You will then have to go back to the vouchers to find the amounts, priceetc. as it is not in the cash book.

Non-cash Vouchers

Also activities which move value from one place to another but do notinvolve cash money, must be registered on vouchers - so-called non-cashvouchers.

• Example

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A company has two departments, a Tailoring workshop and a Shop. Ifstaff from the tailoring workshop goes to the shop to get some materialfor sewing uniforms, they may not pay for the material as it is all withinthe company. But it must be registered.Otherwise it will look as if the material just has disappeared from theshop and - in a critical situation - the shopkeeper might be accused ofstealing it.It will also look on the accounts as if the shop is buying more materialthan it is selling.

So you need to make a non-cash voucher and file it together with the cashvouchers. When you do this the material will be registered as going out ofthe “Shop sale account” (credit) and into the “Tailoring purchase account”(debit).

It is called a non-cash transaction or an internal transaction.

Re-posting a Voucher

Maybe you find out that you earlier on have entered a wrong figure fromone of the vouchers.If you entered a figure that was too big you have to "re-post" the differencebetween what you have entered and what it should have been. The amountthat was too much must be drawn out again.

If on the other hand you entered a figure that was too small you now haveto make an additional entry of the difference between what you entered andwhat it should have been.

• Example: You have entered the shop sale at $ 970 but find out that itshould only be $ 950. Then you have to credit (take out) the differenceof $ 20 in the Cash/Bank-Account because here you debited the $ 970which was 20 too much.

And you have to debit the $ 20 on "Shop Purchase-Account" becausehere you credited the $ 970.

In the text you say which voucher you are re-posting so that it is possible totrack the re-posting.If you make an additional posting you also mention the original vouchernumber in the text.

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Credit Sale

Selling your products or services you should remember to state clearly onwhich terms you want your customer to pay.

Should I grant credit?Whether to grant credit, and the terms of such credit, depends on youragreement with the customer and, to some extent, on trade customs. Manycompanies grant a 30 days´ credit or "invoice month + 30 days".Sometimes, credit is a competitive parameter similar to for instance price.

Bear in mind, however, that the longer credit you grant the greater the riskof ending up with no payment at all. There is always an element of riskconnected to granting credit.Exact dateIf you do not have a specific agreement with your customer it is often anadequate measure to state "net cash" or "net 8 days" on your invoice thussignalling that you do not generally grant credit.You can state a due date - e.g. 25 April – maybe two weeks ahead. IN thisway your customer knows exactly when to pay.

Month´s non-paymentYou can also choose to just await the customer´s settling of the invoice notrequesting payment until after a month´s non-payment.Even if you by doing so risk granting a month´s credit, you avoid precludingyourself from requesting payment until a due date stated on the invoice hasbeen exceeded considerably (for instance net 30 days exceeded by 2weeks = 1½ months´ credit).

Requesting paymentIf you have stated an 8 days´ credit and the customer still has not paid after30 days you should not hesitate to request payment after 30 days, orearlier, if it seems reasonable.

Requesting payment can be done by means of phone, letter or in anotherway. This is entirely up to you and is mostly a practical matter.

Check for paymentIf you choose to sell on credit you must be sure to look through the debtorfiles at regular intervals and ensure that people have paid what they oweyou.

Mis-entry

Inevitably, you will make occasional mis-entries to the effect that you willhave to correct your accounts. Corrections are also called post entries oradjustments.

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Post entries or adjustmentsCertain entries that are not usually entered in the day-to-day bookkeepingbut posted at periodic intervals (e.g. on closing of the annual accounts), arecalled post entries too.

Similar to all other entries, post entries must be supported by a numberedvoucher. Moreover, such entries should be posted with a paper voucherexplaining the adjustment. However, in most cases, the text you enter inthe accounts serves as explanation and a paper voucher will not benecessary.An example:

Problem:You have two customers, both named Vijay Jain. More specifically: Vijay A.Jain and Vijay B. Jain. Accidentally, you have entered (credited) a paymentreceived by Vijay A. Jain to Vijay B. Jain ´s account. Now you need tocorrect the mistake.

SolutionYou correct the mistake by debiting (cross entry equalling the mistake) thepayment to Vijay B. Jain ´s account and crediting the payment to Vijay A.Jain ´s account.Originally, the payment was debited to your bank account. You do not haveto adjust your bank account as this isolated part of the original entry(charge) was correct.

This type of adjustment does not need a paper voucher. It is sufficient torefer to the original entry in the text of the post entry.

An adjustment is entered by the same date as the entry it supersedes.Occasionally, you see post entries entered at a later date, but this is a badhabit causing errors or confusion at best.

Consistent errors, pleaseA golden rule is: if you have a tendency of making mistakes, at least beconsistent! In other words: If you have doubts about the handling of acertain type of entry, then do it the same way each time.

If a certain type of entry has consistently been entered to a wrong accountis it subsequently fairly easy for an accountant to correct the mistake.However, if the same type of entry has been entered in different ways (onemay be the correct way), then it could be very time consuming to correct.

Keeping Accounts Means Less Trouble

The vast majority of ´trouble´ in the paper work comes from lack ofbookkeeping and accounting systematics.

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Finds ways to do proper accounting. Maybe by outsourcing such tasks.

Good look in running your business.

Mr. Mogens ThomsenBusiness Consultant

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