Accounts


Accounts department is entrusted with recording of financial transactions alongwith controlling and presenting of the same, complying with statutory requirements.

Organisation deals in money and its equivalents, which need to be tracked and managed properly. Accounts function is one of the key department since organisation otherwise will not be able to know what it has earned or earning from its activities, how much is to be received from customers, payable to vendors, what are its assets and liabilities, etc.

We’ll discuss about statutory compliances in a separate article.

Deliverables & Functions (i.e. expectations from the Department)

    • Maintenance of books:
        • Initially through manual books of account;
        • Then, using accounting software;
        • Now, more in ERP (Enterprise Resource Planning) software
    • Recording of transactions pertaining to:
        • Income (Sales, Services, Other income, etc.);
        • Expense (Purchases, Administrative, Personnel, Marketing, etc.);
        • Assets (Fixed Assets, Investment, Cash, Bank, Inventory, Receivables, Loans & Advances, etc.)
        • Liabilities (Capital, Reserves & Surplus, Loans receipts, Vendors, Statutory dues, etc.)
        • Quantitative records (production, sales, stock, etc.)
    • Presentation & Reporting of transactions
        • Balance Sheet showing assets & liabilities;
        • Profit & Loss Account showing income & expenses;
        • To follow various laws and accounting standards specifying presentation and disclosure requirements;
        • Preparation of accounting summary or annual accounts at different intervals for different stakeholders (e.g. SEBI requires quarterly publishing of accounting information)
    • Reconciliation of books of accounts vis-à-vis
        • Vendors;
        • Customers;
        • Bank;
        • Inter-division / branch
    • Audit
        • Facilitating various types of audits (Statutory / Internal / Management / Special by revenue authorities);
        • Due diligence
    • MIS (Management Information Systems)
        • Periodic information to management about various monitoring measurements like sales, production, ageing details of receivables / inventory / loans & advances, etc.
    • Statutory compliances (covered in the separate article)
        • Registration under various statutes, payment of taxes, deposit of returns, assessment, appeals, seeking experts’ opinion, etc.
    • Internal controls
        • Controlling the financial transactions with various checks & balances;
        • Preventing collusion of persons to take the advantage of the transaction;
        • Seeking sufficient documents so that financial transactions can be proved for its genuineness with no mala-fide intentions.
    • Training
        • Guiding & training other departments (especially purchase & marketing) with latest changes in the laws to take care of statutory compliances and avoiding extra payments / costs
    • Preservation of documents
        • Safekeeping of original key documents (like property, contracts, agreements, receipts of statutory payments, discharge of liabilities, etc.);
        • Ensuring safety of documents from fire, pests, water, etc.;
        • Preserving documents as specified by various laws (from 6 – 8 years or longer)

Audit Trails

    • Audits trails are sequence of a transaction from beginning to the last, which explains the need, process and conclusion of the transaction;
    • Requires maintenance of documents alongwith proper approvals;
    • To avoid Evils of Money→ satisfies the basic needs of manpower → gives room to manipulation, frauds, corrupt practices, misreporting, window-dressing, etc.;
    • Avoiding mistrust (Funding agency wants to ensure transparency in operations → appointment of auditors / inspection agency→ inquires genuineness of transactions → unless audit trail maintained → creation of suspicion → building of mistrust).

Important developments in the Accounting function

    • Adoption of ERP (Enterprise Resource Planning) software which integrates all functions and facilitates:
        • Avoiding duplicity;
        • Cross-checking of information;
        • Better internal control of transactions;
        • Business intelligence for analysing the effects of a decision on profitability;
        • Integration with extended team (vendors, customers & other stakeholders);
        • Faster accounts finalisation;
        • Availability of information for decision-making.
    • Cloud Computing of moving the organisation servers to internet is creating open structure where organisation and even extended teams (like vendors, customers, stakeholders) can login into organisation’s website and extract the information from shared web-space;
    • Development of Accounting Standards (IFRS) for better presentation and disclosure alongwith comparability of accounting information of the organisation vis-à-vis  other organisations;
    • More emphasis on Corporate Governance & transparency;
    • Govt. started accepting digital documents as proof of transactions à Paperless office of digitising the documents → faster retrieval of document and safekeeping of physical documents by keeping them separately;
    • Accounts department actively participating in decision making, building controls, monitoring of operations.

