ADB Grant No.0133-CAM/Component 1: PFMRD 1 ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Day 3: May 06,

ADB Grant No.0133-CAM/Component 1: PFMRD 1

ADB Grant 0133-CAM: Public Financial Management in Rural Development

Ministries (Component 1)

Day 3: May 06, 2010Accounting Cycle

Basic Accounting, Basic Accounting, May 04 - 07, 2010May 04 - 07, 2010Basic Accounting, Basic Accounting, May 04 - 07, 2010May 04 - 07, 2010

ADB Grant No.0133-CAM/Component 1: PFMRD 2ADB Grant No.0133-CAM/Component 1: PFMRD

Content1. Bank reconciliation statement2. Sales ledger (receivables)3. Purchase ledger (payables)4. Accounting at present of RGC

2

Session 2The Accounting Cycle


Bank ReconciliationThe 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 monthly .


Bank StatementIt 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.


An Example of a Bank Statement


An Example of a Bank Statement


Content and Format of Cheques


Example: Bank ReconciliationDollar, 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) The cash book had been undercast by $90.00 on the debit side(b) Cheques paid in not yet credited by the bank amount to $208.20(c) 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.


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

Corrected ending balance, 30/09/05

Balance per cash book, 30/09/05

Add: Correction of undercast

Corrected ending balance, 30/09/05

$1,112.30

208.20

(425.35)

895.15

$805.15

90.00

895.15

When the reconciliation is complete,

these amounts

should be the same


Cause of Differences Between the Balance on the Bank Statement and the Balance in the Cash Book

Cause of difference

Explanation

Errors

Bank charges or bank interest

Timing differences

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 charge a fee for its services, which we are not informed about until we receive the bank statement. These should be accounted for in our records.

(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 not yet withdrawn by payees.


2.Sales Ledger ( Accounts Receivable)


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


Sales

• Amount earned from sale of merchandise inventory

• Revenue account• Credit balance• Reported on income statement


Sales Invoice

• Bill sent to customer reflecting a sale on credit


Invoice No. 94830

INVOICE

Customer Misc

Name Date 10/20/X5Address Order No. PO1234City Edgewood State MD ZIP 21034 Rep MMKPhone FOB shipping point

Qty Unit Price TOTAL1 $328 328.00$ 6 152$ 912.00$

SubTotal 1,240.00$ Shipping

Credit Terms: 2/10, n/30 Tax Rate(s)

TOTAL 1,240.00$

Terrance Home Improvement Store

Jerome WaltherP.O. Box 291

410-555-3041

DescriptionSteel French Patio DoorDouble-Hung Windows

Record the sale


SalesGeneral Journal

Date Account Titles and Description PR Dr. Cr.

Oct 20 Accounts Receivable-Walther 1,240

Sales 1,240

Sales for Oct. 10

Accounts Receivable

1,240

Sales

1,240


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


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


Credit Memo #236

Credit Memo

Credit to

Name Date 10/22/X5Address City Edgewood State MD ZIP 21034 Phone

We credit your account as follows:Qty Unit Price TOTAL2 152.00$ 304.00$

SubTotal 304.00$ Tax Rate(s)

TOTAL 304.00$

DescriptionDouble-Hung Windows



410-555-3041

Record the Return



General JournalDate Account Titles and Description PR Dr. Cr.

Oct 22 Sales Returns & Allowances 304

Accounts Receivable-

Walther 304

Issued credit memorandum



Accounts Receivable

1,240

Sales

1,240


304

304

Bal. 936


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


Sales Discount Policy

• 2/10, n/30• n/10, EOM


Sales Discounts

Assume that Jerome Walther pays Terrance Home Improvement Store within 10 days. Prepare the journal entry.


Sales Discounts


Oct 30 Sales Discounts 18.72

Cash 917.28

Accounts Receivable-

Walther

936.00 Received payment

Sales discount = $936 X .02



Accounts Receivable

1,240

Sales

1,240


304

304

Bal. 936 936

18.72

Bal. -0-

Sales Discounts


Compute Net Sales

Sales $1,240.00Less Sales Discounts 18.72

Sales Returns & Allowances 304.00Net Sales $917.28


Sales Tax Payable

• Accumulates the amount of sales tax owed• Liability• Credit balance• Reported on balance sheet


Invoice No. 94830

INVOICE

Customer Misc

Name Date 10/20/X5Address Order No. PO1234City Edgewood State MD ZIP 21034 Rep MMKPhone FOB shipping point

Qty Unit Price TOTAL1 $328 328.00$ 6 152.00$ 912.00$

SubTotal 1,240.00$ Shipping

Credit Terms: 2/10, n/30 Tax Rate(s) 5.00% 62.00$

TOTAL 1,302.00$



410-555-3041

DescriptionSteel French Patio DoorDouble-Hung Windows

Sales tax = $1,240 x 5% = $62.00


Sales Tax PayableGeneral Journal

Date Account Titles and Description PR Dr. Cr.

