Showing posts with label Computerised and Manual Accounting. Show all posts

Tuesday, 18 March 2014

Main types of Forecasts and Budgets

Main types of Forecasts

In business we need don’t like surprises...

Sales Forecast

A sales forecast is a planned target of obtaining sales revenue. To do this a company uses their own previous sales data, market research of target audience and examining the competition. For start up companies it becomes more difficult due to they have to previous sales data to base their projections on.

Take for example a supermarket company Woolmart, they expect to generate an increase of sales by 10% in America and the rest of the world. To do this they look back on previous year’s sales and see where an improvement can be made. If they think they can increase sales in April, the company might use extra advertising or sales promotions to entice customers into their stores.

To learn out how to improve sales forecasting check out this link:

http://www.inc.com/guides/201105/tips-for-improving-sales-forecasting.html

Cash Flow Forecast

A cash flow forecast predicts the target of obtaining cash for the business avoiding liquidity problems in the future. It is an estimation of how much cash flows in and out of the business. One advantage of a cash flow forecast it that it helps to identify problems of not having enough cash for future months. Once identified a bank overdraft can be set up to help with the cash flow.

Here is an example of a company having problems with cash flow. The furniture company OKEA has lent too much credit to its customers for the month of April. This means that while OKEA's financial records of profit will look reasonable there is not enough cash to be in a healthy position. Just because there is profit does not mean there is cash.

Remember that while we are living in an increasing credit world cash is still king!

Learn more of cash flows by checking out this link:

Cash Flow Analysis - Understanding The Statement Of Cash Flows Part 1

Uploaded by nerdenterprises on Oct 5, 2011

Cash Flow Statement

Uploaded by SilenceDogoodsghost on Sep 18, 2010

To learn more about how to prepare a cash flow forecast, check out this link:
http://www.fastlinksolutions.co.uk/cashflow.htm

Main Types of Budgets

The Enforcer of Budgets?

Master Budget

A master budget is a financial plan that sets out targets for production of goods, the level of sales, the amount allocated for expenses. A master budget comprises of different budgets from different departments. These include the sales department, purchases department the payroll department and many more.

The budget is usually presented by monthly or quarterly periods of the fiscal year.

To learn about more of a master budget check out this link:

http://www.accountingtools.com/master-budget

Cash Budget

A cash budget is an estimation of how much cash will come in and go out of the business. It can be carried out for the year, month, weeks or days. However if you are making a budget for a few days the business is in some trouble.

The cash budget is important to carry out operations such as paying wages, electricity bills and interest on loans. The budget determines how much a business can spend in a period of time. In other words the business must be able to pay their bills. The budget can also help the business with regards to giving credit to its customers. It can help determine how much credit can be given to customers.

Here is an example of a cash budget:

Assume no credit has been given or received. Only cash has been used.

Assume the company The Bugle Ltd. has a cash balance of €100 brought forward for the month April, the company can create a cash budget:

€

Cash Balance 100

Expected Cash Receipts Sale 5000

Total Cash 5100

Cash Payments

Wages 3000

Electric Bills 700

General Expenses 500

Advertising 50

Total Cash Payments 4250

Cash Balance 850

The company expects to make €850 cash for the month of April and will be brought forward to May.

For a more detailed look on a cash budget check out this link:

https://www.zionsbank.com/pdfs/biz_resources_book-5.pdf

Sales Budget

A sales budget is a financial plan that expects a certain level of sales for the budgeted period. This helps predicts how many products will have to be made in order to make a certain level of sales. The sales budget determines the price and how many units will be produced to make a sales target.

The budget also helps to keep the allocation of selling expenses, marketing expenses and advertising expenses on budget to achieve targeted sales.

To learn more about how a sales budget works follow this link:

Responsibility Accounting - Sales Budget

Uploaded by routhwsuedu on Aug 18, 2011

Sunday, 2 March 2014

Accounting Concepts

"It is a capital mistake to theorize in advance of the facts"

-Author Conan Doyle, "Sherlock Holmes"

Bruce Springsteen “The Boss”

To be The Boss of accounting you need to know the major concepts of accounting. To master these concepts puts you firmly on the path to becoming a successful Accountant. Whatever you do in accounting you will always be able to refer back to these concepts no matter what.

The Going Concern Concept

Leonard Cohen still going strong

A Going concern is an entity such as a business that will continue trading for the foreseeable future. This means the company has the liquidity i.e. cash to continue trading.

Going concern is a significant concept with regards to the valuation of assets.

