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Can you do your own accounting?  Click here to see for answer is NO

In today’s context there are tools to help you perform accounting functions. The accountant would usually NOT perform all the functions needed to prepare the financial statements.

The RECORDING function of accounting. This is what we call bookkeeping. Before you can do bookkeeping, you have to do administration for bookkeeping.

Any meticulous person will be able to perform the administrative function:

Write out Payment vouchers
Write out Receipt vouchers
Issue customer invoices
Record the transactions into a spreadsheet or with an accounting software.

A person with bookkeeping training will be able to perform the bookkeeping function.
Record the transactions in double entry WITHOUT an accounting software.
Identify balance sheet items and profit and loss items.
Set up a Chart of accounts to reflect the above.
Able to set up the accounting software to reflect the proper posting accounts.
Able to post the entries correctly that are NOT automated.

Automated entries done by software
Credit the Sales accounts
Debit the Customer’s account
(Being sales made by the company)

Debit Bank account
Credit Customer’s account
(Being payment received from the customer)

Non automated entries
How would you treat the purchase of a machinery by hire purchase?
The company purchased a machinery for S$100,000 and financed 80% of it by a finance lease at an interest rate of 6% per annum.

The admin person would do the following:
a.   File the hire purchase agreement
b.   Issue a payment voucher for the payment of deposit for the machine ($20,000 deposit)
c.   File the supplier invoice for the machinery ($100,000 machine)
d.   Makes first payment to hire purchase creditor (S$2,100)

When she goes to the accounting software, she will punch the following data.

Bank entry: Payment to Machinery Supplier Pte Ltd

The accounting system will ask, “Where would you like me to post the entries to?”

The admin girl will probably select, Machinery account.

She may also enter the Supplier invoice into the Accounts payable module of the software.

The Accounting software will output the answer:

( A )
Debit   Machinery    $20,000
Credit  Bank account   $20,000

( B )
Debit   Hire purchase creditor   $2,100
Credit  Bank account                  $2,100

( C )
Debit   Machinery   S$100,000
Credit   AP - Machinery Supplier Pte Ltd S$100,000

Are her entries correct? If your answer is YES, then you are WRONG!

What is missing from this purchase of machinery transaction?

A bookkeeper will be able to tell you.

1.   The Cost of the machine was recorded wrongly. It should be S$100,000

2.   It should not be Debit Machinery $100,000 and Debit Machinery $20,000 ( A ) + ( B )

3.   There was no recording of the amount owed to the hire purchase company.

4.   When the Hire purchase agreement is concluded, the supplier of machinery has been fully paid.

5.   No hire purchase interest was recorded when payment was made to the hire purchase company.


An Accountant will be able to tell you.

Whatever the bookkeeper has told you plus, the following questions need to be answered:
(Considerations in FRS 16, FRS 17, FRS 12, FRS 36, FRS 113, IRAS S14, S19 etc)

1.   What is the machinery’s useful life? (For depreciation purposes and forecast replacements)

2.   What is the machinery’s residual value? (It will affect depreciation)

3.   Is the machinery a second machinery or new machine? (Fair valuation)

4.   Is it an automated equipment? (For tax purposes)

5.   Is the machinery a tool, for resale or an asset?

6.   What is the effective hire purchase interest rate?

If the accountant is given a more managerial role, he/she will be able to tell you:

1.   The return on investment on the machinery
2.   The cashflow projections for this asset (replacement, repairs etc)
3.   The cost savings from the purchase of the machinery
4.   Plan and budget to acquire more machines or replace existing ones
5.   Consider the tax impact of the above

No 2nd or 3rd tier accounting software will be able to perform such projections and record the transactions on their own, and even if the software were able to do such projections, it would need a highly qualified accountant to understand the required inputs into the accounting system.

Conclusion

You are able to do your own accounting. However, it will only be a part of the overall accounting function!

From the following, you are able to see the difference in job functions!


















You can download the accounting standards here. Click here