Difference Between Bookkeeping And Accounting

 

Accounting Bookkeeping
Accounting is the process of recording, summarising, reporting, analysing and interpretation of financial information. Book-keeping is part of the accounting process. It involves the process of recording accounting data according to set rules. 
Role of accounting is to communicate financial information for decision-making purposes.  Role of book-keeping is to ensure a systematic and accurate recording of business events

2011 N Level Results Out!

The results of 2011 Singapore-Cambridge General Certificate of Education (GCE) Normal (Academic) and Normal (Technical) Level Examinations are out!

 

Received great news from all my students. U-graders passed and the best went from F9 to B3 (taught him over 5 months). Did some screen shots of the smses. Rewards from tutoring comes in many ways – this being the greatest! Can’t wait to see what comes from the O’ – Levelers!

“Thanks Caleb, Bryan got 1 for POA. Because of your effort, he managed to top the school. Thanks 🙂 “ – Annie, Bryan’s mom. St Patrick’s School

“F9 to B3 is a big jump. I’m happy!” – Rigzin

“Hello teacher, grade1 for POA :)”Sheri

 

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“… and I didn’t expect to pass my POA! Hahah thank you caleb for the time you spent on me, helping me on my POA 🙂 see you next time! “Joseph Kim, my Korean student from Assumption English School.

A little note on Joseph – Joseph struggled to understand accounting concepts in school and even during my lessons as his command of English was not strong. It was over 4.5 months we worked together on his understanding of the subject. Unlike my student from Hangzhou  in 2010 who scored a C5 from Ungraded in 2.5 months, I was not able to teach in his native language (Korean). I’m so proud of Joseph Kim.

 

Congratulations to all my N-Levelers and all you guys who worked hard for this N levels.

Why is there no depreciation for land?

sheep by A. Roger Davies

Short Answer:

Land generally does not depreciate in value because it is a limited resource with an
infinite life and can be used for a range of purposes.

Explanation:

All assets wear out and eventually cease to exist, except land. Land is not considered to ever be able to be destroyed, so it can’t lose value and go down to zero value like other assets.

The land generally retains or increases in value  Over the long term, land will go up in value over because the demand is always increasing, while they are not “making” any new land.

If there is something built on the land which the business owns,  the accountant has to subtract the cost of the land from the overall cost of the property in order to determine the depreciation expense for the buildings,

INTERNATIONAL STANDARDS – ACCOUNTING TERMINOLOGY

The terminology for accounting varies across different levels of study. Those of you who have moved on to study accounting at tertiary level would agree – terms like debtors and creditors have a different meaning in ICCI, CAT, ACCA and other accounting diploma/degree programs.

The term Debtors used for O’/N’ Level, for example, becomes Accounts Receiveable at the diploma/degree level. The following table lists the difference between the international usage of accounting terms against that which is used and accepted by The University of Cambridge International Exams (CIE).

Please note: GCE O’/N’ Level candidates will not be penalised for using different terms.

International usage Current CIE/UK usage
Balance sheet Balance sheet
Bank (and other) loans/ Interest bearinq loans and borrowinq Loans repayable after 12 months
Bank overdrafts and loans/ Interest bearinq loans and borrowinq Loans repayable within 12 months
Capital or Equity/

Shareholders’ Equity

Capital
Cash (and cash equivalents) Bank and cash
Cost of Sales Cost of qoods sold
Current assets Current assets
Current liabilities Current liabilities. Creditors: amounts due within 12 months
Finance costs Interest payable
Finance Income/Investment revenues Interest receivable
Financial Statements Final accounts
Gross profit Gross profit
Income statement Tradinq and Profit & Loss account
Intanqible assets Goodwill etc.
Inventory/ Inventories(of raw materials and finished qoods) Stock
Investment property Investments
Non-current assets Fixed assets
Non-current liabilities Long term liabilities. Creditors: amounts falling due after more than one year
pdf
The University of Cambridge International Exams (CIE) released an information brochure on this which is available for download here. [page 19]
A condensed version on the same is available here.

Source Document – the Returned Cheque Advice

IRD Returned Cheque Advice DBS

Image courtesy of The Association of Banks in Singapore

Reasons for Dishonoured Cheques

Whenever a cheque given to a business bounces, the bank will send notice to the business that the customer/ debtor’s cheque was dishonoured. The cheque may not have been cleared for one or more of the following reasons:

1. There is insufficient funds in the payer’s bank account.

2. The cheque was not written in the form that it was supposed to

a. Differing/missing signature(s). It is not uncommon for companies to have more than one signatories.

b.  Amount in words and numbers don’t tally,

c. “or bearer” was strike off for a cash cheque,

d. Too many corrections made on the cheque.

