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Book-keeping
What is Book-keeping?
Accounting Concepts
Accounting System
Accounting System
Cloud-based solutions
Off-the-shelves solutions
Biz Understanding
Monthly process
Financial Statements
Contents
Purpose
Analysis
XBRL Filing
Our Rates

Accounting and Bookkeeping


Though accounting and bookkeeping both involved financial transactions, they are not exactly the same thing. The way to view these two activities is to understand that bookkeping is actually a subset of the accounting process.

Bookkeeping is the process of recording, in chronological order, the daily transactions of a business entity.

Accounting on the other hand is the process of recording, classifying, summarizing, reporting, analyzing and interpreting the financial data of a business, and communicate the analysis to the business stakeholders for decision making. Bookkeeping is just the first step in the entire accounting process where financial transactions are collated.

Though bookkeeping is just one of the activities in the accounting process, it's importance is paramount since it is the foundation on which the other accounting processes build on. Think of it this way: if the financial transactions are not input correctly in accordance to the accounting standards, subsequent accounting analysis based on these inaccurate data would not yield meaningful insights to your business. Even worse, if incorrect business decisions are made due to incorrect data inputs from the bookkeeping process.

You could refer to our site on tuning up business performance for more information on our other accounting services.

Basic Accounting Principles and Concepts

Now that you understand the difference between accounting and bookkeeping, the next thing that a business should note is that accounting transactions are recorded based on the Financial Reporting Standards (FRS) set by the Singapore Accounting Standards Council. The FRS standardizes the manner in which accounting concepts, principles and procedures are to be applied to all transactions.


Book-Keeping and Accounting System


Make no mistake about it, having a proper accounting system in place is crucial, as it serves as the backbone of the entire business. Besides the accounting and recording of transactions, the accounting system provides valuable financial information and insights on the health of the business.

Which accounting system is suitable for my business?

The types of accounting system which are most suitable for SMEs could be broadly categorised into (1) Cloud-based or (2) Off-the-shelves solutions.

Cloud-based solutions

As the 'cloud' term suggests, these accounting systems operate using internet technology i.e. all you need to operate this cloud-based system is an internet browser such as Google Chrome or Internet Explorer. One of the most popular system in this category is Xero, which is a publicly listed company on both the New Zealand Exchange and Australian Securities Exchange.

In practical terms, it means that you can even operate the accounting system using any computer (Windows-based PC or Mac), or even the smart phone in your pocket!

Your business financial information is stored securely in the cloud with Xero using bank-level encryption. Storing of your financial information in the cloud also means that you would able to access your information anywhere as long as you have internet browser with internet access. Furthermore, you do not have to worry about data losses due to computer crashes on your end. (If there's a need, you could download the financial information onto your own computer.)

No installation of software is required - you just need to create a user account with the cloud-based accounting system provider and you are good to go! Updates of the system is performed back-end by Xero, and you would be able to access the updated system immediately. In this way, you do not have to worry about not having an updated system.

Xero operates on a subscription basis, with fees for the mid tier (Standard plan) at a monthly rate of USD30 (S$37), which is about USD1 per day. There's no minimum subscription period, and the user can terminate the service at any time.

Off-the-shelves solutions

These accounting software can be purchased off the shelves at the regular technology retail stores.

They would require installation onto a physical PC, and all the accounting data would be stored locally onto the user's computer. Given this nature, users who opt for off-the-shelves accounting solutions must remember to conduct regular backups, as computer viruses or harddisk crashes could wipe out all the accounting information. The backup files must not be kept on the computer where the accounting system resides.

The cost of the software varies depending on the package which you have selected. It is not uncommon for these softwares to run into thousands of dollars depending on the package you choose. Small businesses and new startups usually find such initial outlay prohibitive.

This heavy initial outlay isn't the end of story. If the business wants to have an updated software a few years down the line, they would have to spend thousands of dollars to purchase the software again. (not forgetting the headaches associated with software installation, configuration, etc.)

Understanding your business

When setting up the Accounting System initially, we would first need to understand the type of business which you would be engaging in. This gives us an idea of the types of transactions which you would be handling, and most importantly allow us to firm up your company's Chart of Accounts.

In simple terms, the Chart of Accounts is simply a listing of all the different categories of transactions. For example, some of the typical categories of items in the Chart of Accounts would be "Cash at Bank", "Sales Revenue", "Inventory".

Each of these categories belongs to either the Balance Sheet or the Profit/Loss Statement.

Monthly Process

Monthly, we would peruse through your transactions and pass the appropriate accounting entries into the accounting system. The typical items which we would need are bank statements, invoices, cheque butts, purchase orders, delivery orders, contracts & agreements.

Accessing your transactions

There are 2 ways in which we can access your transactions (in general, we do not retain the original copies, unless there is a special arrangement for us to hold onto the documents):

Scan and upload copies of your transactions onto our cloud server This is our preferred and most cost-effective method. We would setup specific folders in your cloud account (e.g. individual folders for bank statements, sales transactions, purchases, etc.) for you to upload the files into. The other advantage of this approach is that you have access to all your source documents easily anytime since your source documents are stored in our cloud server.
Scan and email your transactions to us This approach is suitable for clients who may have difficulty uploading documents onto our cloud server due to any reason(s). We do not usually recommend email as the first resort as emails get messy easily when there are large quantity of files.

Financial Statements


At the end of the financial year (or any other periods such as monthly, quarterly or half-yearly), we could assist you in the preparation of your company's financial statements.

At bare minimum, financial statements needs to be prepared at the year end. We do however recommend that financial statements be prepared on a quarterly basis so that the management have an overall view of the business's financial health throughout the year instead of just at the end of year.

What does a set of Financial Statements contain?

