Balancing Purchase Ledger / Cash Book ?
Pecanfan
I'm not quite sure where to start with this one, but hopefully someone will
have a vague idea of what I'm talking about... as a business owner I have a
very limited knowledge of accounts and feel there are some serious 'holes'
in our current system.
At the moment we use a glorified database to log all sales invoices and
purchase invoices / receipts. We then use Microsoft Money (which is awful)
as a 'cash book' (as I think it's called) - recording each actual
transaction that goes in and out of our bank accounts. Money also does
quite a good job of managing cashflow, projecting future payments etc. Each
entry in Microsoft Money tallies with either a sales invoices or entry in
our purchase ledger etc. We reconcile Money against our bank statements
each month... and all WAS fine.
The trouble is, as we get more and more credit accounts with suppliers etc.,
things are starting to get complicated. We're hitting more and more
scenarios where the amount shown on our invoices don't actually correspond
to the amount paid, due to discrepancies on the account etc. Likewise,
sometimes customers pay the wrong amount - cheques are the odd penny or
pound out here and there. As a result, the database (which is used to
produce our yearly accounts) doesn't perfectly tally with what we've
actually spent / received.
Do I need to worry about this? How would you cater for this in the likes of
Sage or even on a paper-based system? Is everything balanced out by the
fact that TOTAL PURCHASE INVOICES + TOTAL HELD ON ACCOUNT = ACTUAL AMOUNT
SPENT ?? ...but then I'm taking TOTAL HELD ON ACCOUNT on trust since we
have no way of currently knowing this without actually asking our suppliers.
Am I totally missing the point?!? Any useful pointers would be greatly
appreciated! :-)
Thanks in advance,
Andy
Ronald Raygun
> We're hitting more and more
> scenarios where the amount shown on our invoices don't actually correspond
> to the amount paid, due to discrepancies on the account etc. Likewise,
> sometimes customers pay the wrong amount - cheques are the odd penny or
> pound out here and there. As a result, the database (which is used to
> produce our yearly accounts) doesn't perfectly tally with what we've
> actually spent / received.
>
> Do I need to worry about this?
That's up to you. If a customer pays the odd few pennies too much,
you could either keep quiet or offer it back. If too few, you could
chase them, but it might make you look ridiculous.
Ideally, you should issue a "statement" together with your invoice, so
that if there was a discrepancy between what they paid and what they
should have paid, this will show up in the statement. They should
always be asked to pay what's on the statement, not the invoice (unless
they're the same). The statement should show a credit or debit balance
outstanding from the previous statement, together with debit entries for
new invoices issued, and credit entries for payments actually received.
> How would you cater for this in the likes
> of ... a paper-based system? Is everything balanced out by the
> fact that TOTAL PURCHASE INVOICES + TOTAL HELD ON ACCOUNT = ACTUAL AMOUNT
> SPENT ?? ...but then I'm taking TOTAL HELD ON ACCOUNT on trust since we
> have no way of currently knowing this without actually asking our
> suppliers.
You should be keeping track of this yourself. Your purchase ledger is
a record of what you owe your suppliers. This seems to be what you call
"amount held on account". When an invoice comes in, you debit the purchase
account and credit the supplier's ledger account. When you get around to
making an actual payment, you debit the supplier's ledger account and
credit the cash book. If you don't settle purchase invoices immediately,
and if customers don't settle sales invoices immediately, that is when you
have these ledger accounts to help you keep track of who owes whom what.
You really need to operate double-entry bookkeepping for this.
Martin
news:Fy7af.142874$G8.5...@text.news.blueyonder.co.uk...
> Pecanfan wrote:
>
>> We're hitting more and more
>> scenarios where the amount shown on our invoices don't actually
>> correspond
>> to the amount paid, due to discrepancies on the account etc. Likewise,
>> sometimes customers pay the wrong amount - cheques are the odd penny or
>> pound out here and there. As a result, the database (which is used to
>> produce our yearly accounts) doesn't perfectly tally with what we've
>> actually spent / received.
>>
>> Do I need to worry about this?
No - but you should deal with it (see below)
> That's up to you. If a customer pays the odd few pennies too much,
> you could either keep quiet or offer it back. If too few, you could
> chase them, but it might make you look ridiculous.
>
> Ideally, you should issue a "statement" together with your invoice, so
> that if there was a discrepancy between what they paid and what they
> should have paid, this will show up in the statement. They should
> always be asked to pay what's on the statement, not the invoice (unless
> they're the same). The statement should show a credit or debit balance
> outstanding from the previous statement, together with debit entries for
> new invoices issued, and credit entries for payments actually received.
While the Statement shows what _you_ think the customer owes you, it can
often be the case that payments received do not match the statement total.
Well-run businesses will always pay against invoice, not against supplier's
statement.