Traditional / Normal ways of working in Accounting function

    • Recording in accounting software → information not used for the purpose of decision making;
    • Accounts dept. playing passive role of book-keeping & accounts finalisation only.

Conflicts (Inter-departmental) / Challenges with Accounting function

    • Corporate Governance
        • Increasing demand for transparency in operations;
        • Creating procedures to avoid frauds and corrupt practises (like giving or accepting bribe);
        • Disclosure of information timely and correctly;
        • Managing and reporting activities of Key Management personnel (like interest in transactions, extent of involvement in organisation’s key operations)
    • Fast & reliable information
        • Information unless up-to-date, affects the decision-making;
        • Transactions are generated and approved by other departments BUT recorded by accounts department → delay in receipt of information/documents OR slow processing of transactions by accounts department → delay in accurate information submission → the department has to chase the documents.
    • Compliances vs. organisation functions
        • Increasing compliances from statutory authorities → pressure for early reporting and early deposit of taxes;
        • Late receipt of information / documents from other departments → Non-compliance or inaccurate submission of information → attracts penalty;
        • Commercial terms (like collection of taxes or statutory forms or security deposits or performance guarantees, etc.) ignored by other departments
    • Reporting vs. controlling
        • Accounts Department generally labelled as “bean-counters” collecting the information while missing the larger picture of managing and controlling;
        • Management wants the department to contribute more towards managing the organisation in better manner → suggest more KPI (key performance indicators) to compare with actual data or build “Balanced Scorecard” for monitoring non-financial indicators (like dispatches during the day, defect ratio, etc.).

Some of the Process Implementation for better Accounting function

    • Separate document series
        • Separate series of documents (like sales, purchase, bank, cash, debit note, credit note, etc.) rather than merging with journal vouchers
    • Document book-keeping control
        • Preventing back-date entries in accounting software;
        • Avoiding editing of already entered transactions in books of accounts;
        • Avoiding duplicity of data entries → if data entered by user departments → accounts department to use that information and no fresh entry;
        • Confirming whether all transactions relating to a month booked and no backlog in data entry. Backlog in book-keeping affects the information and its analysis.
    • Compliance checklist (Monthly)
        • Status of tax deposits, return submission, certificate receipt / issue, assessments, refunds, appeals, etc.
    • Govt. refund status (Monthly)
        • Refunds due from VAT or Service Tax or Income-tax, etc.;
        • Year-wise break-up of pending Drawback refunds or Govt. incentives, etc.
    • Customer outstanding & confirmation
        • Unconfirmed outstanding = potential dispute;
        • Realised money in bank / cash better than money lying with customer;
        • Regular confirmation and reconciliation of outstanding especially the large and old ones (Quarterly);
        • Ageing of outstanding and reasons for long overdue (weekly)
    • Vendors outstanding & confirmation
        • Unconfirmed outstanding = potential dispute;
        • Regular settlement of outstanding = better credit rating → earning discounts & availability of credits in the time of crisis;
        • Regular confirmation and reconciliation of outstanding especially the old ones (Quarterly);
        • Ageing of outstanding and reasons for long overdue (fortnightly)
    • Inventory
        • Inventory (Raw material, work-in-progress, finished goods, consumables, spares, other stored stocks) = locked working capital;
        • Unless sold to customer → inventory loses its value unless held for strategic purpose;
        • Involves cost in terms of obsolescence, pilferage, maintenance, holding, etc.
        • Exploring ‘zero inventory’ principles (why inventory required and can it be kept at zero with vendors supplying in minimum possible time?);
        • ABC analysis of inventory and controlling valuable items (i.e. ‘A’ category items)
    • Accounts finalisation
        • Challenge – ‘whether accounts can be finalised in a shortest possible time?’
        • Answer to above question leads to adoption of better practices like early reconciliations & creating provision of expenses.

1 Response to Accounts

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