Blog

What is Accounting

When we hear the word accounting, what comes to mind is the so-called “debit” and “credit” which means “to balance” to a simple layman and also flashes of computer images, stacks of documents, a calculator, pen and paper worksheet.  Accounting is not a modern-day service activity but old history dating back to 8500 B. C. in Mesopotamia (modern day Iraq) when archaeologists have established certain clay tokens in form of cones, spheres, disks, and pellets.  Evidence of accounting is present from Middle Ages up to the Industrial Revolution.

There are several definitions about accounting.  Actually, Accounting is a service activity with the goal to provide quantitative financial information about economic entities.  Business owners, in order to make informed and sound economic decisions of a business entity, rely on this quantified financial information.

Accounting has gained many definitions including:

“Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof.

In the above definition, a simple layman can understand that accounting is an art that involve the following process in the correct order as they are enumerated:

  • Recording
  • Classifying
  • Summarizing
  • Interpreting

But what to record, classify, summarize and interpret?

These are the transactions and events which are financial in nature.

How to record the transactions and events in accounting?

This consists of recording the transactions in a significant manner and in terms of money.

It is very interesting to note that in Accounting, a financial transaction is recorded through the “Debit” or “Credit” side that include these five main accounts in accounting:

 

Account Normal Balance Side to Record Increases
Assets Debit
Liabilities Credit
Capital Credit
Expenses Debit
Income Credit

When you look at the summary above, please do not be overwhelmed, even if it looks a bit difficult because as you go on to the next topic, you will find out that Accounting is not that difficult to learn.

Accounting transaction can either affect asset accounts, or a combination of asset and liability or any account which give rise to a single debit and single credit entry.  An example of this is when you purchase items for sale and pay the full amount in cash for S$100.00.  The transaction have an effect of increasing your inventory as the products go to your store or warehouse but decrease the cash when you pay the supplier for the items purchases.  So, try to look at the table above and the resulting journal entry would be:

Debit – Inventory                      S$100.00

Credit – Cash                                                            S$100.00

Take note that both Inventory and Cash are both Asset accounts and this increases the inventory but decreases the cash but its total effect to the assets account remain the same.

Other accounting transaction results to more than one debit entry or more than one credit entry.  So in the sample transaction above, instead of fully paying $100.00 for the merchandise, payment is only made for S$50.00 and the S$50.00 balance to be payable after one month.  In this case, the entry would be

Debit – Inventory                       S$100.00

Credit – Cash                                                            S$ 50.00

Credit – Accounts Payable                                      S$ 50.00

Analysis:

The above transaction results in an increase in Inventory asset of S$100.00 but decrease the cash which is also an asset account by S$50.00. Accounts Payable which is a liability account increase (credit side). Take note that the total of account debit and total of account total credits total to S$100.00 and so they “balance”.

 

Recording Money Transfers Between Accounts

MYOB provides a fast and efficient method of recording money transfers between your internal bank accounts by using the Transfer Money window under the Accounts main command centre as per screenshot below:Recording-Money-Transfers-Between-Accounts-pic-1

If you also set up your petty cash fund as a Bank account, you can also transfer using this option to access the Transfer Money window.  If you also happen to use credit card for business payment transactions and transfer amount from internal bank account like, checking account or to the credit card, you can also perform money transfer using this option.  Below is a screenshot of Transfer Money window in MYOB:

You will note that the screen shows both the bank account for making transfer from and transfer to including the following fields:

  • Transfer Money From – indicate in this field the bank account from which the fund transfer come from
  • Transfer Money To – indicate in this field the bank account to which the amount is to be transferred to
  • Fund Transfer Number – starts with TR and the number sequence which is default every time you make a transfer.
  • Transfer Date – this is the date of the transfer which is always default to the date you have entered the money transfer. However, take note that if you have entered the money transfer in July 30, 2015, but the money transfer have been made on July 17, 2015, then you have to change the transfer date from July 30, 205, .which is default in MYOB to July 17, 2015.
  • Amount – of course, this is the amount of funds being transferred between the internal accounts.