For example a company, P. Moore’s Telescopes sell and make lenses for its telescopes. In 2011 it bought a special machine to make better quality lenses at a cost of €50000 which will last 10 years. This would be put into the balance sheet at €50000 or the cost less the deprecation for example 10% so it would be €45000. As long as the business continues trading as a going concern the machine is valuable for the next decade.

However if the business is in trouble the machine could possibly be not worth €45000. It might have to be sold off at less than its value in the balance sheet of €25000. The loss of €20000 will appear in the income statement.

With the concept of going concern it is assumed the business will continue trading which allows the business to value assets at cost less the deprecation.

Check out this link to learn more about the concept of going concern:

http://happyaccountant.wordpress.com/2007/04/12/the-going-concern-concept/

http://accountingexplained.com/financial/principles/going-concern

The Prudence Concept

Prudence is a valuable concept to know inside out to become a great Accountant. This states that assets and incomes are not overstated and liabilities and expenses are not understated. In order words we do not expect gains and we provide for foreseeable losses.

For example a company, Trulli Ltd. expects it debtor not to pay their debts for the month. Trulli Ltd. decides to make a provision just in case its debtor does not pay its debts. This is known as being prudent.

The concept of prudence is also called the concept of conservatism.

Check out this link to learn more about the concept of prudence:
http://happyaccountant.wordpress.com/2007/04/11/the-prudence-concept/

http://accountingexplained.com/financial/principles/prudence

The Accruals Concept

This is also known as the matching concept. The concept of accruals states that a business matches its expenditures with the expected income it generates. In order words, don’t account on a cash flow basis.

For example a company, Ponosanic has an electricity bill for April. The figure for the bill will be recorded in the April Income Statement. If the company waited until the end of September to pay and record the bill it would distort the view of accounts. It would show the there was no expenses for the electricity for April but there would be an increase in September along with Septembers bill for electricity. The company must record the expense when it has occurred. As stated above the expenditure must be match with the income during the month of April in which the bill occurred.

Here is an example of sales on credit. A company, Sany Inc. make sales on credit from its customers. The sale is completed and is treated as an income for the company. The company does not wait for the cash from the customer. This would distort the accounts if they waited for the cash from the customer.

Check out this link to learn more about the Concept of Accruals:
http://happyaccountant.wordpress.com/2007/04/12/the-accruals-concept-the-matching-concept/

http://accountingexplained.com/financial/principles/accrual

Wednesday, 22 January 2014

Sole trader, Partnership and Limited Company

What is a Sole Trader?

A sole trader is an individual who sets up and owns their own business. A sole trader cannot distinguish itself from its business i.e. they have no separate legal entity. All the assets and liabilities of the business are the responsibility of the sole trader. This includes that the sole trader receives all the profits and if there is any losses it is their responsibility.

Pros and Cons of a Sole Trader

Pros:

§ Owner gets to keep all the profit.

§ The owner gets to control what way the business will grow.

§ More close and personal to customers.

§ Relatively easy to set up.

Cons:

§ There is unlimited liability.

§ The business might cease to exist if the owner dies or retires.

§ Difficult to compete with larger organisations for tenders.

Partnership

A partnership is two or more parties who do business together in order to make profit. A partnership has no separate legal entity such as a sole trader. The parties of the partnership must bear any losses or debts the company has. The partners also share the profit.

Simon and Garfunkel still singing together after all these years

Pros and Cons of a Partnership

Pros:

§ Relatively easy to set up.

§ Greater depth of knowledge and skills between two or more parties.

§ Losses are shared among the partnership.

Cons:

§ There is unlimited liability.

§ One partner has no full control of the business. May lead to conflict.

§ Decisions more difficult to implement due to partners having different views.

Limited Company

There are two types of limited company. A company limited by guarantee and a company limited by shares. A company limited by guarantee has assurances to pay back a certain amount of debts if the company ceases to exist.

A company limited by shares is the most popular type of limited company. This type of company has its own separate legal entity compared to a sole trader or a partnership.

A company limited by shares can be public or private. A public company must have a minimum of seven members. The liability of the members is limited to the amount the members paid for the shares. The value of the share capital must be higher than the minimum of €38,092.

A private company limited by shares is made up of shareholders who own the company. They can also be called members. The amount of members ranges from one member to ninety-nine. The directors are the people who run the company and there minimum number of directors is now one instead of the previous two. There is limited liability where the members can only lose the amount of money the paid for the shares.

Pros and Cons of a Limited Company

Pros:

§ Limited liability.

§ Company is a separate legal entity.

