ADB Grant 0133 -CAM: Public Financial Management in Rural Development Ministries (Component 1) Basic Accounting, May 04 - 07, 2010 Day 3: May 06, 2010 Accounting Cycle ADB Grant No. 0133 -CAM/Component 1: PFMRD 1
Session 2 The Accounting Cycle Content 1. 2. 3. 4. Bank reconciliation statement Sales ledger (receivables) Purchase ledger (payables) Accounting at present of RGC ADB Grant No. 0133 -CAM/Component 1: PFMRD 2
Bank Reconciliation The ending balance in the monthly statement compiled by the bank often does not agree with the ending balance that appears in the cash book. When this happens, someone in the business or project must determine the reason for the difference between the bank’s records and the entities is called a reconciliation. Bank reconciliations are an important part of internal control system. They help us to locate errors in the record-keeping system and discovering employee schemes to defraud the company. The bank reconciliation should always be prepared by an individual who is not involved with preparing and approving payments and must be done at least ADB Grant No. 0133 -CAM/Component 1: 3 monthly. PFMRD
Bank Statement It is common practice for banks to send monthly statements to customers showing the transactions undertaken during the month. Bank statements can also be requested for a particular period. A bank statement is sent by a bank to its customers detailing: • The amount of cash (or overdraft) at the beginning of the month • Deposit made by the customer and on his behalf by others (i. e. credit transfers) • Withdrawals from the account by the customers and others he has authorized to take money (direct debits), standing orders given by the bank to pay certain amounts to specified peoples and bank charges and interests. • The amount of cash in the account at the end of the month. ADB Grant No. 0133 -CAM/Component 1: 4 PFMRD
An Example of a Bank Statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 5
An Example of a Bank Statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 6
Content and Format of Cheques ADB Grant No. 0133 -CAM/Component 1: PFMRD 7
Example: Bank Reconciliation Dollar, an accountant employed by the Sams Co. , is responsible for preparing the monthly bank reconciliation. The bank statement shows an ending balance for 30 September 2005 of $1, 112. 30, whereas the debit cash book balance was $805. 15. In preparing the reconciliation Dollar investigates the difference of the two sums, the following items were discovered: (a) (b) (c) The cash book had been undercast by $90. 00 on the debit side Cheques paid in not yet credited by the bank amount to $208. 20 Cheques drawn mot yet presented to the bank amounted to $425. 35 We need to show the correction to the bank book and show a statement reconciling the balance per the bank statement to the balance in the cash book. ADB Grant No. 0133 -CAM/Component 1: PFMRD 8
Preparing a Bank Reconciliation Balance per bank statement, 30/09/05 Add: Cheques paid in, recorded in the cash book, but not yet credited to the account by bank Less: Cheques paid by the company but not yet presented to the bank for settlement $1, 112. 30 208. 20 (425. 35) Corrected ending balance, 30/09/05 Balance per cash book, 30/09/05 Add: Correction of undercast 895. 15 $805. 15 90. 00 Corrected ending balance, 30/09/05 ADB Grant No. 0133 -CAM/Component 1: PFMRD 895. 15 When the reconciliation is complete, these amounts should be the same 9
