Category: Accounting

Small traders do not keep their accounts based on the double-entry system (Also see The Difference Between Single and Double Entry System). They only keep track of cash and credit transactions. Then, at the end of the financial year, these companies want to understand the position of their business (Also see Is Opening a Business Bank Account Necessary?). Often, many confuse the statement of affairs with the balance sheet. This is because both documents list out the company’s assets and liabilities.

There are some notable differences between the statement of affairs and balance sheet; the former is prepared using incomplete records while the latter is prepared using proper records according to the double-entry system.

Definition of the Balance Sheet

A balance sheet is a statement that highlights the company’s financial status at a specific date (Also see The Balance Sheet and the Profit & Loss Account). It consists of two sections that are assets and equity & liabilities. Equity is in the liabilities section because it is part of the liabilities. The assets are the amount owned by the business. On the contrary, liabilities indicate the amount owed by the business.

It is compulsory for every business (Also see Characteristics of Successful Business Owners) to prepare the balance sheet. It is prepared using the double-entry system of bookkeeping. A complete recording of each transaction is prepared through numerous stages. Then, the final stage is to prepare the balance sheet. The amount of both sides will not be identical if some liabilities or assets are omitted.

Definition of the Statement of Affairs

There are two sections on the statement of affairs. The right section is for assets, while the left section shows liabilities. This is prepared based on the single-entry system of bookkeeping. Assumed figures are often used to figure out the closing or opening capital because incomplete records are kept. The opening or closing capital is also known as net assets as it is the outcome of assets over liabilities.

The statement of affairs is prepared on the opening date to find the opening capital. Likewise, the statement of affairs is prepared on the closing date to find the closing capital.

Conclusion

The concept of both statements is nearly the same, but the experts think that the balance sheet is more precise because it is based on a complete process, whereas the statement of affairs does not have such qualities. Please reach out to any accounting services in Singapore for more information regarding the statement of affairs and the balance sheet.

How accounting and bookkeeping differ from each other is a usual concern. Bookkeeping is an essential part of the more prominent subject of accounting.
Basically, a bookkeeper is an individual who is mainly in charge of the fundamental functions of the accounting unit. The bookkeeper develops financial transactions and financial documents that give an outline of those deals. The bookkeeper needs to document or produce data from a wide range of source documents of these actions, for instance, statements to consumers, cash receipts, as well as distributor billings.

Ensuring the accuracy of the accounting files is also one of the responsibilities of the bookkeepers. The accounting records asks for significant focus to the submitting of the accounting files, constant recording of relevant information, and the analysis of accounts to make sure that they are accurate. Bookkeeping deals are mechanical, which means that the bookkeeper adheres to an authorised series of steps repeatedly to record a regular task.

Main responsibilities of the bookkeeper:

Cash receipts and invoicing tasks

• Issue statements to clients
• Guarantee that receivables are claimed punctually
• Keep records of cash receipts as well as making bank down payments
• Perform bank reconciliation every month
• Guarantee that receivables are claimed punctually
• Keep records of cash receipts as well as making bank down payments
• Perform bank reconciliation every month

Documenting as well as cash payment tasks

• Settle distributor invoices on time
• Take all appropriate rebates on distributor invoices
• Settle any financial debt as the time for settlement comes
• Track level of business debts and compliance with debt agreement
• Financial statements
• Perform reconciliations of all accounts every month to make sure that the amounts are correct
• Issue and provide financial statements (Also see What is Balance Sheet and Statement of Affairs?)
• Inform executives if any problems showed up in the financial statements
• Collect data for the analysis at the end of the year

The bookkeeper is not commonly a contemplated component of the senior executive team. They are excluded because their position is administrative. The bookkeeper is not being asked formally to run the business actively, but more to arrange its result systematically (Also see 10 Concerns You Need To Address Prior To Beginning Your Organisation).

Some organisations offer their bookkeepers titles that surpass their real job duties, for example, “accounts executives”, or “auditor”. If there is any problem regarding the useful title of a person, the most significant evaluation is whether the individual is only and singly in charge of all accounting tasks. If this is the case, the individual is a bookkeeper.