Memo – use this field to indicate the purpose of the transfer.  In MYOB, Memo is default to “Money Transfer” so you can opt to continue like “Money Transfer from Cheque Account to MasterCard for credit card payment”.

Recording-Money-Transfers-Between-Accounts-pic-2

When the entries to the required fields are correct, you can now click on Record to save the money transfer.

Also on the bottom portion of the Transfer Money window showing the Current Balance which shows the Current Balance before the Money Transfer is made and Balance After Transfer which would be the balance after the money transfer transaction is saved.

Also, as highlighted in the screenshot above, the option to Save as Recurring money transfer and you have to specify the recurring transaction name if this transfer is intended to be made on a regular period interval.  When you click on Save as Recurring, the following screen appear:

Recording-Money-Transfers-Between-Accounts-pic-3

After you have indicate the necessary Frequency, Alerts and Transaction settings for the recurring frequency and duration, click on Save to record the recurring money transfer transaction.

You also have the option to record the money transfer using Transaction Journal but Transfer Money is the most efficient and convenient way to record transfers between internal bank accounts.

Break-even Point Computation

In the previous article, we covered some important pointers on how to be able to use financial information – sales and cost amounts for break-even point computation purposes. Wrong sales or cost amount used for break-even point computation results in overstated or understated break-even point and will lead to unrealistic sales and profit planning.

Computation-break-even-point

Determination of the product sales and cost amount is very important in order to achieve successful sales and profit planning. In terms of profit planning, we have the option to Now, we proceed to compute the break-even point sales in units or in terms of revenues by determining the period fixed and variable cost, usually expressed in monthly period. In order to properly determine break-even point, you must be able to know what fixed costs are and the variable costs for selling the product.

There is a need to properly identify which costs are incurred whether a product is sold or not.  To make it easier to determine which costs to be included in the determination of the break-even point, which costs are not incurred when a product is not sold. The basic and easy approach for this that apply to both manufacturing and retail business is using the gross margin formula:

Sales Price                         50.00

Less:  Cost of Sales          30.00

Gross Margin                    20.00

Assuming you have the following monthly expenses

 

Expense Monthly payment
Salaries 3,500.00
Rent 1,000.00
Depreciation    400.00
Electric & Water bill 1,200.00
Total Monthly Expenses 6,100.00

To compute for the break-even point in Units use the computation Total Monthly cost divide by Product Gross Margin:

Total Fixed and Variable cost = 6,100.00
Product Gross Margin = 20.00

BES in Units = 305 units

To compute for the BES in Amount, just compute the total number of units by the Sales price per unit which result to S$15,250.00

 To prove the result of 305 units in order to break even, we compute:

Sales 305 units @ S$50.00 = S$15,250.00

Less:  Cost of Sales 305 Units @ S$30.00 = S$9,150.00

Gross Margin/Profit = S$6,100.00

Less:  Monthly Expenses=S$6,100

Profit/Loss from Operations = 0

The above example is just a simple illustration and quick guide in computing the break-even point of the business. In other cases and usually applying to non-specialized retail or merchandising business, the company sells more than one product which require realistic sales planning and achievable sales target.  Otherwise, In this case, proper sales planning for product mix should be done in order to properly determine break-even point contribution for each product.  In case there are hundreds or even thousands of products being sold, it is always desirable to maintain a fixed gross profit or gross margin percentage for the products.  However, it is also noted that there are times assigning a fixed product margin percentage is not possible by reasons of stiff competition among other suppliers.  In this case, proper classification of products by group or categories can be done and proper allocation of applicable gross margin rates can also be favorable.

It is very important to remember that proper identification is required for costs that need to be recovered, whether or not the products or services are sold or rendered.