3. The cheque was post dated.

Image Return Document (IRD), Return Cheque Advice or Refer to Drawer

This notice comes in the form of an Image Return Document (IRD) which contains a scanned image of the dishonoured cheque. The IRD can be re-presented to the bank to receive payment subject to some of these conditions:

Conditions for IRD Presentment, if applicable

1. IRD with any alteration, mutilation or tear will not be accepted
2. To be presented at any of the bank’s branches in Singapore.
3. The IRD will be retained when presented to the bank.
4 To be presented on a clearing day not later that 6 mmonths from the cheque date,

For those taking the GCE O’/N’ Level Principles of Accounts, the IRD is mentioned in the textbooks as notice of dishonoured cheques in the chapters on Cash Book and Bank Reconciliation. The following words/ phrases refer to the IRD:

– Return Cheque Advice

– Refer to Drawer

– Returned by bank marked “insufficient funds”

– Cheque given by xxx (name of debtor) was dishonoured.

Download a sample a real-life Return Cheque Advice in pdf here.

The Association of Banks SingaporeThe Association of Banks in Singapore (ABS) represents and promote the interests of member banks as well as help set standards of good practice and raise  the banking industry expertise in Singapore. The pdf version of the Cheque Return advice first appear in ABS’ website and is reproduced here with permission.

5 Reasons Why Principles of Accounts

this is the closest Creative Commons Licensed Picture I could find! You just finished your final year examinations and are considering your options. The familiar arts (history, literature or geography) and science  (biology, physics and chemistry)

Principles of Accounts (POA) sounds so foreign and you’ have heard from friends that it is boring. But there’s more to debits and credits in POA.

 

“’Double-entry bookkeeping’ is one of the great discoveries of European civilisation, but five centuries later most people are still muddled about assets and liabilities. Without such knowledge, technical terms like ‘balance-sheet recession’ and ‘rebuilding balance sheet’ are meaningless.” – Robert Skidelsky, member of British House of Lords and Professor Emeritus of political economy at Warwick University* 

Here’s 5 Reasons Why You Should Pick Up POA:

1. Importance of Accounting
2. Valuable Skill for Daily Life
3. Accounting as a Career
4. Dollars and Sense
5. Taking it further – Upward Mobility

1. Importance of Accounting

Accountants are responsible for providing information that is used to determine the present and future economic stability of the organisation. Bosses depend on them to make business more profitable, investors make decisions using accounting information, government tax on the profits and employees read them to find out if they get their bonuses.

2. Valuable Skill for Daily Life

While subjects like geography are interesting, there may be very little opportunities for you to be able to differentiate one rock from another. signContract

Accounting, however, is different. It is a lifeskill;

Whether in budgeting for the groceries, writing cheques, running a blogshop, understanding contracts or with knowing your bank /CPF statements, the ability to read numbers and make a story out of them makes accounting skills something very valuable.

Principles of Accounts in Personal Finance & Investment

Accounting skills becomes essential if you want to be on your way to a stable and growing level of wealth. You will be able track your net worth, manage household expenses, budget for holidays, set up a home-based business and follow on investments (e.g reading company annual reports).  Accounting can also be used to assess interest rates on house mortgages and car payments.

3. Accounting as a Career

Accounting is the language of business. Today, more CEOs are armed with accounting degrees than any other area of study.  Career opportunities associated with a degree in accounting are practically endless due to how broad the subject is.  Jobs where accounting skills are valued include:

Accountant
Actuaries
Auditors
Brokerage Clerks
Budget Analysts
Claims Adjusters, Appraisers, Examiners, and Investigators
Certified Public Accountants
Credit Analysis
Debt Counselors
Economists
Financial Analysts
Financial Managers
Financial Services Sales Agents
Insurance Sales Agents
Insurance / Reinsurance Underwriters
Loan Officers
Personal Financial Advisors
Securities and Commodities Sales Agents
Tax Inspectors, Collectors and Revenue Agents

The “Iron Rice Bowl”

Another reason college students should consider studying accounting is the condition of the economy.  Whether the economy grows or weakens, businesses always need for someone to calculate the profits or the losses. In economic downturns, businesses need to cut down on costs to make their business more profitable.  Businesses also need a strict set of internal controls to make their business more efficient.  The only way to ensure that both of these can happen is through stringent accounting.

4. Dollars and Sense

Job opportunities are not the only reason that university students should consider accounting.  The job can be financially rewarding.  The starting salary of a local accounting graduate averages S$2,600. Good performers can expect an average of S$450 increment in his salary every year.

A partner of a large accounting firm can expect to receive an annual salary of slightly less than S$1 million. This salary, of course, can change based on company, location and industry.

According to Ambition’s 2009 Market Trends and Salaries Report, the Heads of Accounting departments take home salaries in the range of $100,000 – $500,000, excluding performance bonuses, stock option and other allowances.

Accountant Salary Table

5. Taking it further – Upward Mobility

An accounting degree course uses the very same principles you learn in your GCE O/N’ levels POA. It is also not an exaggeration to say you can work as a bookkeeper after your O’/N’ level exams. An accounting degree, however, means you’ll have access to better jobs and more opportunities to advance your career than someone who’s trying to make it in the field without one. With proper training, you can find a worthy entry-level position and step up to greater positions in the future. A skilled accountant is valued in large organisations. Many influential individuals in large organisations are qualified accountants and contribute positively to their communities.

