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BSBFIA304_CERTIII_BUSINESS_MASTER Presentation 1
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Transcript of BSBFIA304_CERTIII_BUSINESS_MASTER Presentation 1
BSBFIA304MAINTAIN A FINANCIAL LEDGERPRESENTATION 1
PRESENTATION OBJECTIVES
At the end of this presentation you will be able to:
• Prepare general journal entries
• Post journal entries into the general ledger
• Reconcile accounts payable and receivable with general ledger
• Maintain accounting equation and standards
MAINTAINING DAILY RECORDS
The processes of maintaining daily financial records starts with an
organisation’s financial transactions.
Transactions are recorded into source documents, then summarised
into journals.
Journals are then posted to the general ledger, and subsidiary ledgers
- accounts payable and accounts receivable ledger.
Whether you decide to manage your own financial records, or obtain
the services of a professional bookkeeper or accountant, it is
beneficial to have a general knowledge of basic bookkeeping so you
understand where the information comes from and how best you can
use this information.
BOOKKEEPING BASICS TO STARTDouble entry bookkeeping
• Means to record each transaction twice
• The first entry records what comes into the business (a debit), the second entry
records what goes out of the business (a credit)
• Every debit must have a credit of the same value
• Debits display on the left of the line for the transaction and credits on the right
• Each transaction reflects the basic accounting equation:
Assets = liabilities + capital
If each entry is recorded accurately the ‘books of account’ will balance, think of
your books looking like this, one side has to equal the other.Debit Credit
What comes into the business What goes out of the business
Example: Stock (inventory) Example: Account payable (owe money to supplier to pay for stock)
DEBIT AND CREDITTransactions affect two accounts - total debit amounts must equal total
credit amounts. They are one of the most important tools in an accounting
system.
In accounting, debits are balanced by credits, which operate in the
opposite way. When a debit is made to one account, a corresponding
credit must occur on an opposing account.
What’s the difference between credit and debit?
A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry. The reverse of a credit is a debit.
A debit is an accounting entry that either increases an asset or expense account, or decreases a liability or equity account. It is positioned to the left in an accounting entry. The reverse of a debit is a credit.
DEBIT AND CREDITWhat’s the difference between credit and debit?
Example if you were to record $100.00 for expenses, what would your transaction look like?
An expense increasing means to post this $100 as a debit.
If you were to deposit $100 into your bank account what would it look like?
Bank account is an asset – to increase an asset you need to record a debit, add the $100 to
your bank account total.
These rules help you make decisions as to the effect on each account:
Asset accountsTo increase an asset account, record amount in debit column
To decrease an asset account, record amount in credit column
Liability accounts
To increase a liability account, record amount in credit column
To decrease a liability account, record amount in debit column
Owner’s equity accounts
To increase an equity account, record amount in credit column
To decrease an equity account, record amount in debit column
Revenue accounts
To increase a revenue account, record amount in credit column
To decrease a revenue account, record amount in debit column
Expense accounts
To increase an expense account, record amount in debit column
To decrease an expense account, record amount in credit column
BOOKKEEPING BASICSChart of accounts
• This is a foundation of the double entry bookkeeping system
• Lists all accounts found in the general ledger, it is used to code each
transaction
• The chart of accounts consists of accounts for assets, liabilities, owners’
equity, income and expenses
• Needs to be appropriate to your business
• You will be responsible to work from the chart of accounts allocating
transactions to their relevant accounts
• The chart of accounts is normally broken into accounting groups and
subgroups for reporting and depends on the type of business you operate
and the needs of that business
• See your eBook for an example
BOOKKEEPING BASICSDaily recording involves working with:
• Income and expenses incurred through the operation of the business
• Dealing with debtors and creditors of the business
The customer/supplier relationship is often referred to as the debtor/creditor
relationship within accounting. Monitoring debtors and creditors systems is an
important part of daily financial management process - managing the flow of
money into the organisation with payments from debtors and payments to
creditors.
