i-clarity and double entry bookkeeping. origins »first formalised by luca pacioli, 1446(?) - 1517...
TRANSCRIPT
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i-Clarity and Double Entry Bookkeeping
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Origins» First formalised by Luca Pacioli,
1446(?) - 1517» Clever chap – he taught his roomie
mathematics…» … his roomie being Leonardo da Vinci!» At the same time as Italy was being
engulfed in regional wars…» …Luca was laying down the rules that
would make capitalism possible
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Luca Pacioli
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Double Entry – But What does it MEAN?
Luca’s great insight:If we record each change in our assets , e.g. our bank account going UPAnd at the same time, record how that change came about, e.g. by selling stuff…
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We get 3 benefits…
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Instantly check that our bookkeeping is accurate:
‘a person should not go to sleep at night until the debits equal the credits.’
Benefit 1
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Benefit 2
Instant snapshot of our business – Our tangible assets and our
liabilities:
The Balance Sheet
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And at least as important - a map of how we got there:
The Profit & LossWhich also gives a guide as to how we will do in the future
Benefit 3
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It was important in the middle ages…
» Because you needed accurate bookkeeping to engage in joint business ventures
» You needed the concept to create companies that limited your liability, so you could take risks
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It is important Today…
» So you know that all your hard-earned is accounted for…
» So you know exactly how much your business is worth in tangible assets…
» And how much it is worth in intangible assets – good will, momentum, track record, growth… And which is more important?
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Sample Valuation
How much would you value a business turning over £300,000?
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Annual Turnover £300,000
Instruments: £30,000
Stock: £15,000
Debtors: £10,000
Cash in bank: £15,000
Total: £70,000‘Goodwill’ – Your P & L! ???
Valuation: £70,000 + Goodwill!
Accounting is too important to leave to accountants!
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OK So - How does it work?
» You sell a pair of specs…» So you record a sale…» …but because you haven’t taken
any money…» …The asset that has increased is
your Debtors
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» Px returns and pays for the specs…
» So your bank account increases…
» …But the amount you are owed (the Debtors) goes down.
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» Refunds
» Write offs
» NHS/Corporate
» Direct Debits/Standing Orders
Some complications …
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» No Problem
» Simply a minus sale – Sales are reduced by refund amount…
» …and you have less money in the till at the end of the day
Refunds
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Used when you will NEVER collect an outstanding balance» ‘Write off’ payment amount
automatically creates a reverse sale for the write off amount
» The effect is cash neutral» But your sales (and VAT liability) are
reduced
Write offs…
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Also no problem!» Sales/VAT are counted when the
goods or services are supplied» The value increases the debtors
control as usual» … But the debtors control is
typically reduced in big lumps when payment received
NHS/Corporate
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» Money is received into your current account
» It’s a liability on your balance sheet» Sales/VAT are counted when the goods or
services are supplied, as usual…» But make an end of month adjustment for
sales made in the month (and are therefore in debtors control)…
» … transferring the DD/SOs funds used from Debtors control to DD Control
Direct Debit / Standing Order Sales
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SummaryAccurate bookkeeping is important because» It is your unavoidable, legal responsibility
» It complements your other practice activities, ensuring you get paid for your goods and services, reducing the possibility of fraud and even contributing significantly to patient care
» It gives you an accurate valuation of your business – both tangible and intangible assets
» And with a correctly designed Practice Management system, it isn’t even hard to do!