Article Description:
Many business people imagine that all their accounting, bookkeeping and double-entry problems will magically disappear when they throw away their manual bookkeeping system and replace it with a computerized version. Nothing could be further from the truth, as is demonstrated in this article. The particular accounting problem and solution highlighted here is not unique, as system designers and users will encounter many such problems, which require a knowledge of double-entry bookkeeping to solve.
Article Body:
"How did you enjoy your week learning to operate the new computerized accounting system, Johnny," the senior accounting manager of a medium sized manufacturing operation asked his senior clerk early one Monday morning, just after the start of a new financial year.
"Oh, it was great Mr Robinson," Johnny replied. "Everything's going to be so much easier now. I've never been so excited about coming to work before."
"That sounds good." Johnny's boss said. "Now off you go into the new computer room and see if you can put what you learned last week into practice."
Johnny smiled and disappeared into the new facility carrying his new manuals under his arm taking a further step along his career path as he did so. The system had been tailored to meet the company's needs by an employee of the software company, who Johnny had come to know as Peter. Peter had run the training course for Johnny the previous week, and Johnny had Peter's telephone number. Six month's free telephone support came with the cost of the package.
Johnny excitedly switched on the brand new computer and accessed the accounting program. Peter had set up the opening balances from the old financial year, and Johnny was able to start inputting the first month's data. Things started well, but within an hour a frown appeared on Johnny's face. He had come across a problem and he didn't even have a pencil handy to suck on as he thought through it. Eventually he called Peter.
"Peter, remember you told me never to post to a designated bank account without using the bank entry module, as any directly posted transaction wouldn't appear when I performed a bank reconciliation."
"That's right, well remembered," Peter replied. "What's the problem?"
"Well, how do you post a transfer from one bank account to another? You know we've got five. The debit to the receiving bank account won't be going through the bank entry module and so the bank reconciliation of the receiving account will be mucked up."
"Have a look in the balance sheet section of the chart of accounts. There should be an account called 'Interbank Transfers'," Peter answered as he checked his copy of this particular client's chart of accounts which he accessed on his computer screen.
"Can't see one," Johnny stated after a minute or two.
"No, you're right. I've forgotten to set one up, sorry," Peter said. "Do you remember how to set up a new account?"
"Yes, no problem."
"Well make it a balance sheet account. It doesn't matter whether it's classified as an asset or liability. I would use an easily remembered code number, say 2-9999."
"Okay, consider it done, but how do I use it? Johnny continued.
"Well, for every transfer you will need to make two entries, one from each bank account, but you'll post both to account 2-9999. The payment from the bank account giving the money will debit the Interbank Transfers account and the receipt by the receiving account will credit the same account with the same amount. At the end of each period, you must ensure that the balance of account 2-9999 is zero. That's why it doesn't matter whether it's classified as an asset or a liability."
"Okay, I think I understand, but will I not need five such accounts."
"No, you can use the same account no matter which bank account the money is coming from and which bank account the money is going to. The debits will always cancel out the credits. But you must remember to check that the balance of account 2-9999 is zero at the end of every period, in case you've miss-posted a payment or receipt or forgotten to post a bank account's transactions completely. You should add that check to the end of month checklist I made up for you," Peter suggested.
"Consider it done," Johnny replied. "Thanks, and I try not to bother you any more."
"That's what I'm here for," Peter responded. "And if I don't hear from you with a problem at least every other day, I'll be surprised. But you'll find that there's always a solution. You've got a good knowledge of double-entry bookkeeping and that is what the program is based on, just like your old manual system, so you'll understand the solutions without too much trouble. Bye for now"
"Bye," Johnny replied before hanging up the telephone. As he did so, he thought, 'there I was thinking that I had wasted all those years studying double-entry bookkeeping. How wrong I was!'
Saturday, 9 July 2011
Tuesday, 21 June 2011
Why Modern Accountants And Bookkeepers Should Also Be Spread-sheet Experts
Article Description:
Whether a manual or computerised accounting system is in use, an accountant's or bookkeeper's job can be made much easier if he or she has reasonable to expert skills in the use of spread-sheets.