We love to hear from you!

Share your experience and thoughts with us!  Your sharing will allow readers to benefit.  Questions on accounting education? Contact me here. I do my best to help.

—–

*quoted from “The Price of Clarity,” published 24 May 2010 by The Straits Times, Singapore.

 

Read More:

7 Reasons For Becoming An Accountant And Not A Fashion Designer – by Herald de Paris et Cie

Image Credits

5 reasons why accountancy—1953

What is the difference between Net Book Value (NBV) and Net Realisable Value (NRV)?

The Net Book Value (NBV), also known as depreciated cost, is equal to its original cost (its book value) less amortisation (not in O’/N’ level syllabus) and depreciation.
Closing Stock

On the other hand, the Net Realisable Value (NRV) refers to the selling price of an asset minus the expenses incurred in the sales transaction, and in bringing the asset to the saleable state. NRV is most often used when the value of stock is less than the its historical cost.

Note on Net Realisable Value
In the examination where both the cost of purchase and the NRV (or market value) of the stock is available, use the figure that is lower. The fancy way of saying it is the ‘lower of cost or market value’ rule.
This follows the accounting principle of prudence and conservatism, where assets are not overstated and liabilities not understated.

Image Credit:

Inventory

Difference Between Bank Loan and Bank Overdraft

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Bank loan

Refers to capital borrowed from the bank. This tends to be more expensive than an overdraft. The difference between a bank loan and a bank overdraft is that a loan is granted for a specific period (say, two years), usually at a set rate of interest (that is, it doesn’t vary when bank base rates vary). A bank loan is shown on the balance sheet as a long-term liability.

Interest on the loan is recorded as an expense on the Profit and Loss Account. Any capital repayments will reduce the long-term liability on the balance sheet. Short term borrowing to help fund a temporary shortage of funds is more likely to involve a bank overdraft.

Bank overdraft

For the business, a bank overdraft is essentially short term borrowing, intended to tide the business over temporarily. Very often, the overdraft is not for a specific amount of money, but the business is given a maximum level of cash it may draw against the overdraft. A business should arrange overdraft facilities to ensure that the bank will honor cheques even though there are insufficient funds in the account to cover the value of cheques drawn.

The overdraft is repayable on demand, although it is usual to agree with the bank the period for which the overdraft is required. It has the advantage that interest accrues from day to day only on the balance outstanding and it follows the flat rate of interest. A bank overdraft is shown on the balance sheet as a short-term liability.


Have A Question?

I’ll be more than happy to help. Use the button below to reach me. While I can’t promise to answer every question, I’ll try to use your question in a future blog post or newsletter.  Thanks!  – Caleb

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Difference between Carriage Inwards and Carriage Outwards?

 

carriage inwards or outwards Carriage refers to the costs of transporting goods to and from the firm. In the past, the purchase of goods would often result in two charges – the cost of the goods purchased and the cost of having them delivered to the business premises.

From the buyer’s point of view, the delivery charge would he referred to as “carriage inwards”. Any such carriage charges should be debited to the carriage inwards account in the general ledger.

The carriage inwards account is written off to the trading account at the end of the accounting period.

When the buyer sells the goods to his customer, he incurs further delivery charges. This cost is referred to as ‘carriage outwards”.  This costs are debited to the carriage outwards account in the general ledger.

Any carriage outwards charges are usually included in an item called ‘selling and distribution costs”.   Since this cost is incurred after the goods have been made ready for sale, the account is written off to the profit and loss account at the end of the accounting period.

Each type of carriage will be an expense and therefore will have a debit balance in the trial balance. However, these will appear in different sections of the trading and profit and loss account.

Accounting Treatment of Carriage Inwards and Carriage Outwards

 

Carriage Outwards 

Journal  Entry for Carriage Inwards:

Debit   Carriage Inwards

Credit    Bank

Journal  Entry for Carriage Outwards:

Debit   Carriage Outwards

Credit    Bank

Treatment in Trading, Profit and Loss Accounts:

Carriage inwards Trading account expense
Carriage outwards Profit & loss account expense

Summary:

Carriage inwards is connected with the cost of getting goods into the business and ready for sale. As a result, it will be added on in the calculation for the cost of goods sold. Carriage outwards does not have anything to do with the cost of getting goods into saleable condition. Therefore it will appear with all the other overhead expenses and the profit and loss account.

Good to know:

Nowadays, the price quoted for goods being purchased will usually be inclusive of any delivery charge, and so a separate charge for carriage inwards (or outwards) is not very common. In cases where separate carriage inwards charges are incurred, the cost should be added on to the cost of purchases in the trading account. Consequently, a proportion of carriage inwards charges should be added to the purchase cost when determining the cost of closing stock.

 

Image courtesy of dok1 and Batman Comic Generator