Debtors
Customers
Accounts
receivable
Money owed to us
Creditors
Suppliers
Accounts
Payable
Money we owe
BOOKKEEPING BASICS
Cash accounting•Usually for smaller less complicated businesses that often handle cash payments eg: hairdresser•Tracks the actual money coming in and out of your business•Doesn't capture money owed by you or to you•When you send an invoice to a customer, don't record the sale in your books until you receive the money from the customer•Eg: if you send an invoice on Tuesday, and don't receive the payment in your account until Thursday, record the income on Thursday's date•Records involve income and expenses, any wage records
Accrual accounting
•More complicated and better suited for businesses that charge by invoice and don't get paid immediately eg: builders
•The performance and position of a company can be measured by recognising economic events regardless of when cash transactions occur
•Record expenses and sales when they take place, instead of when cash changes hands
•Eg: if you're a builder and send an invoice for a project completed, record the sale in your books even though you haven't received payment yet
•Captures money owed by you or to you so provides an true picture of your financial position
•Records required involve all source documents, journals and ledgers
Accounting for your businessThere are two main methods for accounting for your business. The main choice depends on the size of your business and how complicated your business is.
GOODS AND SERVICES TAX GST• The government requires organisations to charge GST on the goods and services they sell at
a rate of 10% of the value of the transaction.
• Some goods and services are GST-free - you can find out more specific information on the
Australian Taxation Office website www.ato.gov.au
• When an organisation charges GST it must set this GST amount aside and remit it to the
Australian Tax Office (ATO) at the end of a reporting period
• Businesses registered for GST are required to complete a Business Activity Statement (BAS).
The BAS is a summary of the GST paid, the GST collected on your sales and any PAYG
withholding tax owing
• Depending on your business you need to complete a BAS monthly or quarterly and make the
appropriate payment or request the refund as determined by your figures.
• There are two kinds of GST for a business to be concerned with:Amounts the ATO owes you – this is the amount of GST that you pay when you purchase goods and services - input
tax credit or GST receivable, or GST on
purchases
Amounts that you owe the ATO – this is the
amount of GST that you charge (or collect) on the
sale of goods and services
JOURNALS
Cash payments journal
CPJ
Cash receipts journal
CRJ
Sales journalSJ
Purchases journal
PJ
General journalGJ
Daily recording involves working with journals and ledgers. Throughout this
unit we will work on a colour coded system to help you understand how this
works.
• All the journals listed above have coloured templates in your eBook
• Each journal will deal with transactions and debtors and creditors of the
business
.
MAINTAIN DAILY FINANCIAL RECORDS
• Accounting and financial management activities in an organisation
are mainly based around these areas:
• Financial record keeping is accomplished through tracking financial
events (transactions – eg. expenses and income)
• Your organisation will use a system that suits their size and needs
• Managing daily financial transactions can be done by using
software or manual bookkeeping. Whichever system your business
uses, the following steps make up the flow of information:
Transaction
s – invoic
es
Journals
Accounts
Ledgers
Financial reports
MAINTAIN DAILY FINANCIAL RECORDS
The early stages of daily financial record keeping involves monitoring
the flow of money in and out.
Daily recording involves working with:
• Income and expenses incurred through the business
• Debtors and creditors of the business
• Main purpose of recording transactions into the journal and ledger
system is to identify the overall current financial accounts of the
business
The customer/supplier relationship is often referred to as the
debtor/creditor relationship within accounting and involves managing
the flow of money into the organisation with payments from debtors
and payments to creditors.
ORGANISATIONAL REQUIREMENTSEach organisation has strict guidelines and requirements for
maintaining financial records.
Example
You may be required to perform certain activities within a certain time:
• Banking
• Reconciliations
• Posting transactions to the general ledger
• Performing trial balance
Why is this important?
Possibility for errors is minimised High standards of accountability
ORGANISATIONAL AND LEGISLATIVE REQUIREMENTS
The organisation you work for will have specific requirements for their operation.
Standards are set down for business activities and legislated by various government
regulations.
Example
The (ATO) requires compliance with taxation legislation i.e. paying GST on time and
completing the Business Activity Statement (BAS) by the due date.
They may involve these guidelines:Timelines
•Work with any set timeframes in your organisation
Reconciling journals
•How does your business work with reconciliation?•How often are you required to perform a reconciliation? •What can you do if there is a problem?
Legal and organisational requirements
•Understand and comply with all legal requirements •Consider:•Ethical principles•Codes of practice•Anti-discrimination
•Your organisation will have policies around the areas of financial management
WHS requirements
•You must comply with safe working procedures at all time•Any reasonable request must be adhered to •Contribute to safe work for self and others
Security
•Work to all security procedures:•Cash handling•Privacy and confidentiality•Back up systems
GENERAL JOURNAL
Business entries Correction of posting errors
Interest expense Interest receivable
The general journal is an important part of the journal keeping system for a business. It is a place to
record transactions which do not fit into specialised journals (cash and credit journals).