Article Body:
The efficient use of spread-sheets can be of immense benefit to both basic bookkeepers and high level accountants, as well as to all levels in between. There are two main areas where a skill in the use of spread-sheets will prove to be beneficial to bookkeepers and accountants of all levels. These areas can be classed as "Pre General Ledger" and "Post General Ledger". In both areas, the knowledge of V.B.A. (Visual Basic for Applications) will be very useful to automate repetitive tasks, although, even without macros, well designed spread-sheets with relevant formulas will simplify and speed up many tasks. Lotus 123 macros, are much easier to create than V.B.A. macros, but now Excel seems to have become the "industry standard" the creation of macros require a knowledge of the more difficult V.B.A. It is recommended that, in an organization of any size, with an accounting department of (say) five people or more, at least one staff member, who need not necessarily be the department head, should be given the opportunity to gain the skill of writing macros using V.B.A.
1) Pre General Ledger
Some examples of tasks in this area of accounting are set out below.
a) Salaries and Wages
Spread-sheets can be a great substitute for specially written software for the calculation of wages and salaries, especially if the payroll is not particularly large, say less than 50 employees.
b) Cashbooks
Now that online-banking has become so popular, many sites give the user the option to download transaction lists in Excel readable formats. Quite often the format used is "C.S.V" (Comma Seperated Values) but Excel can easily convert this to the normal "xls" or the more up-to-date "xlsx". In all probability quite a lot of formatting will be required to make the spread-sheet more readable, but a V.B.A. macro could be written to do this automatically. Very good spread-sheet designers can even automate the allocation of common types of expenditure into individual columns to reduce the amount of posting into the general ledger, and, indeed, some more sophisticated accounting programs can accept entries directly from spread-sheets.
c) Fixed Asset Registers
Fixed Asset Registers are ideally suited to spread-sheets. The calculation of depreciation can be done with formulas in whatever style the organisation's accounting policies demand, and journal entry formulation can be automated.
These three examples are only the tip of the iceberg when it comes to tasks that can be simplified and speeded up with the use of well-designed spread-sheets, whether they use V.B.A. macros or not. The pricing of goods, jobs, or services is another area where spread-sheet skills can come to the fore. But it's not only pre general ledger tasks that can benefit from the use of spread-sheets. Read on for examples of tasks that can be simplified after whatever system is in use to produce the trial balance.
2) Post General Ledger
Many more sophisticated computerised general ledger packages include an integrated report generator. These vary in flexibility and ease of use. In many cases it is easier and more flexibility can be obtained by exporting a trial balance into a spread-sheet and then, either manually or using a V.B.A. macro, format reports using the spread-sheet software. Another benefit of using spread-sheets to generate reports is that it is easy to produce graphs to highlight important points. Some reports that derive their figures from general ledgers and can be formatted using spread-sheet technology are:
a) All aspects of End of Financial Year Financial Accounts
b) Periodic Management Accounts showing current period and year to date figures
c) Periodic Management Accounts showing what percentage each category of sales and expenses are of total sales
d) Periodic Management Accounts showing budgets and comparing actual figures to budgeted
figures either as positive or negative amounts or percentages
So the list goes on, limited only by the imagination of the users and the needs of the organisation.
This article has only scratched the surface of why it is important that finance department staff should be good spread-sheet operators. For example it has not touched on the production of budgets, the production of cash flow forecasts and many other aspects that are important to any well-run enterprise.
About the Author (Plain Text)
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to:
http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
Whether a manual or computerised accounting system is in use, an accountant's or bookkeeper's job can be made much easier if he or she has reasonable to expert skills in the use of spread-sheets.
Article Body:
The efficient use of spread-sheets can be of immense benefit to both basic bookkeepers and high level accountants, as well as to all levels in between. There are two main areas where a skill in the use of spread-sheets will prove to be beneficial to bookkeepers and accountants of all levels. These areas can be classed as "Pre General Ledger" and "Post General Ledger". In both areas, the knowledge of V.B.A. (Visual Basic for Applications) will be very useful to automate repetitive tasks, although, even without macros, well designed spread-sheets with relevant formulas will simplify and speed up many tasks. Lotus 123 macros, are much easier to create than V.B.A. macros, but now Excel seems to have become the "industry standard" the creation of macros require a knowledge of the more difficult V.B.A. It is recommended that, in an organization of any size, with an accounting department of (say) five people or more, at least one staff member, who need not necessarily be the department head, should be given the opportunity to gain the skill of writing macros using V.B.A.