>> How would you cater for this in the likes
>> of ... a paper-based system? Is everything balanced out by the
>> fact that TOTAL PURCHASE INVOICES + TOTAL HELD ON ACCOUNT = ACTUAL AMOUNT
>> SPENT ?? ...but then I'm taking TOTAL HELD ON ACCOUNT on trust since we
>> have no way of currently knowing this without actually asking our
>> suppliers.
>
> You should be keeping track of this yourself. Your purchase ledger is
> a record of what you owe your suppliers. This seems to be what you call
> "amount held on account". When an invoice comes in, you debit the
> purchase
> account and credit the supplier's ledger account. When you get around to
> making an actual payment, you debit the supplier's ledger account and
> credit the cash book. If you don't settle purchase invoices immediately,
> and if customers don't settle sales invoices immediately, that is when you
> have these ledger accounts to help you keep track of who owes whom what.
> You really need to operate double-entry bookkeepping for this.
Given you are encountering this problem, I assume you're handling a fair
number of suppliers & customers, and plenty of transactions per month.
I would go for something like Quickbooks (cheap-ish and IME straightforward
for non-experts) and set up your customer and supplier accounts (and
everything else) now, while (I assume) you're of a size to cope with the
transition easily.
It'll take care of receivables and payables, sundry pennies, cash book, etc.
What the implications are for your existing database is another matter - but
you may well be able to import needed data.
--
Martin
[Remove barrier to reply]
Peter Saxton
I'd agree with Martin. I always wonder why people don't choose
accounts software when computerising their accounts. Once you do have
a proper accounts package you need the people who use it to be
knowledgeable and disciplined. This doesn't seem to be the case in the
past. Accounts mean something - debtors are assets and creditors are
liabilities. If you send a customer an invoice for £100 and they pay
£99 you either chase them for the pound or make an entry to P & L.
Accounting is about understanding not about puting a few numbers in a
few places.
--
Peter Saxton from London
pe...@petersaxton.co.uk
Pecanfan
> accounts software when computerising their accounts. Once you do have
> a proper accounts package you need the people who use it to be
> knowledgeable and disciplined. This doesn't seem to be the case in the
> past. Accounts mean something - debtors are assets and creditors are
> liabilities. If you send a customer an invoice for £100 and they pay
> £99 you either chase them for the pound or make an entry to P & L.
> Accounting is about understanding not about puting a few numbers in a
> few places.
Cheers for all the replies - much appreciated. I think the problem stems
from the fact that my cashbook (Microsoft Money) is totally segregated from
my purchase ledger etc. (the database). I'm looking into Sage Line 50 as we
speak, but feel the loss of functionality from ditching our database would
outweigh the benefits of changing platform. For example, the database looks
after full workflow and staff workload management, so when a job comes in
it's tracked from beginning to end then automatically invoiced on
completion. Moving to a separate accounts system will mean we'll need to
remember to actually invoice for a job when it's done. Likewise, order
confirmations, customer sign-off sheets and a whole host of other stuff are
all done from the database. I'm going to have a play with Sage - see how I
get on - might try to get the fundamentals of a proper system like Sage put
into our database.
Thanks again,
Andy
Troy Steadman
You've written above:
"...sometimes customers pay the wrong amount - cheques are the odd
penny or pound out here and there. As a result, the database (which is
used to produce our yearly accounts) doesn't perfectly tally with what
we've actually spent / received"
So you have Sales Ledger, Purchase Ledger (including Overheads?) and
VAT already sorted? Impressive. All you need to add to your database
then is:
Cash Book[s]
Nominal Ledger
CASH BOOK
When I was a junior in a Chartered Accountants I would be seconded to a
very large Construction Industry client. My job was "Reconciling the
Purchase Ledger". I'd have my firm's printout and the suppliers'
statements and I'd painstakingly tick one to t'other and find various
discrepancies.
I'd then go to the budget holders and say, "Can you sign this Invoice
off for payment? It's 2 years old". They'd say "No the quantities were
not as invoiced" or "The digger was a day late on site".
There were no errors, just discrepancies. Every month those
discrepancies needed recording, and then next month the same
discrepancies, less a few which had been sorted out, plus a few new
ones, would need reconciling again.
Your new dataset must mirror the Bank Account(s) so you can tick one to
t'other, but must also be capable of recording and preserving these
discrepancies so that the Purchase Ledger is AFAP self-reconciling. You
don't want the same questions being asked month after month, and you
want your book-keeper to be able to deal with enquiries from other
book-keepers without having to put his wellies on.
NOMINAL LEDGER
All other adjustments and oddities are posted as Journals.
Depreciation, Part Exchange, Hire Purchase, Finance Lease, VAT
Oddities, Small errors written off to P&L, etc etc.
Troy Steadman
Oops!
> So you have Sales Ledger, Purchase Ledger (including Overheads?) and
> VAT already sorted? Impressive.
Day Books.
Pecanfan
> > VAT already sorted? Impressive.
>
> Day Books.
Cheers for the info - that's grand! I've just finished looking at Sage Line
50 and it scared me - I created some random entries but it just seems way
too complicated for what we need.
So, just to get my head 'round all of this...