Importance of Correct Sales and Cost Amounts to Determine Break-Even Point of Business

Break even point

One of the greatest challenges every business owner faces is how to determine the company’s break-even point. This is especially true for businesses that have just been established or just began operating in the first few months. So what exactly does break-even point mean from a business point of view? In simple words, break-even point refers to the number of unit sales/sales amount in which total costs composed of variable/fixed cost is recovered and profit equals zero. However, business owners must remember that break-even level or break-even point can only be possible if the product is sold at more than its cost of purchase from the supplier or more than its manufacturing cost if it is manufactured.  This is better expressed in the expression:

Sales – Cost of Sales = Gross Profit or Gross Margin

A very important point to remember is the sales tax. In computing the sales for break even or profit planning and analysis, you must make sure the sales figure is net of sales tax.  This is because if you use the sales amount which include the sales tax, you are overstating the gross margin by the sales tax amount included.  This will result in an unrealistic break-even point figure which actually results in a net loss.

If the goods sold are purchased including tax and you make tax credit for the purchase tax, you have to also exclude the tax paid in purchasing the product to ensure proper matching of revenues and costs.  Take for instance the following scenario:

  • You sell Product A for 55.00 SGD subjected to 7% GST and you purchased this unit for 30.00 SGD without tax. To determine the gross profit or gross margin, the computation would be:

Sales                                              51.40 (55.00 SGD divide by 1.07)

Cost                                                30.00

Gross Profit/Margin                   21.40

  • You sell Product A for 55.00 SGD subject to 7% GST and you purchased this unit for 30.00 SGD also including GST. To determine the gross profit or gross margin, the computation would be:

Sales                                             51.40 (55.00 SGD divide by 1.07)

Cost                                               28.04 (30.00 SGD divide by 1.07)

Gross Profit/Margin                      23.36

If you compute for the gross profit margin using the sales price including GST and cost price including GST, the result is different from that 23.36 SGD GP rate per unit per number 2 above.  The computation result to a gross profit of 25.00 SGD, which is overstated compared to 23.36 SGD.  Overstated gross profit, for sure will lead to understatement of break-even point and mislead the management in making important financial decisions because the business actually incur loss materially if there is substantial fixed and variable costs to be recovered.

Sales                                       55.00

Cost                                         30.00

Gross Profit                             25.00

Based on the above scenario, you are able to realize the importance of using the correct sales and cost figures in order for you to proceed to the next step of computing the break-even point sales in terms of quantity or units and sales in amount.  This process is taken up in the next topic to make break-even computation easier for you.

Engaging PowerPoint Slides- Top 5 No Nos!

Engaging-PowerPoint-Slides-Img1

Given the tech savvy ways of today’s society, almost everyone is able to create presentation slides for their meeting or projects with ease. The question is- HOW would they be able to avoid every single cliche rookie mistake and make it engaging instead?

Luckily, it’s surprisingly easy to achieve- just as long as you avoid making these 5 major ‘No
No’s.

1. Paying too little or too much attention to aesthetics

Visuals play an important part in each and every presentation as a means of capturing as well as retaining an individual’s attention.

Keeping in mind that your objective is to leave your audience with newfound information, your presentation should be engaging enough to warrant their attention and time, but not fanciful
enough to resemble a pompous peacock. Templates and backgrounds should be kept consistent throughout your slides and simple so that the audience can focus better, and your presentation would look less like a garish myriad an inebriated painter came out with.

Instead, what you can do, is to pay some attention to colour balance. The concept of colour is a powerful tool to grasp. In Art, colour evokes different emotions based on a person’s perspective
and culture. Similarly for business presentation, using the right colour could also improve overall interest.

2. Text Overloading

For better effects, don’t use overly complicated jargon or fill your slides with too much information. A little bit of even spacing helps draw power to your delivery and also allows others to focus and process at a more efficient pace. Keep your points short and sweet- everyone would feel dismayed or bored when met with daunting amounts of text.

Always remember that your presentation tools, including the slides, are there to support you inyour presentation and not to steal the limelight. A good presentation doesn’t necessarily need to be backed with slides containing a lot of information. If there’s a need to and if there’s a request, you could always prepare details and reports to hand out as a take away to your audience after
your speech.