1) Pre General Ledger
Some examples of tasks in this area of accounting are set out below.
a) Salaries and Wages
Spread-sheets can be a great substitute for specially written software for the calculation of wages and salaries, especially if the payroll is not particularly large, say less than 50 employees.
b) Cashbooks
Now that online-banking has become so popular, many sites give the user the option to download transaction lists in Excel readable formats. Quite often the format used is "C.S.V" (Comma Seperated Values) but Excel can easily convert this to the normal "xls" or the more up-to-date "xlsx". In all probability quite a lot of formatting will be required to make the spread-sheet more readable, but a V.B.A. macro could be written to do this automatically. Very good spread-sheet designers can even automate the allocation of common types of expenditure into individual columns to reduce the amount of posting into the general ledger, and, indeed, some more sophisticated accounting programs can accept entries directly from spread-sheets.
c) Fixed Asset Registers
Fixed Asset Registers are ideally suited to spread-sheets. The calculation of depreciation can be done with formulas in whatever style the organisation's accounting policies demand, and journal entry formulation can be automated.
These three examples are only the tip of the iceberg when it comes to tasks that can be simplified and speeded up with the use of well-designed spread-sheets, whether they use V.B.A. macros or not. The pricing of goods, jobs, or services is another area where spread-sheet skills can come to the fore. But it's not only pre general ledger tasks that can benefit from the use of spread-sheets. Read on for examples of tasks that can be simplified after whatever system is in use to produce the trial balance.
2) Post General Ledger
Many more sophisticated computerised general ledger packages include an integrated report generator. These vary in flexibility and ease of use. In many cases it is easier and more flexibility can be obtained by exporting a trial balance into a spread-sheet and then, either manually or using a V.B.A. macro, format reports using the spread-sheet software. Another benefit of using spread-sheets to generate reports is that it is easy to produce graphs to highlight important points. Some reports that derive their figures from general ledgers and can be formatted using spread-sheet technology are:
a) All aspects of End of Financial Year Financial Accounts
b) Periodic Management Accounts showing current period and year to date figures
c) Periodic Management Accounts showing what percentage each category of sales and expenses are of total sales
d) Periodic Management Accounts showing budgets and comparing actual figures to budgeted
figures either as positive or negative amounts or percentages
So the list goes on, limited only by the imagination of the users and the needs of the organisation.
This article has only scratched the surface of why it is important that finance department staff should be good spread-sheet operators. For example it has not touched on the production of budgets, the production of cash flow forecasts and many other aspects that are important to any well-run enterprise.
About the Author (Plain Text)
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to:
http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
New E-book - The ABC of Bookkeeping - Helps Students and Small Business People With The Basics of Double-Entry Bookkeeping
Bangkok, Thailand – 2nd January 2011 – Phil Ramage C.A. (Scot) C.A. (Aust), a semi-retired qualified accountant with over 40 years experience, announces the release of his unique electronic book (e-book) – Bookkeeping - The Easy Way. The new e-book is designed to help students and small business people improve their understanding of the basic concepts of the 500 year old Italian art of double-entry bookkeeping.
“This e-book is for anybody who is looking to improve their skills in the fields of bookkeeping and simple accounting,” said Mr Ramage. “It sets out the basics of double-entry bookkeeping in a never before seen fashion, using diagrams. It also, metaphorically eases the understanding of ledger accounts by comparing them to stories and pictures. This might sound confusing, but it really does simplify the process of understanding what is an art, rather than a science.”
Highlights from Bookkeeping - The Easy Way include:
- How to select which accounts in the ledger require to be adjusted, to ensure the ledger accurately represents the enterprise.
- By simply examining a unique and never seen before diagram, how to know when an entry should be a debit or a credit and so ensure that everything is right
- Several other proven steps to ensure the ledger is accurate, and therefore the resulting Sets of Accounts that are extracted from it, paint an accurate picture of the business
- How to decide whether an accrual or a prepayment needs to be reversed in the following month or year, thus avoiding a possible duplication of a charge against the profits
- Many proven strategies for getting it right every time
- Discover in a matter of minutes whether an account tells a story or paints a picture. This is a brand new concept, or metaphor, which has never been used before in any of the boring old text books that have been published in the past.
- Finally another new concept to make things clear. Is an account a “Goodie” or a “Baddie”. What the devil does that mean?...The book makes sense of it all!
The e-book is available for sale at http://www.bookkeeping-theeasyway.com for $27.00.
