Methods of accounting

 

This isn't a history lesson - we don't go back to Pacioli - or even pre computer days. We'll start with the days when accountants had computers and business people took their paper work in to get their accounts done. Some weeks later they'd get their accounts, and bill. Taking the paper work in meant taking all bank statements, cheque butts, deposit slips, maybe invoices and bills and anything else relevant.

 

Those days are by and large gone. BankLink allowed the first big change. Accountants give their clients a list of uncoded bank transactions (bank fees for example are coded, as are other regular transactions). When they come back the accountant processes the transactions and post to their ledger. They add in debtors, creditors, stock and other accruals, and do depreciation, tax, etc. This has been modified as technology permitted so that clients can now enter their notes on the data on screen, or if the accountant deems it advisable, even enter the codes used by the accountant.

 

Of course big businesses have staff (or contractors) to do month and year-end transactions and produce the accounts and tax returns. But we aren't concerned about them here.

 

The big change came when business owners were able to run their own accounting systems. There have been many of these over the years you can read about accounting systems here. The point here is not to focus on particular systems but to explain the way they have changed accounting in the real world.

 

Now a lot of the systems available are cash-books, rather than full accounting systems. Effectively they replace the need for bank statements, etc, and leave the account to do the accruals, etc. Many people don't use these properly and it is easier for the accountant to re-do everything in their own system. That is very sad but too often the case. Even then it may help reduce the load a bit because the accountant's system can often import transactions directly from the cash-book - so as long as bank reconciliations have been done correctly, it is of some use.

 

But "real" accounting systems have seemed to offer the opportunity to business owners to do away with accounting fees. This seems even more common among users on newer internet-based (cloud based) systems. In practice the cost of this is errors of too many types to go into here. Some of the errors have no real effect. For example if bank fees are coded to general expenses there generally won't be a problem - as long as the differing GST treatments are recorded correctly. But many other issues can have serious financial penalties - if and when found by IRD. Having seen examples in the real world of such mistakes having drastic and even fatal (to the business - not the owner) results, this honestly scares me.

 

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Contact us

Email results@businessacademy.nz

 

Skype PhilANZ

 

Phone 04 920 0911

 

P.O. Box 30-545, Lower Hutt 5040

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