Main responsibilities of the accountant.

Accounting includes the tasks below:

• Making the graphs of accounts.
• Organising the general ledger using double entries (Also see The Difference Between Single and Double Entry System).
• Calculating the financial statements.
• Giving personalised executive records to draw people’s attention to certain problems, for example, by using relevant financial ratios.
• Modifying the grouping or provide evidence of purchases to reach particular accounting standards.
• Generating a budget and make a comparison with the real outcomes.
• Organising tax returns from the commercial info.
• Producing a series of controls that the financial structure works within.
• Creating a record maintaining, storing, and data protection system.

Commonly, at least one competent accountant will be in charge of the accounting functions of an average to large companies. The accounting professional will then build up the system that are adhered to by a large group of bookkeepers or staffs.

All in all, the difference between bookkeeping and accounting is that bookkeeping pays attention to repeated business deals, therefore is a part of the more extensive set of activities which can be covered through accounting.

Some substantial differences between the bookkeeper and accounting professional can be seen too. The bookkeeper function is broad, with someone usually taking care of each of the accounting deals for a small company. The bookkeeper usually has a lot of experience, but they are most probably lack of official accounting education. On the other hand, getting an accounting service in Singapore have higher chances to ensures the professional accountants do their tasks specifically in a particular field, for example, the general ledger, and probably have obtained formal education in the accounting part.

An income statement, or known as profit and loss statement, shows the financial condition of a company over a duration, probably annually for reporting tax. Instead of giving an image of the financial status of the company, the income statement indicates the financial behaviour of the company (Also see What is a Chart of Account?). The management is able to change the financial direction of the company by evaluating the income statement every month, some accountants (Also see Getting Ready as An Ambitious Accountant) may even use advance financial ratio for assessment.

The terms below are used in the income statement:

Revenue

Revenue is the overall sales according to the accrual accounting in a specific duration. For example, a client purchased a water filter machine with setup services near end of March using a MASTER, and the accounting system records the sales. Nevertheless, the money transaction could only be completed by MASTER in early April, but the sales would still be acknowledged as the March’s revenue.

Cost of Items Sold

Cost of items sold referred to the overall expenses incurred on services or items of the sales. There would be a direct expense consists of the expense for the water filter unit from the supplier and also other setup products like wires, tubing and so on. There is labour expense too for the setup work unless it can be measured, will be recorded as wages and income under Expenses.

Gross Profit

Gross profit is the profit from the revenue substrates the cost of the items sold in a certain period.

Expenses

The expenses are the running expenses that are indirectly contributing to the services or goods and not recorded under the cost of items sold. For instance, the rental paid on the company properties, gross worker salary, maintenance of machinery or equipment, marketing costs, insurance coverage, shipping charges, transportation expenditures (public transportation) and other company’s operation expenses (Also see Impairment of Fixed Asset).

Tax

Tax is the approximated tax payable in a certain duration. If a company that reveals losses in the income before tax, it might still incur tax payable (Also see Tax Avoidance and Tax Evasion).

Other Income and Expenses

This includes the non-running expenses and income, such as the gain from the financial investments and the interest income from the cash balances in the bank.

Operating Profit or Income

That is the profit gained from the core activities operated by the company, not consisting of the other income and expenses.

In general, the income statement helps the lenders and the investors to compare to the industry-standard of the company and the rivals over a couple of previous year information, as it could be examined whether the company is beneficial for returns on the investment (Also see Are Accounting and Bookkeeping the Same?). Having a precise bookkeeping record, income statement could be created easily every month. Please contact any accounting service in Singapore to start setting up your bookkeeping system today.

A company could record its financial transaction using a single entry system or double entry system of accounting. Single entry system is less time consuming and less laborious while double entry system requires a lot of time and effort.

Definition of Single Entry System

The single entry system is the earliest technique of keeping financial records. An entry is made for each financial transaction, while the opposite entry is not made as the transactions are recorded once. It generally tracks the deals regarding cash invoices and disbursements (Also see Accounting – Accrual concept).