The e-book is written by Phil Ramage. Phil was born in Scotland, where he qualified in the mid-seventies. Since then he has worked in England, Papua New Guinea, Australia, Thailand, and Indonesia. He has worked both within professional accounting offices, in commerce, and as a self-employed consultant. He has extensive experience and expertise in all aspects of accounting, and bookkeeping, using both manual and computerized systems. For most of his career, however, he has specialized in the use of computerized accounting packages and the development of spread-sheet solutions to every day recurring problems. A physical incapacity has forced him to be almost house-bound, tended by his Thai wife of 28 years. But his mind is still active, and he has taken to writing and web-site design with gusto.
Contact: Phil Ramage
Email: phil@phil-ramage.com
Phone: +66 8 9695 6296
Phone: +66 8 9695 6296
Tuesday, 14 June 2011
Double-Entry Bookkeeping - The World's Reclusive Necessity
Article Description:
Throughout the entire world, no organisation larger than a street-corner shoe-shine boy could survive without utilising the art of double-entry bookkeeping. However, only a very small proportion of the world's population is even aware of its existence.
Article Body:
The majority of the world's population, especially in developed countries, are aware of the use of accountancy within all kinds of organisations, whether they be commercial, governmental, charitable or any other kind of enterprise involving the use of money. Accountants produce accounts of several different types. Accounts to help run the organisation as efficiently as possible, accounts to meet conditions set down by governments, accounts to satisfy the requirements of taxation authorities and, in larger enterprises, accounts to keep shareholders and other interested outsiders informed of how well the organisation is operating.
The majority of the world's population also understand that the main basic skill of a house builder is bricklaying, and that the main basic skill of a successful author is an above average skill in the art of writing. However, what percentage of the world's population knows what the basic skill of an accountant is? A small minority, I would suggest.
The basic skill of an accountant is the art of double-entry bookkeeping. Double-entry bookkeeping was first evolved in Italy, late in the 15th century. But it is still the basis of all manual accounting systems, and all accounting computerised software available today, from the most simple, to the most sophisticated. It is used to control the finances of the smallest corner-store to the World Bank.
Without double-entry bookkeeping, the world could not operate as it does today, but, despite its importance, only a very small proportion of the world's inhabitants have any idea of how it works and a huge percentage of the world's population doesn't even know that the term exists.
So why is this ancient art called double-entry bookkeeping? Why not just call it bookkeeping? If an accountant needs to record a transaction, surely that's what he or she does? He or she records a transaction. Why is there a need for the word "double"?
The answer lies in the fact that all transactions in fact affect two or more aspects of the enterprise, so that two or more entries are required. For example, when a business makes a sale, it may be for cash or it may be on credit. If the sale was for cash it has to be recorded that the total sales made have increased, and also that the total cash owned by the entity has increased. If the sale was on credit it has to be recorded that the total sales made have increased, and also that the customer now owes the entity money that has to be collected in the future.
There are a million other examples but, in each case, more than one category needs to be adjusted. Double-Entry Bookkeeping is a skill that more people, especially small business people should be much more familiar with. Don't you agree?
About the Author (Plain Text)
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
About the Author HTML
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to:
<a href="http://www.bookkeeping-theeasyway.com">www.bookkeeping-theeasyway.com</a>
(C) 2011 Philip Ramage All rights reserved
Throughout the entire world, no organisation larger than a street-corner shoe-shine boy could survive without utilising the art of double-entry bookkeeping. However, only a very small proportion of the world's population is even aware of its existence.
Article Body:
The majority of the world's population, especially in developed countries, are aware of the use of accountancy within all kinds of organisations, whether they be commercial, governmental, charitable or any other kind of enterprise involving the use of money. Accountants produce accounts of several different types. Accounts to help run the organisation as efficiently as possible, accounts to meet conditions set down by governments, accounts to satisfy the requirements of taxation authorities and, in larger enterprises, accounts to keep shareholders and other interested outsiders informed of how well the organisation is operating.
The majority of the world's population also understand that the main basic skill of a house builder is bricklaying, and that the main basic skill of a successful author is an above average skill in the art of writing. However, what percentage of the world's population knows what the basic skill of an accountant is? A small minority, I would suggest.