Double entry rules apply:
• Assets increase = debit
• Liability decrease = credit
• Debit entries always appear on the right, (credit entries can be indented)
• The more information you can include in your work the less likely there is to be a
misunderstanding of the entry, narrations are always important to include
• Journal entries are ‘ruled off’ to indicate the transaction is in balance and ready for another entry
They can include the following transactions:
MAINTAIN GENERAL LEDGERS
Chart of accountsA list containing all general ledger accounts for the business. An account fits into categories with a number and a description.
General journalsHouse other accounts that don’t have their own journal, eg: asset sales, depreciation. A location for entry of transactions that don’t occur with enough frequency to require their own journal.
General ledger Houses company accounts. Contains a summary of journals for every transaction.
InvoicesGenerated by a business to charge for a goods sent or services provided. Source document with a statement of the sum due for these. Also known as a bill.
JournalsBooks of where accounting entries are recorded in date order. There may be several journals: sales, purchases, cash receipts etc.
Trial balance The already summarised information in the general ledger is further combined to create the Trial Balance.
Look at a few definitions before starting this section:
• The financial transactions throughout the life of an organisation are collected within one complete record known as the general ledger
• Originally journals were made up of pages ruled to represent movement in and out of accounts
• The number of accounts needed depends on the business• A chart of accounts includes all defined accounts in a list
WHAT IS A GENERAL LEDGER?
Thought of as a master set of accounts that summarise all
transactions. A general ledger is where your organisation’s financial
statements will be built from.
It provides a:
• Complete record of the transactions over an organisation’s lifetime
• Summary of monthly posting from the journals
• Provides a final balance for each accountGeneral ledger is created from
Cash payments
journal
Cash receipts journal
Purchases journal
Sales journal
General journal
POST JOURNAL ENTRIES INTO GENERAL LEDGER
• Separate accounts are kept for every asset, liability, equity, income and
expense account in the business
• Each of these accounts combines to create the general ledger for the
business
• Posting means to allocate the transaction to the relevant account
The following journals are to be entered into the general ledger :Sales journal SJ Records sales we have made on credit
Sales returns journal
SRJ Records sales we have made on credit but which were subsequently returned by our customers
Purchases journal
PJ Records purchases we have made on credit
Purchases returns journal
PRJ Records purchases we have made on credit but which were subsequently returned to our suppliers
Cash receipts journal
CRJ Records money received (through cash register, receipts)
Cash payments journal
CPJ Records money paid out (purchases receipts, cheque stubs or direct debit records)
GENERAL LEDGER ACCOUNTSCommon general ledger accounts include:
Income #4•Sales•Revenues•Sales discounts* (a reduction in sales)•Investment income•Commission
Expenses #6
•Payments made by the organisation to keep operating•Purchases•Bank charges•Insurance•Advertising
Balance sheet accounts
Income statement accounts
*Discounts are another area that requires careful entry and may be handled in a particular way
in your organisation. Early payment discounts can occur as can discounts on items of stock.
Make sure you understand how these need to be entered before you begin.
Assets #1
• Items of value owned and used by the organisation to generate income
• Bank accounts Petty cash• Office supplies• Investments• Buildings/land
Liabilities #2
• Amounts owed by the organisation to external stakeholders; or debts to be paid in the future
• Accounts payable• Accrued wages• Unearned revenue• Accrued income taxes
Capital accounts #3
• Amounts the owner(s) has in the organisation
• Owner’s equity• Common stock• Preferred stock• Retained earnings
TRANSACTIONS Posting is a bookkeeping function which involves the procedure of transferring journal
entry amounts into ledger accounts.
It is necessary to provide an accurate and complete set of figures for the business.
This includes all transactions for the period, they need to be:
• Correctly allocated to debit and credit with account numbers attached to match
the chart of accounts for your business (see your eBook for an example chart of
accounts)
• This is the relationship between journals and ledgers of a business
POSTING TRANSACTIONS
• There are examples in your eBook outlining the steps in posting
transactions
• You need to make the following decisions then enter the details
into the journal templates
• Then transfer these figures to the ledger templates Which journ
al does the
transaction affect
?
Which account will
we allocate the transaction
to?
