The Humble Bank Statement
The Humble Bank Statement – Your simplest solution to compliant accounting records
In our previous article we made mention of the simple operational principle that is applied to your
bank statement that enables the recording all your accounting transactions to be done quickly and
efficiently to produce a set of your financial statements that are compliant with the latest standards of International Financial Reporting Standards recognised world wide – this goes for a business
operating out of a kiosk to your larger SME’s (Small to Medium Enterprises).
This principle is the basis of period accounting where one periods net transactions value plus the
opening balance of the current period (this value being the same as the closing value of the previous period) will result in the closing balance of the current period (which value will also be the opening value for the new period.) All this may sound complicated but in practice it is so simple and really easy to understand.
The next piece of the recording puzzle is to understand that every bank statement line item must be
allocated somewhere for your accounting records to make sense. It is a given that if you are in
business for yourself you will understand this basic recording of bank line item transactions – if you
pay someone you will reference that transaction in a specific way that will enable you to recall what
the payment was for. However, you are probably the only person who would be able to tell a third
party what the payment was actually for. This is where knowing about smart accounting and record
keeping principles comes into it’s own.
However, the entrepreneur must be able to understand the basics of allocating bank line items
according to their businesses’ cost centers – for example, a retailer purchases goods for resale and therefore logic dictates that the payment of these goods will be allocated to “Cost of Sales” /
“Purchases”. The uninitiated entrepreneur may reference this payment as “paid Paul” – and to anyone who sees this they will unlikely have any idea why Paul was paid or for that matter who Paul was if you have to go back even as little as 12 months ago! – not at all definitive in any way to suggest that Paul is the wholesaler who supplied the entrepreneur with goods for resale. So, if you want your bank statement to work for you logic dictates that every bank statement line item must have a place it can be allocated to in your accounting records. In the example given, a simply smart allocation reference would be “cos” – Cost of Sales!! – and it wont matter how long ago the transaction took place because anyone will know that the applicable cost centre is to Cost of Sales.
Now, consolidating what I have said above it is really easy to understand what your applicable cost
centers are in your business. These cost centers are simple things like telephone, electricity and motor vehicle expenses – all you need to do is know what each line item on your bank statement is for and record the applicable cost centre next to the transaction on your bank statement and we, as
accountants can do the rest – our next article will dwell on how to make use of technology to enhance your levels of record keeping and keep you focused on your business performance by simply being able to glance at a summary of your financial performance from what is recorded on your Humble bank statements!!
Phone Sean or Jeremy at Andrews O’Connell for further information.
Go to http://www.plettaccountants.com
Sean O’Connell M.Com(Tax), CA(SA)
ANDREWS O’CONNELL Chartered Accountants