The same goes for fonts. Different fonts evoke different feelings. If you are using a particular font set, make sure to use the same font set for the rest of the slides as well.

3. Using too much Animation

Animation effects like sound or slide transitions can spice things up once in a while and save your presentation from being as interesting as a stagnant pool of water. But the reverse situation could apply too- the overuse of animation effects can distract the audience from the points that you are trying to make.

Worse still, they’d think it’s cheesy if the effects happen to be repetitive. Not exactly the best impression to make.

It’s also best to remember that not all computers/laptops run at the same speed. The more animation-heavy your slides are, the higher chance of the effects lagging (becoming ridiculously slow or stuck), which would ultimately backfire on you.

Though that’s not to say that you should avoid the animation completely. Subtle effects are highly recommended- like a wipe, and other basic professional ones. Alternate the effects and
make sure not to apply it too liberally.

4. Failure to use Charts, Graphs and Multimedia

The appropriate usage of charts, graphics and forms of multimedia is also a fantastic way of breaking the monotony and engaging your audience. If your presentation slides require images, you can either take the pictures yourself as long as it’s high quality or you can purchase stock images from websites like Depositphotos so as to avoid copyright issues. High quality is a must when it comes to professional work! Enlarging the images forcibly will only cause the resolution to deteriorate and seem blurry.

Try your best to avoid using the clip art Microsoft powerpoint offers- chances are, your audience have already seen the same generic pictures hundreds of times.

Charts are also a good way to reduce clunky walls of text- Pie Charts, Vertical/Horizontal bar Charts, Line Charts and more. Make use of different chart creating software or websites to effectively display data without crowding.

Video or audio embedding is another highly recommended technique. Powerpoint making applications or software usually allow you to embed them directly into the slides itself so you
don’t have to face the hassle of switching windows or what not.

5. Stifling content

Nothing is as worst as having boring content. It’s the ultimate killer of both inspiration and attention. If you want to successfully retain interest, you have to do so by capturing the hearts and ears of your audience so to speak.

Create a hook- reel your audience in by coming up with something that entices or frightens them, given the appropriate situation. Once you’ve gotten their intrigue, you can continue on with the rest of your speech. In fact, you can turn the tables on them when they least expect. Ask them questions and listen to their feedback, engage their curiosity, show them that you are there to work with them, to teach instead of preaching.

Here are the top 5 major powerpoint presentation faux pas. Now that you’re aware, it’s time to contemplate if you are guilty of committing one of the No-Nos. Ask for the opinions of your colleagues and friends. Pitch your ideas to a stranger and ask them what they thought. If you can identify what is lacking, you can polish your communication skills until it shines.

 

Recording of Accruals

One of the challenging tasks related to business owners as well as accountants is how to record expenses and income that will accurately or reasonably reflect the results of operations of the business to answer the most common question business owners ask: “Do my business really gain income or incur operating losses?”
The best answer to know the business operating results is to be able to properly match revenue over the costs incurred. In this case, the accrual method of accounting enables you to recognize both revenues when it is earned rather than recognizing revenue when the payment for the revenue is received. The same also holds true to recognizing expenses when it is incurred, rather than recording expenses when it is paid.
To be able to enter accrued expenses, you have to recognize the Liability account arising from this transaction. If you are using Accrued Expenses payable account, you have to record the expenses and at the same time record the accrued liability account. If you have not setup the liability account for the accrued expenses, you have to setup by going to Accounts List and click on Add account and proceed to create the Accrued Expenses account as per the screenshot below:

accrueed-expenses1

MYOB allows you to record accruals of expenses using general journal entries. To enter accrual of expenses in MYOB, go to the Accounts command centre and click on Record Journal Entry as per the screenshot below:

accounts

It is important that in recording accrual using the Record Journal Entry option, you have correctly indicated the date the expenses as incurred and not on the date the expense is entered.  So, if you are entering an accrual journal on March 5, 2015 for expenses incurred for the month of February but will only payable on the month of December in the case of employees benefits, you need to change the date of journal into February 28, 2015 so that the expense will be taken up in the MYOB financial records as part of Profit and Loss items for February, 2015 and not for March, 2015.