Oct 20 Accounts Receivable-Walther 1,302

Sales 1,240

Sales Tax Payable 62

Sales for Oct. 10


Subsidiary Ledger

• Ledger that contains accounts of a single type• Open an account for each customer


Accounts Receivable

Accounts Receivable

1,240

Q. Adams

3,500

B. Merideth

800

1,240

1,240

Bal. 4,300

J. Walther

Controlling Account Subsidiary Accounts

3,500800

1,240

Bal. 4,300


Schedule of Accounts Receivable

Terrance Home Improvement StoreSchedule of Accounts ReceivableOctober 31, 2XX5Q. Adams $3,500B. Merideth 800Total Accounts Receivable $4,300


Put it all together

We’ll use Problem 9B-3 to put these concepts together



200X

May 1 Cash 14,000

Mark Peaker, Capital 14,000

Owner invested in business

3 Accounts Receivable-B. Dale 2,000

Sales 2,000

Sold on account, no. 60

4 Accounts Receivable-R. Lester 900

Sales 900

Sold on account, terms, no 61



May 9 Accounts Receivable-J. Zon 600

Sales 600


10 Cash 1,980

Sales Discount (2,000 x .01) 20

Accounts Receivable-B. Dale 2,000

Received payment on account

20 Accounts Receivable-P. Pry 4,000

Sales 4,000




May 22 Cash 900

Accounts Receivable-R. Lester 900


23 Cash 6,000

Sales 6,000

To record cash sales

24 Sales Returns & Allowances 500

Accounts Receivable-P. Pry 500

Issued credit memo no. 1



May 26 Cash 3,465

Sales Discounts 35

Accounts Receivable-P. Pry 3,500


28 Cash 12,000

Sales 12,000

To record cash sales

30 Cash 200

Sneaker Rack Equipment 200

Sold sneaker rack



May 30 Accounts Receivable-R. Lester 6,000

Sales 6,000


31 Sales Returns & Allowances 800

Accounts Receivable-R. Lester 800

Issued credit memo, no. 2


Accounts Receivable Subsidiary Ledger

B. Dale

Bal. 4002,000

R. Lester

Bal. 800900

Bal. 6004,000

P. Pry

500

Bal. 400600

J. Zon

2,000 9003,500

6,000800

Bal 400Bal 6,000

Bal 600

Bal 1,000


Peaker’s Sneaker ShopSchedule of Accounts Receivable

May 31, 20XXB. Dale $400R. Lester 6,000P. Pry 600J. Zon 1,000Total Accounts Receivable $8,000


3.Payable Ledger ( Accounts Payable)


Purchase Order PURCHASE ORDER

Kingston Furniture

P.O. # 1002 DATE: NOVEMBER 30, 2005

Clearview Mall Saint Michaels, SC

VENDOR Hill Brothers 2 S. Charles Street Baltimore, MD Customer ID H004

Ship VIA: Freight Truck Terms: 2/10, n/60 FOB: Shipping Point

QTY ITEM # DESCRIPTION UNIT PRICE LINE TOTAL

6 V583-5 Ergonomic Office Chair $200 $1,200

5 C756-7 Computer Desk $280 1,400

TOTAL $2,600


Invoice Received with Inventory

Invoice No. 94830

INVOICE

Customer

Name Date 11/25/2005Address Order No. PO1002City Saint Michaels State SC ZIP FOB shipping pointPhone

Qty Unit Price TOTAL6 $200 1,200.00$ 5 280 1,400.00

Credit Terms: 2/10, n/60 TOTAL 2,600.00$

Hill Brothers

Kingston FurnitureClearview Mall

235-555-4541

DescriptionErgonomic Office ChairsComputer Desks

Record the purchase


Record Purchases


Nov 25 Purchases 2,600

Accounts Payable 2,600

Purchase on account


Purchases Account

• Costs that are directly related to bringing merchandise into the store for resale

• Cost account• Debit balance• Reported on income statement


Debit Memorandum

• Paper issued by a customer to a seller indicating that a return or allowance has occurred


Debit Memorandum

DEBIT MEMORANDUM Kingston Furniture Clearview Mall Saint Michaels, SC

TO: Hill Brothers 2 S. Charles Street Baltimore, MD

Nov. 29, 20X5

WE DEBIT your account as follows:

QTY ITEM # DESCRIPTION UNIT

PRICE LINE

TOTAL

2 V583-5 Ergonomic Office Chair $200 $400

Record the return of inventory to the vendor


Record Purchases Returns


Dec 4 Accounts Payable 400

Purchases Returns and

Allowances 400

Returned inventory


Purchases Returns & Allowances Account

• Records a decrease to a buyer’s costs• Contra-cost account• Credit balance• Reported on income statement