The basic skill of an accountant is the art of double-entry bookkeeping. Double-entry bookkeeping was first evolved in Italy, late in the 15th century. But it is still the basis of all manual accounting systems, and all accounting computerised software available today, from the most simple, to the most sophisticated. It is used to control the finances of the smallest corner-store to the World Bank.
Without double-entry bookkeeping, the world could not operate as it does today, but, despite its importance, only a very small proportion of the world's inhabitants have any idea of how it works and a huge percentage of the world's population doesn't even know that the term exists.
So why is this ancient art called double-entry bookkeeping? Why not just call it bookkeeping? If an accountant needs to record a transaction, surely that's what he or she does? He or she records a transaction. Why is there a need for the word "double"?
The answer lies in the fact that all transactions in fact affect two or more aspects of the enterprise, so that two or more entries are required. For example, when a business makes a sale, it may be for cash or it may be on credit. If the sale was for cash it has to be recorded that the total sales made have increased, and also that the total cash owned by the entity has increased. If the sale was on credit it has to be recorded that the total sales made have increased, and also that the customer now owes the entity money that has to be collected in the future.
There are a million other examples but, in each case, more than one category needs to be adjusted. Double-Entry Bookkeeping is a skill that more people, especially small business people should be much more familiar with. Don't you agree?
About the Author (Plain Text)
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
About the Author HTML
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to:
<a href="http://www.bookkeeping-theeasyway.com">www.bookkeeping-theeasyway.com</a>
(C) 2011 Philip Ramage All rights reserved
Wednesday, 26 January 2011
Accounting Problems And Solutions - Why Double-Entry Bookkeeping Is Often Really Quadruple-Entry
"Every day at 2.00 in the afternoon, you empty the cash register, except for $50 in mixed notes and coins, count the remainder, and go to the bank to credit the account before the bank closes at 3.30", the shop keeper told his new assistant. "It's 2.00 now, so get started, I'll look after any customers. Take the cash drawer into the back-shop, bring it back with $50 inside as soon as possible and then go back to count the remainder. You'll find a bank bag on the table. It's got a strap to secure it to your wrist so nobody can grab it from your hands. When you get back, you can make the necessary entry in the ledger. It's debit bank and credit sales".
"It can't be debit bank, you've just told me that I'll be crediting the account when I make the lodgement," the new recruit replied, a little surprised that he was being trusted with cash on his first day.
"Don't ask me; ask our over-paid accountant, that's what he told me to do. I was surprised too," the boss said. "I'm just a humble shop owner. I don't need to know the ins and outs of double-entry bookkeeping."
The honest young employee performed his duties, and at 5.00 p.m. he went home scratching his head as to why he had been asked to debit the bank account in the ledger, when, surely, the entry should have been a credit. Arriving home, he even checked his own bank statements and, although he had to go back a long way to find his last lodgement, there it was, clearly in the column headed "credits".
"The over-paid accountant's balmy," he thought to himself.
Whether the accountant was over-paid is possibly a debatable point, but he certainly wasn't balmy. If an enterprise has cash in the bank it is an asset. If it has an overdraft it is a liability. Assets have debit balances, while liabilities have credit balances. So the lodgement of the takings from 2 p.m. on one day to 2 p.m. on the next has to debit the cash at bank in the enterprise's records. The lodgment will have either increased a debit balance or reduced a credit balance. Both of these results are achieved by a debit entry.
Why then, does the bank tell you that you are crediting your account when you make a lodgment?
Simply, it's looking at the transaction from its own point of view, not that of the shop owner. If the enterprise has cash in the bank, the bank owes that money back to the enterprise. Therefore the shop is a creditor of the bank, a liability of the bank. So the balance in the bank's records must be a credit. If the enterprise has an overdraft, the bank is owed money so, in this case the shop is a debtor of the bank, an asset of the bank. So, in this case the balance in the bank's records must be a debit. The lodgment would have either increased the bank's liability or decreased its asset. Both outcomes are achieved by a credit entry in the bank's records. That is why a bank says that a lodgment is a credit, while the enterprise would debit it's cash at bank account in its ledger to record the same transaction. Similarly a payment is credited to the cash at bank account in an enterprise's ledger, while the bank statement will indicate that it is a debit.
This phenomenon is not restricted to banking transactions. Buyers debit purchases while sellers credit sales. Renters debit rent paid, while landlords credit rent received. Enterprises debit accounting fees, while accountants credit fees earned. And so the list goes on. When more than one entity is involved,double-entry becomes quadruple entry, and each entity treats the entry in the opposite manner.