Cause of Differences Between the Balance on the Bank Statement and the Balance in the Cash Book Cause of difference Explanation Errors in calculation, or in recording receipts and payments, are as likely to have made by our as the bank. These errors must be corrected. The bank might deduct interest on an overdraft or Bank charges or charge a fee for its services, which we are not bank interest informed about until we receive the bank statement. These should be accounted for in our records. Timing differences (a) Cheques recorded as received and paid-in but not yet ‘cleared’ and added to our account by the bank. Although our own records show that some cash has been added to our account, it has not yet been received by the bank. (b) Payments made by cheque and recorded, but ADB Grant No. 0133 -CAM/Component 1: not yet withdrawn by payees. 10 PFMRD
2. Sales Ledger ( Accounts Receivable) ADB Grant No. 0133 -CAM/Component 1: PFMRD 11
Inventory Systems • Periodic – At the end of each accounting period, determine the cost of ending inventory by taking a physical count • Perpetual – Keeps continual track of inventory ADB Grant No. 0133 -CAM/Component 1: PFMRD 12
Sales • Amount earned from sale of merchandise inventory • Revenue account • Credit balance • Reported on income statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 13
Sales Invoice • Bill sent to customer reflecting a sale on credit ADB Grant No. 0133 -CAM/Component 1: PFMRD 14
Record the sale ADB Grant No. 0133 -CAM/Component 1: PFMRD 15
Sales General Journal Date Account Titles and Description PR Dr. Cr. Oct 20 Accounts Receivable-Walther 1, 240 Sales for Oct. 10 Accounts Receivable Sales 1, 240 ADB Grant No. 0133 -CAM/Component 1: PFMRD 16
Sales Returns & Allowances • Records price adjustments and allowances granted on merchandise that is defective and has been returned • Contra-revenue account • Debit balance • Reported on income statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 17
Credit Memorandum • Paper sent by the seller to a customer who has returned merchandise • Indicates to the customer that the seller is reducing the amount owed by the customer ADB Grant No. 0133 -CAM/Component 1: PFMRD 18
Record the Return ADB Grant No. 0133 -CAM/Component 1: PFMRD 19
Sales Returns & Allowances General Journal Date Account Titles and Description PR Oct 22 Sales Returns & Allowances Accounts Receivable. Walther Dr. Cr. 304 Issued credit memorandum ADB Grant No. 0133 -CAM/Component 1: PFMRD 20
Sales Returns & Allowances Accounts Receivable 1, 240 304 Sales 1, 240 Bal. 936 Sales Returns & Allowances 304 ADB Grant No. 0133 -CAM/Component 1: PFMRD 21
Sales Discounts • Contra-revenue account that records cash discounts granted to customers for payment made within a specific period of time • Debit balance • Reported on income statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 22
Sales Discount Policy • 2/10, n/30 • n/10, EOM ADB Grant No. 0133 -CAM/Component 1: PFMRD 23
Sales Discounts Assume that Jerome Walther pays Terrance Home Improvement Store within 10 days. Prepare the journal entry. ADB Grant No. 0133 -CAM/Component 1: PFMRD 24
Sales Discounts General Journal Date Account Titles and Description PR Oct 30 Sales Discounts Cash Dr. Cr. 18. 72 917. 28 Accounts Receivable. Walther 936. 00 Received payment Sales discount = $936 X. 02 ADB Grant No. 0133 -CAM/Component 1: PFMRD 25
Sales Returns & Allowances Accounts Receivable 1, 240 304 Bal. 936 Bal. -0 - 936 Sales 1, 240 Sales Returns & Allowances 304 Sales Discounts 18. 72 ADB Grant No. 0133 -CAM/Component 1: PFMRD 26
Compute Net Sales Less Sales Discounts Sales Returns & Allowances Net Sales ADB Grant No. 0133 -CAM/Component 1: PFMRD $1, 240. 00 18. 72 304. 00 $917. 28 27
Sales Tax Payable • • Accumulates the amount of sales tax owed Liability Credit balance Reported on balance sheet ADB Grant No. 0133 -CAM/Component 1: PFMRD 28
Sales tax = $1, 240 x 5% = $62. 00 ADB Grant No. 0133 -CAM/Component 1: PFMRD 29