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)


Record Payment of Invoice


Nov 29 Accounts Payable 2,200

Purchase Discount 44

Cash 2,156

Paid invoice


Net Purchases

Purchases-Purchases Returns & Allowances-Purchases Discounts Net Purchases


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


Freight-in Account

• Records freight paid to have inventory shipped in

• Cost account• Debit balance• Reported on income statement


Learning Objectives

• Recording to the accounts payable subsidiary ledger and posting to general ledger


Accounts Payable Subsidiary Ledger

• Book or file that contains the names of creditors and amounts owed from purchases on account


Schedule of Accounts Payable

• Proof that the sum of the accounts payable subsidiary ledger is equal to the controlling account



May 1 Accounts Payable-Henry Co. 300

Purchases Discounts 6

Cash 294

Paid on account

3 Delivery Truck 8,000

Cash 8,000

Purchased delivery truck

6 Purchases 2,900

Cash 2,900

Purchased inventory



May 18 Purchases 800

Cash 800

Purchased inventory

24 Accounts Payable-Xon Co. 1,400

Purchases Discounts 28

Cash 1,372

Paid on account

28 Rent Expense 2,000

Cash 2,000

Paid rent for the month



May 29 Utilities Expense 300

Cash 300

Paid utilities bill

30 Accounts Payable-Soy Co. 400

Cash 400

Paid half of Soy Co. invoice


Accounts Payable Subsidiary Ledger

Alvin Co.

Bal.1,200

Henry Co.

Bal.

600

Bal. 800

Soy Co.

400

Bal. 1,400

Xon Co.

300

Bal 1,200 Bal 300 Bal 400

Bal 0

1,400


Jones’ Computer CenterSchedule of Accounts Payable

May 31, 20XXAlvin Co. $1,200Henry Co. 300Soy Co. 400Total Accounts Payable $1,900


Perpetual Inventory System

Recording purchase of inventory:

Merchandise Inventory XXX Accounts Payable

XXX



Recording purchase returns & allowances:

Accounts Payable XXX Merchandise Inventory

XXX



Recording purchase discounts:

Accounts Payable XXXCashXXX

Merchandise InventoryXXX



Recording freight charges paid for inventory:

Merchandise Inventory XXXCashXXX



Recording sales:

Accounts Receivable XXXSales XXX

Cost of Goods Sold XXXMerchandise Inventory XXX

RevenueAccount

CostAccount



Recording sales returns & allowances

Sales Returns & Allowances XXXAccounts Receivable XXX

Merchandise Inventory XXXCost of goods sold XXX



Recording sales discounts:

Cash XXXSales Discounts XXX

Accounts Receivable XXX



Apr 2 Merchandise Inventory 3,000

Accounts Payable-

Lowe Suppliers 3,000

Purchased inventory on account

4 Accounts Receivable 500

Sales 500

To record sales on account

4 Cost of Goods Sold 300

Merchandise Inventory 300

To record cost of sales



Apr 4 Accounts Payable-Lowe Suppliers 200


Returned inventory for credit

10 Cash 490

Sales Discounts 10

Accounts Receivable 500

Collected on account receivable

11 Accounts Payable-Lowe Suppliers 2,800


Cash 2,744

Paid on account payable



Apr 14 Store Equipment 300

Cash 300

Purchased store equipment

15 Merchandise Inventory 1,000

Cash 1,000

Purchased inventory for cash

16 Cash 100


Received refund on defective

merchandise



Apr 17 Merchandise Inventory 4,000

Accounts Payable-Logan Corp. 4,000


18 Cash 3,000

Sales 3,000

To record sale for cash

18 Cost of Goods Sold 1,600

Merchandise Inventory 1,600

To record cost of sale



Apr 21 Merchandise Inventory 120

Cash 120

Paid freight for Apr. 17 purchase

25 Merchandise Inventory 1,200

Accounts Payable-Aster Co. 1,200


26 Accounts Payable-Logan Corp. 4,000


Cash 3,920

Paid on account payable



Apr 27 Sales Returns & Allowances 200

Accounts Receivable 200

To record return of merchandise

27 Merchandise Inventory 140

Cost of Goods Sold 140

Returned merchandise to inventory


4. Accounting at present of RGCIn Cambodia: Bookkeeping is used for1. 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


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 referred to as payment arrears.


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.



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).



• "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.


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 Sub-decree 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)

Documents

ADB Grant No.0133-CAM/Component 1: PFMRD 1 ADB Grant 0133-CAM: Public Financial Management in Rural Development Ministries (Component 1) Day 3: May 06,