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
"It can't be debit bank, you've just told me that I'll be crediting the account when I make the lodgement," the new recruit replied, a little surprised that he was being trusted with cash on his first day.
"Don't ask me; ask our over-paid accountant, that's what he told me to do. I was surprised too," the boss said. "I'm just a humble shop owner. I don't need to know the ins and outs of double-entry bookkeeping."
The honest young employee performed his duties, and at 5.00 p.m. he went home scratching his head as to why he had been asked to debit the bank account in the ledger, when, surely, the entry should have been a credit. Arriving home, he even checked his own bank statements and, although he had to go back a long way to find his last lodgement, there it was, clearly in the column headed "credits".
"The over-paid accountant's balmy," he thought to himself.
Whether the accountant was over-paid is possibly a debatable point, but he certainly wasn't balmy. If an enterprise has cash in the bank it is an asset. If it has an overdraft it is a liability. Assets have debit balances, while liabilities have credit balances. So the lodgement of the takings from 2 p.m. on one day to 2 p.m. on the next has to debit the cash at bank in the enterprise's records. The lodgment will have either increased a debit balance or reduced a credit balance. Both of these results are achieved by a debit entry.
Why then, does the bank tell you that you are crediting your account when you make a lodgment?
Simply, it's looking at the transaction from its own point of view, not that of the shop owner. If the enterprise has cash in the bank, the bank owes that money back to the enterprise. Therefore the shop is a creditor of the bank, a liability of the bank. So the balance in the bank's records must be a credit. If the enterprise has an overdraft, the bank is owed money so, in this case the shop is a debtor of the bank, an asset of the bank. So, in this case the balance in the bank's records must be a debit. The lodgment would have either increased the bank's liability or decreased its asset. Both outcomes are achieved by a credit entry in the bank's records. That is why a bank says that a lodgment is a credit, while the enterprise would debit it's cash at bank account in its ledger to record the same transaction. Similarly a payment is credited to the cash at bank account in an enterprise's ledger, while the bank statement will indicate that it is a debit.
This phenomenon is not restricted to banking transactions. Buyers debit purchases while sellers credit sales. Renters debit rent paid, while landlords credit rent received. Enterprises debit accounting fees, while accountants credit fees earned. And so the list goes on. When more than one entity is involved,double-entry becomes quadruple entry, and each entity treats the entry in the opposite manner.
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
Tuesday, 4 January 2011
Accounting Problems and Solutions- Why We Still Need To Understand Double-Entry bookkeeping
"Why do we need to worry about the ins and outs, and the whys and wherefores of double-entry bookkeeping, the computer takes care of all that boring stuff", I heard a junior colleague of mine ask recently.
"Goodness me, look how short-sighted you are", I replied.
True, the computer program should be able to take care of the majority of day-to-day routine transactions, but situations frequently arise when anyone in an organisation, of whatever size, from a financial director to a junior data-input clerk, may require to show they have, at least, a basic understanding of the principles of double-entry bookkeeping; a system that evolved in Italy, late in the 15th century and which is still the basis of all accounting and bookkeeping software available today, from the most simple, to the most sophisticated.
Here are a few reasons why:
* Not every enterprise has a computer. Many small operations try to make do either without regular record keeping, or make a mess of trying to maintain a manual system. Either of these scenarios can lead to:
I. Huge accountancy bills at the end of the Financial Year
II. Missing out on the opportunity of being able to maximise ones profitability and, just as importantly, enjoy a positive cash flow, by analysing the data flowing from a properly maintained system.
It is still perfectly acceptable for any small business to keep a manual set of books. However the most important thing is...If you are going to do it, do it right. That means that every successful small businessman or woman must have a basic knowledge of double-entry bookkeeping.
* Any person who sets-up a computerised system must have an extremely good knowledge of double-entry bookkeeping. Accounting errors made at this early stage, can, and will, lead to disastrous outcomes later on; for example:
I. Classifying an asset account as a liability account
II. Mucking up the input of opening balances by not knowing which accounts should start with a debit balance and which should start with a credit balance
III. Not ensuring that subsidiary ledgers balance with the main ledger
Examples of the effects of these errors could be:
I. Losing control of debtors
II. Losing control of creditors
III. Getting the computer to produce inaccurate reports, which, because they were computer generated, everybody from the managing director down would assume to be the gospel truth.