Sales Ledger = A list of what we've invoiced, when and whether it's been
paid
Purchase Ledger = A list of what we've bought and when it was paid
Cash Book = What's actually gone in and out of our bank accounts
Nominal Ledger = Other oddities (we log all of this in the Purchase Ledger,
just with different categories)
Why are Hire Purchases etc. put in the Nominal Ledger and not the Purchase
Ledger?
What are Journals and Day Books?
Cheers!
Andy
Ronald Raygun
> So, just to get my head 'round all of this...
>
> Sales Ledger = A list of what we've invoiced, when and whether it's been
> paid
> Purchase Ledger = A list of what we've bought and when it was paid
Sort of. The sales and purchase ledgers record only what has been
sold and bought on account. When you sell something, this is recorded
as a credit in the "sales" account, and as a debit in *either* the
cash book (in the case of a cash sale) *or* in the one of the accounts
in the sales ledger (a ledger is a *collection* of accounts and you would
typically have an account in there for each of your customers), then when
the customer pays the bill, you credit the customer's account in the sales
ledger and debit the cash book.
Simply put, the sales ledger is the collection of the personal accounts
of all your customers, and the purchase ledger contains the personal
accounts of all your suppliers. "Personal" means that each account in
these ledgers will be identified by the name of the customer or supplier.
> Cash Book = What's actually gone in and out of our bank accounts
Yes, not only bank accounts but also real cash tins.
> Nominal Ledger = Other oddities (we log all of this in the Purchase
> Ledger, just with different categories)
The nominal ledger contains not just oddities. It is really the meat
of the whole set of a business's accounts. It contains all the accounts
which are not in the two personal ledgers or the cash book. These are
the sales and purchase accounts, asset and liability accounts, capital
accounts, overhead expense accounts, etc.
> Why are Hire Purchases etc. put in the Nominal Ledger and not the Purchase
> Ledger?
"Purchases" means purchases of stock for re-sale, it doesn't include
everything you buy. For instance if you buy an item of capital equipment,
such as a computer or a van, this does not go in the "purchases" account,
but in an assets account (which will be reported in the balance sheet
instead of the profit and loss account). Note that all purchases and
sales, are *always* recorded in the nominal ledger, even if they are also
recorded in the purchase and sales ledgers. The purpose of the P&S ledgers
is to keep track of who owes whom what, while the purpose of the purchases
and sales accounts in the nominal ledger is to keep track of the business's
trading history in order to monitor profit and loss.
> What are Journals and Day Books?
Diaries or logs of transactions, which are kept separately from the
actual accounts. For instance, your sales journal would record all the
non-cash sales you've made during a day (or other shortish period), to save
you entering them all into the proper accounts straight away. At leisure
you can then transfer the information from the journals into the accounts,
There are typically four journals: Sales, purchases, returns in, and
returns out. There is also something called a "journal proper", which is
used for recording details of miscellaneous corrections to the accounts.
Day book is just another name for journal.
Troy Steadman
> > > So you have Sales Ledger, Purchase Ledger (including Overheads?) and
> > > VAT already sorted? Impressive.
> >
> > Day Books.
>
> Cheers for the info - that's grand! I've just finished looking at Sage Line
> 50 and it scared me - I created some random entries but it just seems way
> too complicated for what we need.
>
> So, just to get my head 'round all of this...
>
> Sales Ledger = A list of what we've invoiced, when and whether it's been
> paid
When you issue an invoice:
DR Sales Ledger (in the Balance Sheet)
CR VAT (in the Balance Sheet)
CR Sales (P&L)
When you Receive the dosh:
CR Sales Ledger
DR Bank (Balance Sheet)
...and the account is zeroed.
When you pay the VAT man
DR VAT
CR Bank
If the S/L credit is different to the debit you need - ideally - some
means of carrying the reason for that forward.
> Purchase Ledger = A list of what we've bought and when it was paid
P/L exactly mirrors S/L.
> Cash Book = What's actually gone in and out of our bank accounts
Yes. Try not to have a VAT column in the Cash Book. Anything VATable
should ideally go through the S/L or P/L.
> Nominal Ledger = Other oddities (we log all of this in the Purchase Ledger,
> just with different categories)
>
> Why are Hire Purchases etc. put in the Nominal Ledger and not the Purchase
> Ledger?
>
> What are Journals and Day Books?
Here you go:
http://www.nrbarton.co.uk/Bookkeeping/Other.html
> Cheers!
>
> Andy
Martin
"Pecanfan" <peca...@no.spam> wrote in message
news:11310376...@smtp-1.griffin.com...
<snip>
> Cash Book = What's actually gone in and out of our bank accounts
... plus what you've paid in, or chqs written etc, even if not yet
cleared...
Hence (partly) the need regularly to reconcile Bank Statements with your own
Cash Book...
Peter Saxton
wrote:
It is possible to link an accounts package with a database. You have
to be careful because it can cost a lot of money if it isn't managed
properly.