Sales Tax Payable General Journal Date Account Titles and Description PR Oct 20 Accounts Receivable-Walther Sales 1, 240 Sales Tax Payable Sales for Oct. 10 ADB Grant No. 0133 -CAM/Component 1: PFMRD Dr. Cr. 1, 302 62 30
Subsidiary Ledger • Ledger that contains accounts of a single type • Open an account for each customer ADB Grant No. 0133 -CAM/Component 1: PFMRD 31
Accounts Receivable Controlling Accounts Receivable 1, 240 3, 500 800 Bal. 4, 300 Subsidiary Accounts Q. Adams 3, 500 B. Merideth 800 J. Walther 1, 240 ADB Grant No. 0133 -CAM/Component 1: PFMRD 32
Schedule of Accounts Receivable Terrance Home Improvement Store Schedule of Accounts Receivable October 31, 2 XX 5 Q. Adams $3, 500 B. Merideth 800 Total Accounts Receivable $4, 300 ADB Grant No. 0133 -CAM/Component 1: PFMRD 33
Put it all together We’ll use Problem 9 B-3 to put these concepts together ADB Grant No. 0133 -CAM/Component 1: PFMRD 34
General Journal Date Account Titles and Description 200 X May 1 Cash Mark Peaker, Capital 14, 000 invested in business 3 Accounts Receivable-B. Dale PR Dr. Cr. 14, 000 Owner 2, 000 Sales 2, 000 Sold on account, no. 60 4 Accounts Receivable-R. Lester ADB Grant No. 0133 -CAM/Component 1: PFMRD Sales 900 35 900
General Journal Date May Account Titles and Description 9 Accounts Receivable-J. Zon Sales Sold on account, no. 62 10 Cash PR Dr. Cr. 600 1, 980 Sales Discount (2, 000 x. 01) 20 Accounts Receivable-B. Dale 2, 000 Received payment on account 20 Accounts Receivable-P. Pry Sales 4, 000 ADB Grant No. 0133 -CAM/Component 1: PFMRD 4, 000 36
General Journal Date Account Titles and Description May 22 Cash Accounts Receivable-R. Lester Received payment on account 23 Cash Sales 6, 000 To record cash sales 24 Sales Returns & Allowances Accounts Receivable-P. Pry Issued credit memo no. 1 ADB Grant No. 0133 -CAM/Component 1: PFMRD PR Dr. Cr. 900 6, 000 500 37
General Journal Date Account Titles and Description May 26 Cash Sales Discounts Accounts Receivable-P. Pry 3, 500 Received payment on account 28 Cash Sales 12, 000 To record cash sales 30 Cash ADB Grant No. 0133 -CAM/Component 1: PFMRD Sneaker Rack Equipment PR Dr. Cr. 3, 465 35 12, 000 200 38 200
General Journal Date Account Titles and Description May 30 Accounts Receivable-R. Lester Sales 6, 000 Sold on account, no. 64 31 Sales Returns & Allowances Accounts Receivable-R. Lester Issued credit memo, no. 2 ADB Grant No. 0133 -CAM/Component 1: PFMRD PR Dr. Cr. 6, 000 800 39
Accounts Receivable Subsidiary Ledger B. Dale Bal. 400 2, 000 Bal 400 R. Lester Bal. 800 900 800 6, 000 P. Pry Bal. 600 500 4, 000 3, 500 Bal 6, 000 J. Zon Bal. 400 600 Bal 1, 000 ADB Grant No. 0133 -CAM/Component 1: PFMRD 40
Peaker’s Sneaker Shop Schedule of Accounts Receivable May 31, 20 XX B. Dale $400 R. Lester 6, 000 P. Pry 600 J. Zon 1, 000 Total Accounts Receivable $8, 000 ADB Grant No. 0133 -CAM/Component 1: PFMRD 41
3. Payable Ledger ( Accounts Payable) ADB Grant No. 0133 -CAM/Component 1: PFMRD 42
Purchase Order ADB Grant No. 0133 -CAM/Component 1: PFMRD 43
Invoice Received with Inventory Record the purchase ADB Grant No. 0133 -CAM/Component 1: PFMRD 44
Record Purchases General Journal Date Account Titles and Description PR Nov 25 Purchases Accounts Payable 2, 600 Purchase on account ADB Grant No. 0133 -CAM/Component 1: PFMRD Dr. Cr. 2, 600 45
Purchases Account • Costs that are directly related to bringing merchandise into the store for resale • Cost account • Debit balance • Reported on income statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 46
Debit Memorandum • Paper issued by a customer to a seller indicating that a return or allowance has occurred ADB Grant No. 0133 -CAM/Component 1: PFMRD 47
Debit Memorandum Record the return of inventory to the vendor ADB Grant No. 0133 -CAM/Component 1: PFMRD 48