§ Rules of running the company are clearly laid out in the memorandum & articles of association.

Cons:

§ Higher setup costs.

§ More detailed record of accounts required.

§ More legal requirements to follow.

To learn more about the many types of companies, check out this website:

http://www.cro.ie/en/business-registration-company.aspx

Tuesday, 18 September 2012

Identify the main features of the Data Protection Act.

Another form of data protection...

Are there any data protection acts in Ireland?

There are acts such as the data protection act 1988 and 2003 are set up to protect the rights of personal data and to hold account of controllers of data .

Why should I know about this?

This is important to anyone who submits data about themselves on-line to the government, banks, and many other entities on the web. For example if a company obtained information of your personal details without your permission and used it for marketing purposes, you have a right to have your details removed.

OK, what are my rights?
These rights are obtained from the link below and go into more detail if you click on it.

1. A person has the right to have your data processed in accordance with the Data Protection Acts.
2. A person has the right to be informed.
3. A person has the right to object.
4. A person has the right where a future employer cannot force a future employee of their personal information.
5. Freedom from automated decision making.
6. There are rights under Data Protection and Privacy in Telecommunications Regulations
7. There is the right to have your name removed from a direct marketing list.
8. People have the right of rectification or erasure.
9. There is the right to have your name removed from a direct marketing list.
10. Everyone has the right of access.

Click on this link to learn abut the main parts of a data protection act i.e. a person rights:

http://www.dataprotection.ie/documents/guidance/A_Guide_to_Your_Rights_web_version.pdf

Are there any examples of data protection violations?

Here is an example in England from 2007:

http://www.channel4.com/news/articles/science_technology/facebook%20data%20protection%20row/1060467.html

Here is another example of violations of false allegations on the internet on the website Twitter.
http://www.bbc.co.uk/news/uk-17512027

Wednesday, 12 September 2012

Outline the Importance of Data Accuracy when Processing Accounts Data

First you might ask what data accuracy is.

This is how close the results or observations are accepted as being true. For example if a bank had a glitch with keeping its records of people accounts, which meant their customers accounts where giving false balance figures. This could possibly mean their customers would switch to a different bank.

Also money is an important factor when considering data accuracy. Since money goes in and out of a business, the firm needs accurate accounts. If the firm doesn’t have the accuracy in this field of work it could potentially ruin a business. Take for example if an employee is entering figures into the accounts and accidentally adds an extra zero to a figure of €10,000 for vat. The figure would then be €100,000 and scare the owners of the business wondering where this figure came from. While the problem would eventually be picked up, it could cause mass confusion and annoyance for the firm as a whole.

There is also the importance of tracking expenses, debtors, creditors, tax and other dealings which a firm could avoid penalties and might even save some money. If there was a problem when processing of the accounts such as not up to date accurate figures. It might cost the firm in the long run.

Click on these links to see an example of why data accuracy is important:
http://www.irishexaminer.com/archives/2012/0623/ireland/ulster-bank-confusion-over-card-system-198518.html

http://www.bloomberg.com/news/2012-02-14/china-starts-system-to-raise-data-accuracy-statistics-head-says.html

Process the following transactions: Sales, Purchases, Returns, Payments, Receipts

Sales

What are sales?

For any firm sales are the lifeblood of the company. No sales equals no profit which leads to the company being bust.

There are two types of sales. Credit sales and cash sales. With cash sales the company obtains the money right away. However with credit sales the company gets the money in theory. In other words it is recorded in the accounts yet actually obtaining the money might take 30-60 days or even longer!

This is the sales process in terms of interacting with the customer

How to process sales?

This starts of with the customer ordering goods/services of a company. At the end of the transaction the company receives the cash from the customer. This is how the process works below.

Here is the inputs of the sales process.

1. Sales Order. Also known as a SO. This is issued by the company to their customer.

2. Sales Invoice. This is a bill/document that is issued by the company to its customer. The document states how many products are ordered and the price for those products or services.

3. Remittance Advice. This is a document that informs the company that the customer has paid its bill/invoice. This is of course not mandatory but seen as a act of goodwill to the company.

4. Shipping Notice. This lets the customer know the goods/services are on there way. For example Amazon send emails detailing when the products should arrive to its customers.

5. Debit/Credit memo. This is issued for any sales returns. The debit memo increases the amount that the customer owes if the bill was incorrectly added. The credit memo is exactly the opposite of a debit memo. It reduces the bill of the customer.

Here are the outputs of the sales process.