When the accrued expense is paid on the subsequent months, the entry would be to debit the accrued Expense Payable account and of course, credit the Cash in bank account or the bank account used for which the payment is made.  If you are going to record the expense account during the payment of the accrued expense, this will result in recording of the expenses twice and the accrued expense payable remain as “unpaid”.  The effect of double recording of expense which was previously accrued would be as follows:

  1. Overstatement of expense that result to understatement of operating income or overstatement of operating loss.
  2. Overstatement of Payable account which have an effect of overstating Liabilities in the Balance Sheet.

Reconciliation of Customer Accounts in MYOB

MYOB allows you to reconcile customer accounts by providing you wide range of reports to choose from.  This is especially important when your customer complain that they have made payment and you need to trace the entries made in MYOB for any discrepancy, omission in making the entries for payment or entering the payment to the wrong customer account.  It could be possible that you have erroneously entered the wrong sales amount or wrong invoice to the wrong customer or you have simply failed to record customer payment.

The above are some of the real headaches the bookkeepers and accountants have in having to handle customer account management.  In the case of business owners personally handling this task, this can prove to be a very challenging one especially you don’t have any accounting knowledge. The following are some of the tips to do the reconciliation with customer account as follows:

  1. Review the Customer Ledger. You can do this by either generating a report in MYOB in PDF format or other format.  You can also send the customer ledger direct to your customer through email so that your customer can also get to reconcile the account and check against their record. To generate a Customer Ledger, go to the Reports menu which is in the lower portion in any main command centre and then choose sales as per screenshot below

Reconciliation-of Customer-Accounts-pic1-command-centre

The following screen appear giving you wide choice for the sales report as follows:

Reconciliation-of Customer-Accounts-pic2-salereport

The following screenshot appear giving you the option to indicate filters as follows:

Reconciliation-of Customer-Accounts-pic3-indicate-filters

You have the option to choose specific customer you need to generate the customer ledger and the option to display first or generate the report in the available format or send to the customer through email. You have the option to review the transaction posted and you can make correction and adjustment for any item that are recorded in error or omitted from recording.

2.Review the Transaction Journal which is found in any main command centre as per screenshot below:

Reconciliation-of Customer-Accounts-pic4-transaction-journal

In this screen you have the choice to view the following transaction groups showing 7 tabs in a specified date range Dated From: and To.  If you are tracing a transaction record for the period November 1 to 15, 2014, then you have to indicate these date range and as a tip, you put an allowance on the date range, indicating November 1 to November 20, 2014. You can choose on any of the 7 tabs for any transaction type you have entered in MYOB as follows:

 

  1. General – this tab shows all the transactions you have entered using the general journal or Accounts journal entries.
  2. Disbursements – this shows all the disbursement transactions in MYOB.
  3. Receipts – this tab shows all the receipt transactions including customer payments and transactions under the Receive Money
  4. Sales – this option shows all the sales transactions entered into in MYOB
  5. Purchases – this option shows all the purchase transactions entered into MYOB per the specified date range.
  6. Inventory – this tab shows all the inventory transactions in MYOB as per specified date range.
  7. All – shows all the transactions entered into MYOB using all other main command centre.

Reconciliation-of Customer-Accounts-pic5-transaction-journal-group

3.Using Find Transactions – this feature is found below the main command centre as per screenshot below:

Reconciliation-of Customer-Accounts-pic6-find-transaction

Under this feature, you have the option to view transactions also on a specified date range by:

Account – this give you the option to find transactions by account.  For example, you want to view the entries you have made to Cash in Bank no. 001 in MYOB, all you need to do is indicate the account name and the date of transactions you wish to be displayed.

Card
Item
Invoice
Bill
Category
Job    

Page 11 of 17« First...910111213...Last »