Record Purchases Returns General Journal Date Dec Account Titles and Description PR Dr. Cr. 4 Accounts Payable 400 Purchases Returns and Allowances 400 Returned inventory ADB Grant No. 0133 -CAM/Component 1: PFMRD 49
Purchases Returns & Allowances Account • • Records a decrease to a buyer’s costs Contra-cost account Credit balance Reported on income statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 50
Purchases Discount Account • • Records discounts taken Contra-cost account Credit balance Reported on income statement Record the payment of the invoice on December 4 (within the discount period) ADB Grant No. 0133 -CAM/Component 1: PFMRD 51
Record Payment of Invoice General Journal Date Account Titles and Description PR Nov 29 Accounts Payable Purchase Discount Cash 2, 156 Paid invoice ADB Grant No. 0133 -CAM/Component 1: PFMRD Dr. Cr. 2, 200 44 52
Net Purchases -Purchases Returns & Allowances -Purchases Discounts Net Purchases ADB Grant No. 0133 -CAM/Component 1: PFMRD 53
Freight • C. I. F. (Cost, Insurance, Freight) – – Seller pays transport Costs to the ship Seller pays Insurance Seller pays Freight Legal title passes to buyer when goods reach their destination as he gets the Bill of Lading • F. O. B. (Free on Board) – – Seller pays transport Costs to the ship Buyer pays Insurance Buyer pays Freight Legal title passes to buyer when goods are loaded on the ship and he gets the Bill of Lading ADB Grant No. 0133 -CAM/Component 1: PFMRD 54
Freight-in Account • Records freight paid to have inventory shipped in • Cost account • Debit balance • Reported on income statement ADB Grant No. 0133 -CAM/Component 1: PFMRD 55
Learning Objectives • Recording to the accounts payable subsidiary ledger and posting to general ledger ADB Grant No. 0133 -CAM/Component 1: PFMRD 56
Accounts Payable Subsidiary Ledger • Book or file that contains the names of creditors and amounts owed from purchases on account ADB Grant No. 0133 -CAM/Component 1: PFMRD 57
Schedule of Accounts Payable • Proof that the sum of the accounts payable subsidiary ledger is equal to the controlling account ADB Grant No. 0133 -CAM/Component 1: PFMRD 58
General Journal Date May Account Titles and Description 1 Accounts Payable-Henry Co. Purchases Discounts Cash Paid on account PR Dr. Cr. 300 6 294 3 Delivery Truck Cash 8, 000 Purchased delivery truck 8, 000 6 Purchases Cash 2, 900 ADB Grant No. 0133 -CAM/Component 1: PFMRD 59
General Journal Date Account Titles and Description May 18 Purchases Cash Purchased inventory PR Dr. Cr. 800 24 Accounts Payable-Xon Co. Purchases Discounts Cash 1, 372 Paid on account 1, 400 28 Rent Expense Cash ADB Grant No. 0133 -CAM/Component 1: PFMRD 2, 000 28 60
General Journal Date Account Titles and Description May 29 Utilities Expense Cash Paid utilities bill 30 Accounts Payable-Soy Co. Cash Paid half of Soy Co. invoice ADB Grant No. 0133 -CAM/Component 1: PFMRD PR Dr. Cr. 300 400 61
Accounts Payable Subsidiary Ledger Alvin Co. Bal. Henry Co. 1, 200 Bal 1, 200 300 Soy Co. Bal. 600 Bal 300 Xon Co. 1, 400 Bal. 800 Bal 400 1, 400 Bal 0 ADB Grant No. 0133 -CAM/Component 1: PFMRD 62
Jones’ Computer Center Schedule of Accounts Payable May 31, 20 XX Alvin Co. $1, 200 Henry Co. 300 Soy Co. 400 Total Accounts Payable $1, 900 ADB Grant No. 0133 -CAM/Component 1: PFMRD 63
Perpetual Inventory System Recording purchase of inventory: Merchandise Inventory Accounts Payable ADB Grant No. 0133 -CAM/Component 1: PFMRD XXX 64
Perpetual Inventory System Recording purchase returns & allowances: Accounts Payable Merchandise Inventory ADB Grant No. 0133 -CAM/Component 1: PFMRD XXX 65
Perpetual Inventory System Recording purchase discounts: Accounts Payable Cash Merchandise Inventory ADB Grant No. 0133 -CAM/Component 1: PFMRD XXX XXX 66