* Senior accountants must have a knowledge of "what should be where" to enable him or her to correctly analyse computer output, before preparing reports for the management. Some specific circumstances are:
I. Being able to consolidate reports of individual parts of the business into a single report reflecting the performance of the enterprise as a whole
II. Being able to produce Financial Accounts at the end of the Financial Year, that actually "balance".
III. Being able to confidently discuss matters of concern with auditors, and, if necessary, be able to support the enterprise's position in any dispute with auditors
* Junior accountants must have the knowledge to be able to input journal entries correctly to, for example:
I. Correct obvious posting errors
II. Charge Depreciation
III. Make, and possibly reverse accruals
IV. Enter and reverse prepayments.
The list could go on forever.
* Finally computer operators would be able to do their job much more effectively and accurately if they had an understanding of what the computer was doing "behind the scenes", rather than blindly following a manual.
These are just some of the reasons why, even in today's technological society, a knowledge of the concepts of double-entry bookkeeping is as important to all people who work in the field of finance as it ever was before the advent of computers.
To sum up, the conception that computerisation has spelled the beginning of the end of the art of double-entry bookkeeping is a misconception. Do you agree?
About the Author (Plain Text)
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
"Goodness me, look how short-sighted you are", I replied.
True, the computer program should be able to take care of the majority of day-to-day routine transactions, but situations frequently arise when anyone in an organisation, of whatever size, from a financial director to a junior data-input clerk, may require to show they have, at least, a basic understanding of the principles of double-entry bookkeeping; a system that evolved in Italy, late in the 15th century and which is still the basis of all accounting and bookkeeping software available today, from the most simple, to the most sophisticated.
Here are a few reasons why:
* Not every enterprise has a computer. Many small operations try to make do either without regular record keeping, or make a mess of trying to maintain a manual system. Either of these scenarios can lead to:
I. Huge accountancy bills at the end of the Financial Year
II. Missing out on the opportunity of being able to maximise ones profitability and, just as importantly, enjoy a positive cash flow, by analysing the data flowing from a properly maintained system.
It is still perfectly acceptable for any small business to keep a manual set of books. However the most important thing is...If you are going to do it, do it right. That means that every successful small businessman or woman must have a basic knowledge of double-entry bookkeeping.
* Any person who sets-up a computerised system must have an extremely good knowledge of double-entry bookkeeping. Accounting errors made at this early stage, can, and will, lead to disastrous outcomes later on; for example:
I. Classifying an asset account as a liability account
II. Mucking up the input of opening balances by not knowing which accounts should start with a debit balance and which should start with a credit balance
III. Not ensuring that subsidiary ledgers balance with the main ledger
Examples of the effects of these errors could be:
I. Losing control of debtors
II. Losing control of creditors
III. Getting the computer to produce inaccurate reports, which, because they were computer generated, everybody from the managing director down would assume to be the gospel truth.
* Senior accountants must have a knowledge of "what should be where" to enable him or her to correctly analyse computer output, before preparing reports for the management. Some specific circumstances are:
I. Being able to consolidate reports of individual parts of the business into a single report reflecting the performance of the enterprise as a whole
II. Being able to produce Financial Accounts at the end of the Financial Year, that actually "balance".
III. Being able to confidently discuss matters of concern with auditors, and, if necessary, be able to support the enterprise's position in any dispute with auditors
* Junior accountants must have the knowledge to be able to input journal entries correctly to, for example:
I. Correct obvious posting errors
II. Charge Depreciation
III. Make, and possibly reverse accruals
IV. Enter and reverse prepayments.
The list could go on forever.
* Finally computer operators would be able to do their job much more effectively and accurately if they had an understanding of what the computer was doing "behind the scenes", rather than blindly following a manual.
These are just some of the reasons why, even in today's technological society, a knowledge of the concepts of double-entry bookkeeping is as important to all people who work in the field of finance as it ever was before the advent of computers.
To sum up, the conception that computerisation has spelled the beginning of the end of the art of double-entry bookkeeping is a misconception. Do you agree?
About the Author (Plain Text)
Phil Ramage CA (Scot) CA (Aust)
For more information and, if needed, assistance, go to: http://www.bookkeeping-theeasyway.com
(C) 2011 Philip Ramage All rights reserved
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