This approach of keeping records is mostly used by sole proprietorship and partnership companies. This system does not require high expertise and knowledge to enter transactions. Trial balance, ledgers and journals are not made for this. Nevertheless, the income statement is prepared to understand the profit or loss of the company.

Reconciliation of accounts is impossible because of some drawbacks such as one-sided entry. Hence, the possibility of mistakes and frauds is maximum. That is why it does not comply with the Financial Reporting Standards (FRS). Also, accounting records kept under this system are not ideal for tax purpose (Also see Tax Avoidance and Tax Evasion).

Definition of Double Entry System

Double Entry System is the scientific approach of maintaining financial records, created in 1494, by Luca Pacioli. This system is based on the concept of duality; each transaction has a dual aspect. Every transaction impacts two accounts at the same time, where one account is credited while the other is debited.

For instance, Mr A has bought products of S$1,000 for cash from Mr B. He has acquired products, and the money is provided to Mr B. As you can see, the goods are obtained by giving up money. Thus, this system records both aspects of a transaction, the increase in goods results in the decrease in cash.

Because of two-fold impact, the system possesses accuracy, completeness and fulfils the Financial Reporting Standards (FRS). A complete procedure is followed to record the transactions. The procedure begins with source documents, followed by the ledger, journal, trial balance; then financial statements (Also see What is an Income Statement?) are prepared.

Conclusion

An individual with little accounting knowledge could keep records according to the single entry system. However, the double entry system has developed because of some drawbacks in the single entry system.

You may reach out to any accounting services in Singapore to help you in managing your business’s accounting.

The chart of accounts is a list consists of all accounts that are used in the company’s general ledger. The accounting software application will use the chart of accounts to arrange information into the company’s financial statements such as the Balance Sheet and the Profit and Loss. The chart is arranged in order according to the account numbers so that it is easier to locate certain accounts. The account numbers could be numeric or alphabetic, or both, alphanumeric.

Usually, the accounts are arranged in order in the financial statements, start with the balance sheet and next, the income statement (Also see What You Need to Know About Record Keeping). Therefore, the chart of accounts begins with cash, continues with liabilities and shareholder’s equity, then proceed through accounts for revenues and expenses.

Numerous companies have structured their chart of accounts to enable the expenditure info is separated according to the different department; therefore, the engineering department, accounting department, and sales department would have the same expense accounts set. The setup of the chart of accounts depends on the requirements of the specific business.

Accounts in the chart of accounts:

1. Assets:

• Cash (main bank account)
• Cash (payroll account)
• Marketable Securities
• Petty Cash (Also see Importance of a Petty Cash Book)
• Allowance for Doubtful Accounts
• Accounts Receivable
• Fixed Assets
• Prepaid Expenses
• Accumulated Depreciation
• Inventory
• Other Assets

1. Liabilities:

• Notes Payable
• Accounts Payable
• Taxes Payable
• Accrued Liabilities
• Wages Payable

1. Shareholders’ Equity:

• Retained Earnings
• Preferred Stock
• Common Stock

1. Revenue:

• Revenue
• Allowances and sales returns

1. Expenses:

• Bank Fees
• Cost of Item Sold
• Payroll Tax Expense
• Advertising Cost
• Supplies Expense
• Utility Cost.
• Depreciation Cost
• Rent Cost
• Wages Cost.
• Other Expenses

Best Practices for Chart of Accounts

1. Reduce the size of the accounts.

Examine the account list regularly to check if there are irrelevant quantities in the accounts. If so, and if these details are not required for unique reports, close down these accounts and roll the kept information into a bigger account. Doing this regularly could reduce the number of accounts so that it is easier to manage them.

1. Consistency.

It is essential to produce a chart of accounts that would probably not change for the next few years, as you can compare the results of the same account over a few years. However, if you begin with a little number of accounts and then

If you start with a small number of accounts and after that slowly increase the number of accounts, it would end up being very difficult to get comparable financial details for more than the previous year.

1. Lockdown.

Do not let subsidiaries to alter the standard chart of accounts without significant reason. This is because it would be harder to consolidate the outcomes of the business if you have numerous versions.

If you still have any queries about the chart of accounts, do not hesitate to get an accounting service in Singapore for more guidance for your company.