Perpetual Inventory System Recording freight charges paid for inventory: Merchandise Inventory Cash ADB Grant No. 0133 -CAM/Component 1: PFMRD XXX 67
Perpetual Inventory System Recording sales: Accounts Receivable Sales XXX Revenue Cost of Goods Sold Account Merchandise Inventory XXX XXX Cost Account ADB Grant No. 0133 -CAM/Component 1: PFMRD 68
Perpetual Inventory System Recording sales returns & allowances Sales Returns & Allowances Accounts Receivable XXX Merchandise Inventory Cost of goods sold XXX ADB Grant No. 0133 -CAM/Component 1: PFMRD XXX 69
Perpetual Inventory System Recording sales discounts: Cash Sales Discounts Accounts Receivable ADB Grant No. 0133 -CAM/Component 1: PFMRD XXX XXX 70
General Journal Date Apr Account Titles and Description 2 Merchandise Inventory Accounts Payable. Lowe Suppliers 3, 000 Purchased inventory on account PR Dr. Cr. 3, 000 4 Accounts Receivable Sales To record sales on account 500 4 Cost of Goods Sold Merchandise Inventory ADB Grant No. 0133 -CAM/Component 1: PFMRD To record cost of sales 300 500 300 71
General Journal Date Apr Account Titles and Description 4 Accounts Payable-Lowe Suppliers Merchandise Inventory Returned inventory for credit 10 Cash Sales Discounts Accounts Receivable Collected on account receivable 11 Accounts Payable-Lowe Suppliers Merchandise Inventory Cash ADB Grant No. 0133 -CAM/Component 1: PFMRD 2, 744 PR Dr. Cr. 200 490 10 500 2, 800 56 72
General Journal Date Apr Account Titles and Description 14 Store Equipment Cash Purchased store equipment 15 Merchandise Inventory Cash 1, 000 Purchased inventory for cash 16 Cash Merchandise Inventory Received refund on defective ADB Grant No. 0133 -CAM/Component 1: PFMRD merchandise PR Dr. Cr. 300 1, 000 100 73
General Journal Date Apr Account Titles and Description PR Dr. Cr. 17 Merchandise Inventory Accounts Payable-Logan Corp. 4, 000 Purchased inventory on account 4, 000 18 Cash Sales 3, 000 To record sale for cash 3, 000 18 Cost of Goods Sold Merchandise Inventory ADB Grant No. 0133 -CAM/Component 1: PFMRD 1, 600 74
General Journal Date Apr Account Titles and Description 21 Merchandise Inventory Cash Paid freight for Apr. 17 purchase PR Dr. Cr. 120 25 Merchandise Inventory Accounts Payable-Aster Co. 1, 200 Purchased inventory on account 1, 200 26 Accounts Payable-Logan Corp. Merchandise Inventory Cash ADB Grant No. 0133 -CAM/Component 1: PFMRD 3, 920 4, 000 80 75
General Journal Date Apr Account Titles and Description PR Dr. 27 Sales Returns & Allowances Accounts Receivable To record return of merchandise 200 27 Merchandise Inventory Cost of Goods Sold Returned merchandise to inventory Cr. 140 ADB Grant No. 0133 -CAM/Component 1: PFMRD 200 140 76
4. Accounting at present of RGC In Cambodia: Bookkeeping is used for 1. Administrative bookkeeping by authorizing officer 2. Bookkeeping operations of financial controllers 3. Bookkeeping operational of revenue and advance payment officers 4. Bookkeeping operations of the Government ADB Grant No. 0133 -CAM/Component 1: PFMRD 77
1. Administrative bookkeeping by authorizing officer • • The authorizing officer firstly needs to know the status of the appropriations that he manages in order to use them properly: That is the purpose of commitment bookkeeping operations, handled openly before Financial Control He must also be familiar with the payment orders that he has forwarded to the accounting officer for assumption and payment; besides, the Table of Government Financial Operations (TOFE) is drawn up based on the orders (issued and certified by the authorizing officer or assumed and certified by the accountant: the amount is to be the same in both sets of books. ) The difference between the commitments corresponds to the Unauthorized Committed Expenditures (depenses engagees non ordonnancees - DENO). The difference between payment authorizations and payments corresponds to the accounts payable ( restes d pcryer - RAP); according to the IMF terminology, accounts payable exceeding three months are ADB Grant No. 0133 -CAM/Component 1: referred to as payment arrears. PFMRD 78