Is it an asset, liabilit
y, equity, revenu
e or expen
se accou
nt
Is it a
debit or credit?
ANALYSIS CHART
Transactions an example
30/1 phone bill $150.00 paid from the bank account direct debit invoice # T1789
30/1 Payment received cash from customer cash sales $350.00
An analysis chart is another step in the process which can help you determine the effect of each transaction.
It is good practice to use a form like this to help you understand the process.
Looking at these two transactions the effect will be as follows
Date Transaction details What happens to the transaction? Account # from chart of accounts
30/1 Phone bill paid $150Increase telephone expense (DR) 6-1200Increase bank account (CR) 1-1000
30/1Payment received from customer cash sales
Increase bank account (DR) 1-1000Increase sales account (CR) 4-1000
RECONCILE ACCOUNTS WITH GENERAL LEDGER
Before the trial balance is prepared it is necessary to reconcile all
accounts
• The bank accounts from financial institutions
• The accounts payable and accounts receivable ledgers
Preparing reconciliation statements provide evidence that the total of
all the accounts in the organisation match general ledger.
• A subsidiary ledger exists for the AP and AR and contains records
on account details
• Having this information accessible and up-to-date allows
organisations to keep track of creditors and debtors and the
overall organisational cash flow
RECONCILE AP AND AR WITH GENERAL LEDGER
AP ledger - Also known as the creditor’s ledger, has information regarding each creditor the
organisation owes money to
• Maintaining this ledger makes sure suppliers are paid accurately and on time
• Use the purchase, purchase returns and allowances and cash payments journals
• Like the accounts receivable ledger, once transactions affecting creditors have been
posted and totalled, the balance needs to be reconciled with the balance in the creditor’s
control account in the general ledger, then we can be confident what we are paying
AR ledger - Also known as the debtor’s ledger, it contains an account for each debtor and
every transaction that takes place on a daily basis
• Shows which debtor owes money, amount and how regularly they are paying their
account
• This ledger is updated by using information contained in the sale journal, sales return and
allowances journal and cash receipts journal
• After transactions have been posted in this ledger the total of all the balances should be
reconciled with the balance of the debtors’ control account in the general ledger
• Accounts need to be reconciled before we can demand money from our customers, how
do we know if our records are right?
RECONCILE AP AND AR
As a rule of thumb
use this check list
to help you with
your
reconciliation.
If any of the
answers are
incorrect, make
the changes and
check again.
Accounts payable Check Accounts receivable Check Are all entries correctly entered? Are all entries correctly
entered?
Are all invoices correct from your supplier, have they been checked?
Are all invoices to your customers correct, have they been checked by an independent person?
Are all invoices entered correctly into the purchases journal?
Are all invoices entered correctly into the sales journal?
Is GST correctly recorded? Is GST correctly recorded? Have all credit notes or returns been entered properly?
Have all credit notes or returns been entered properly?
Have all payments been applied to the suppliers account properly?
Have all payments been applied to the customer’s account properly?
Does the statement from the supplier match your transactions, credit and payments?
Is your statement accurate and match your transactions, credit and payments?
Does the ending balance in the general ledger match the aged summary report?
Does the ending balance in the general ledger match the aged summary report?
MAINTAIN ACCOUNTING EQUATION AND STANDARDS
The accounting equation forms the basis for recording accounting
transactions and reporting the organisations financial results and is
known as the relationship between assets, liabilities and owner’s
equity:
Assets = Liabilities + Owner’s Equity
Bookkeepers record transactions making sure the equation always
balances:
Debit DR Credit CRASSETS = LIABILITIES + OWNER EQUITYCash
Accounts receivable
Product (stock)
$3000
$824
$3824
Accounts payable
Capital
$2680
$4788
Total $7648 Total $7648
MAINTAIN ACCOUNTING EQUATION AND STANDARDS
• These rules show when one account is debited by a certain amount,
another account must be credited by the same amount
• Maintaining accounts using this process will lead to a balanced
general ledger and accurate financial reports
• When an amount is recorded in either the debit or credit column it will
have an effect of increasing or decreasing the balance of the account
As a reminder these rules are critical refer to them as you need:
PRESENTATION OBJECTIVES
Now that you have completed this presentation, you will be able to:
• Prepare general journal entries
• Post journal entries into the general ledger
• Reconcile accounts payable and receivable with general ledger
• Maintain accounting equation and standards