A set of Financial Statements contain the following:

Balance Sheet
(Statement of Financial Position)
The Balance Sheet provide a "helicopter" view of the company's Assets, Liabilities, and Shareholder's Equity at a point in time (e.g. as at 31 December 2013).
Profit & Loss Statement
(Statement of Comprehensive Income)
The Profit & Loss Statement reports on a company's revenue, expenses, and profits/losses over a period of time (e.g. for the period from 1 January 2013 to 31 December 2013).

The profit and loss statement provides information on the performance of the enterprise during a period.
Statement of Cash Flows The Statement of Cash Flows is literally what it is. The statement shows the movement of cash over a period of time (e.g. for the period from 1 January 2013 to 31 December 2013).

Say you have $1,000 cash on hand at 1 January 2013 and $2,000 cash on hand at 31 December 2013.

The Statement of Cash Flows would show your spending of cash (investing, purchase of machines, payment to suppliers, etc.) and inflow of cash (receipt from customers, interest from bank deposits, etc.) during the period from 1 January 2013 to 31 December 2013.
Statement of Shareholder's Equity The statement of shareholders' equity shows the changes in shareholder's equity over a period of time (e.g. for the period from 1 January 2013 to 31 December 2013). Transactions which may be shown in this statement are issuance of stocks, share repurchases, retained earnings.

For unlisted small businesses, this statement is relatively "unexciting". However, this section can get rather complex for public listed companies as they tend to be involved in equity transactions on an ongoing basis.
Notes to Accounts Notes to accounts can be thought of as the footnotes to the items indicated in the 4 statements above. They typically show in more detail the movement of balances from the beginning of a period to the end of a period.

For example, the footnote may show:
- Value of equipment at the beginning of the year
- Accumulated depreciation at the beginning of the year
- Value of new equipment purchased during the year
- Value of equipment disposed off during the year
- Depreciation for the year, and
- Net equipment value at the end of the year.

What can we do with the Financial Statements?

A set of Financial Statements is a "treasure trove" of information, and different stakeholders use the financial statements differently.

Stakeholders Examples of use of Financial Statement
Business Owners and Managers Manage the company by assessing its financial performance and position and determining the course of action to take.
Shareholders Assess the risk and return of their investment in the company.
Prospective Investors Assess the viability of investing in a company.
Financial Institutions (e.g. Banks) Assess the financial health of a business to determine whether to grant a loan or credit to a business.
Suppliers Assess the credit worthiness of a business and ascertain whether to supply goods on credit. Terms of credit are set according to their assessment of the customers' financial health.
Customers Assess whether the business has the resources to ensure the steady supply of goods in the future.
Employees Assessing the company's profitability and hence their future remuneration and job security.
Competitors Benchmark against competitors and improve their competitiveness.
Government Determine whether tax has been declared correctly in the tax returns, as well as track progress of economy.

Financial Statements Analysis

Given the loads of information contained within a set of Financial Statements, a proper structure which groups the information into meaningful categories would aid dramatically in the analysing of financial information. Financial Ratio analysis is one of such tools to aid in the analysis.


Liquidity Measurement

- Current Ratio
- Quick Ratio
- Cash Ratio
- Cash Conversion Cycle

Profitability Indicators

- Profit Margin Analysis
- Return On Assets
- Return On Equity
- Return On Capital

Debt Capacity

- Debt Ratio
- Debt-Equity Ratio
- Interest Coverage Ratio
- Cash Flow To Debt Ratio

Operating Performance

- Fixed-Asset Turnover
- Sales Per Employee
- Operating Cycle

Cash Flow

- Operating Cash Flow/Sales Ratio
- Free Cash Flow/Operating Cash Ratio
- Cash Flow Coverage Ratio

Investment Value

- Price/Book Value Ratio
- Price/Earnings Ratio
- Price/Earnings To Growth Ratio
- Price/Sales Ratio

Note on Financial Statement Analysis

When conducting the financial statement analysis in practice, it is important to ensure that issues which affects consistency and comparability be addressed. For instance:

Comparability between periods The company preparing the financial statements may have changed the accounts in which it stores financial information, so that results may differ from period to period.

For example, an expense may appear in the cost of goods sold in one period, and in administrative expenses in another period.
Comparability between companies Users of financial statements frequently compare the financial ratios of different companies in order to judge their relative performance. However. each company may aggregate financial information differently i.e. their ratios may not be really comparable. It is important that the users have an in depth understanding of the businesses that they are analysing, so that they can interpret the results of ratio analysis in the correct light.
Financial statements limits Not all information are present in the financial statements. For instance, data such as the size of order backlog and changes in warranty claims are not shown.

XBRL Financial Statements filing

When filing the financial statements with the authorities, you are required to convert your financial statements into ACRA's XBRL format, which is essentially an accounting taxonomy pre-defined by ACRA.

ACRA's XBRL taxonomy prescribes the categories which all users must re-classify their financial statements into. For instance, you may have an asset "Computer Server" on your balance sheet. However, this item has to be re-classified as "Fixed Assets" when performing XBRL filing.

In this way, the financial statements of all companies would be classified in a consistent manner and facilitates analysis by ACRA.

For non-accountants, the process of converting your financial statements into XBRL format may be a tough undertaking as the entire XBRL conversion process requires understanding of "accounting lingo". For instance, you would have to know whether the expenses of your current income statement is classified by "nature" or "function", whether your statement of cash flow is compiled using the "direct" or "indirect" method. It is also common for errors such as recording an asset as an expense to be made.

But don't worry, we could assist you in the filing of your financial statements in XBRL format.

Our Rates


Feel free to contact us and let us know your requirements, and we would work out a solution as well as provide you with the quotation.

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