1. Administrative bookkeeping by authorizing officer (continued) • • • The difference between issued (and assumed) receipt orders and the corresponding collections are the accounts receivable (restes d recevoir - RAR). Accounts payable and accounts receivable are collectively referred to as outstanding balances. With integrated management (or automated) systems for public finance, each stakeholder (authorizing officer, financial controller, accountant) is able to know at any moment the status of a specific expenditure and the overall or detailed status of the appropriations. ADB Grant No. 0133 -CAM/Component 1: PFMRD 79
2. Bookkeeping operations of financial controllers The role of the financial controller involves auditing and accounting commitments and payment orders, informing the Minister of Economy and Finance on the administrative management under his supervision and advising the authorizing officer on his financial management and the financial implications of his decisions. • 1. 5. Bookkeeping of Committed expenditures • "After auditing the spending departments of senior authorizing officers and authorizing officers by delegation, Financial Control shall keep accounts of expenditure commitments and ensure the follow up of credit consumption. Financial positions shall be drawn up each month and compared with the positions regarding commitments or payments drawn up by authorizing officers, and to those drawn up by Treasury departments for implemented payment orders. " (Article 21 of Decree 81) • Additional commitments and releases or cancellations are to be submitted to Financial Control and justified. " (Article 19 of Decree 81). ADB Grant No. 0133 -CAM/Component 1: PFMRD 80
2. Bookkeeping operations of financial controllers • • "Financial Control shall draw up an annual overall report on the budget of the last completed financial year, showing the outcomes of audit operations and the proposals that it may formulate as regards improvement of budget implementation. This report shall be submitted to the Minister of Economy and Finance by March 31 of the year following that for which it is drawn up. " (Article 29 of Decree 81) Since he/ she is not involved in the daily concerns of the authorizing officer whom he is auditing, the Financial Controller should be able to set him straight about the financial implications of his choices and decisions in the light of financial and general laws and regulations, of which he must have a thorough knowledge, in particular in matters where their accountability is called into question. ADB Grant No. 0133 -CAM/Component 1: PFMRD 81
3. Bookkeeping operational of revenue and advance payment officers • • • This bookkeeping operation shows at any given time For revenue accounts: the status of their cash on hand For advance payment accounts: the status of the advance received. " (Article 101 of Subdecree 82) ADB Grant No. 0133 -CAM/Component 1: PFMRD 82
4. Bookkeeping operations of the Government • • • The general bookkeeping operations of the government shall have trial of: Budget operations. Treasury operations Operations conducted with third parties. ” ( Article 98 of Sub-decree 82) "The general bookkeeping operations of the government shall be handled pursuant to an accounting plan drawn up by the Minister of Finance. . Its nomenclature is to be in harmony with the general accounting plan. " (Article 99 of Sub-decree 82) ADB Grant No. 0133 -CAM/Component 1: PFMRD 83
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