1. Customer Billing Statement. This is sent to the customer who has received the invoice but has not paid it. This also includes customer activity and sales returns if there is any

2. Accounts Receivable Ageing Report. This is a periodic report that records how long an invoice has being outstanding.

3. Bad debts report. If the customer has not paid the invoice the company must report this as a bad debt.

4. Cash Receipts Forecast. Information is gathered from revenue transactions that will be put into this forecast.

5. Customer Listings. This will detail the customers contacts, billing address and customer codes.

Click on these videos to learn more about the sales process.

The Sales Process

Uploaded by Colly Graham on 26 Jun 2008

Invoice and Trade Finance Sales Process: How it works

Published on 6 Jun 2012 by arcashflow

Purchases

What are purchases?

A purchase is obtaining goods or services acquired by the company to enhance or achieve the objectives of the business. Typically it involves money being exchanged for the good/services.

A diagram of the purchase transaction

What is the purchase process?

1. What does the company need? The company must identify what it need in order to achieve it goals on becoming a well run company. Purchases include machinery, land motor vehicles etc.

2. Research the product/service. The company will research the product/service they are looking for. Research might include on the internet, word of mouth, books etc.

3. Evaluate your options. The company will choose the product/service is right for them and which is not the best product/service. It might be the right product/service is the correct choice for them.

4. Chose which product/service to buy. Once you have chosen the product, there might be several suppliers. The company's job is to pick the right supplier. After this stage the company will put in a purchase order to that supplier. The purchase order will either be paper or electronic based.

5. Purchase the product/service. Once the order is sent, the invoice will be sent by the supplier.

6. Evaluate the purchase. Once the product/service has been purchased the company will evaluate if the choice was the right one or not for the company.

Check out this video to learn the learn steps of the purchase process:

Key steps of the Purchasing Process

Uploaded by supplychainmechanic on 13 Sep 2010

Sales and Purchase Returns

Click on this link to learn about sales and purchase returns.

http://www.futureaccountant.com/accounting-process/study-notes/purchase-sales-returns.php

Check on this video to learn more about sales returns:

Sales Returns and Allowances - Ch. 5 Video 6

Uploaded by mattfisher64 on 21 May 2010

View this video to learn more about purchase returns:

Purchase Returns and Allowances- Ch. 5 Video 3

Uploaded by mattfisher64 on 21 May 2010

Receipts

Check this link out to learn about receipts in accounting:

http://www.accountingtools.com/procedure-cash-receipts

Payments

What are payments?

Payments are used to pay for items that were obtained from another party.

How can you make payments?

There are a few types of payments. These include cash i.e. physical money which a person can touch such as a bank note or coins.

Credit can also be used to make payments by using a credit/bank card. You cannot see or touch credit. It is only a number in a bank account.

Click on this link to learn about the different payment systems:
http://www.slideshare.net/RiteshGoyal/electronic-payment-system

Explain the Advantages of Computerised Accounts over a Manual Accounts System

Click on these link to see the advantages and disadvantages of computerised accounting:
http://simplestudies.com/advantages-of-computerized-accounting.html

http://www.ehow.com/list_6370175_disadvantages-computerized-accounting-systems.html

Click on these links below to see the advantages and disadvantages of manual accounting:
http://www.ehow.com/info_8132024_disadvantages-manual-accounting.html

http://www.ehow.com/info_7752775_advantages-manual-accounting-system.html

Here is another useful link to compare computerised and manual accounting:
http://smallbusiness.chron.com/advantages-manual-vs-computerized-accounting-4020.html

Check out this video to learn more about computerised accounting:

Computerised Accounting and its Terminology

Published on 7 Jul 2012 by IkenEdu

Check out this video to see why some accountants don't like manual accounting:

Manual Accounting: A Story of Futility

Uploaded by borflex on 28 Mar 2007

Produce the Following Financial Statements: A Trading Profit and Loss Account and a Balance Sheet

A Trading Profit and Loss account

To clear any confusion the word "trading" which is part of the profit and loss account. It is at the beginning of the profit and loss account when calculating the gross profit. Usually we tend not to say the word "trading" but it will be understood by anyone familiar with accounting.

Click on these links to learn more about a Trading Profit and Loss account:
http://www.skoool.ie/skoool/examcentre_jc.asp?id=1749

http://tutor2u.net/business/gcse/finance_profit_and_loss_account.htm

Click on this link to learn how to prepare trading profit and loss accounts:
http://irish21stcenturystudents.blogspot.ie/2012/08/produce-profit-and-loss-account-for.html

Balance Sheet