SIMPLE METHODS OF ACCOUNTING: SUGGESTION FOR CATHOLIC DIOCESE OF OKIGWE NIGERIA

INTRODUCTION
Basically accounting is concerned with careful recording, classifying and summarizing significantly and in terms of money, transactions and events which are part of at least a financial character and interpreting the results thereof as an aid to better understanding to interested parties.


Because of the nature of the funds-flow into and out of the Diocese, it is felt that an ADAPTED form of INCOME AND EXPENDITURE ACCOUNT be used, instead of a purely Receipt and Payment account OR Income and Expenditure account.

For a good result some essential records must be kept. We shall now mention them and very briefly define or explain them.

        i.            Daybook for Income
This is a record of all incomes received every day and as they are received, indicating the date, the source, the purpose and the amount involved.

     ii.            Daybook for Expenditures
This is exactly the reverse of Day book for incomes, being a record of expenditures.

   iii.            Analyses book for Incomes
Here the recorded incomes in the Daybook for incomes are categorized according to regular income heads. A format is attached. (See appendix I)

   iv.            Analyses book for Expenditure
The explanation is as above, except that these records concern expenditures. (See appendix II)

      v.            Cashbook
There are usually two types of cashbook: The one recording bank transactions and the one recording cash transactions. Sometimes, they are combined in one to be known as two columnar cashbook.   As soon as cash is received, it is entered in the debit side of cashbook (cash column). If a cheque is received, it is recorded in the debit side of cashbook (Bank column).

The use of the cashbook is better demonstrated. It is expected that all cash and due cheques that come on hand are banked in full within 24 working hours of receipts.

   vi.            Journals
A principle in accounting holds that for every transaction, there should be both debit(s) and credits(s). It is equally known as the principle of double entry. When the transactions are all correctly debited and credited, then the total credits must equal total debts. A journal is used to state the debits and credits in transactions before they are posted to various ledgers.

 vii.            Fixed Assets Register
A register of fixed assets should be kept. This will usually indicate for each class of assets:
·        Date of acquisition of the asset
·        Name of the asset (e.g. motor vehicle, building, generator)
·        Registration number
·        Cost of acquisition
·        Additions
·        Disposals
·        Depreciation/written down value
·        Net Book Value (NBV)
Kindly note that it is ideal to mark all assets as well as give them numbers which should be recognized in the Fixed Assets Register.

viii.            Register of Debtors
A debt may arise as a result of purchases on credit or outright loan granted to the Debtor.

A register should be kept of all the Debtors in the organisation. Debtors must be followed up to see that repayments are made as agreed upon. It is important to have a good classification of Debtors into, say, performing and non-performing (or classified as Good, Doubtful, and Lost).

Each Debtor should be assigned a page or so as expected time for final repayment may dictate. A simple sample of the information required should be as follows:

·        Name of Debtor:
·        Date of grant of the loan
·        Terms (e.g. repayment of N 20,000.00 every month)
·        Moratorium (period of grace before repayment starts)
·        Expected time for full repayment

In tabular form, the other information should be as follows:

NAME OF DEBTOR: MR. ABC

Terms: N200,000.00 loan to be repaid in ten months on equal monthly installments of N20,000.00.

Date
Particulars
Loan granted
Loan repaid
Outstanding

28.02.10


31.05.10

30.06.10

31.07.10

Amount granted on agreed conditions

First repayment

2nd repayment

3rd repayment
N

200,000.00

-

-

-
N

-

20,000.00

20,000.00

20,00.00
N

200,000.00

180,000.00

160,000.00

140,000.00

Every repayment attracts a receipt from the Lender. This is to avoid any form of controversy in the future.

   ix.            Register of Creditors
This should follow the same principles as with Register of Debtors.


Date

Particulars

Loan Received
Loam Repaid
Outstanding

28.02.10

31.05.10

30.06.10

31.07.10

30.08.10

Amount received as agreed

First repayment

Second repayment

Third repayment

Fourth repayment
N
1,000,000.00

-

-

-

-
N
-

250,000.00

250,000.00

250,000.00

250,000.00
N
1,000,000.00

750,000.00

500,000.00

250,000.00

-

The outstanding Debtors and Creditors must be noted in the accounts to be rendered monthly.

x.      Petty Cash Register
As it is strongly advised that all payment and receipts must pass through the Bank account, it is often necessary to hold some cash for minor expenditures. This amount is called petty cash. It must be noted seriously that issuance of petty cash should be done from the Bank through cheque. The petty cash account is debited with the amount withdrawn from the bank for that purpose while the credit goes to the Bank account from where the money was withdrawn. The expenditures from petty cash follow the normal procedure applied to direct cheque payments for transactions: Debit relevant expenditure heads and credit petty cash account. Normally the petty cash is retired back to the Bank at the end of agreed period (usually month end) and cheque issued for a fresh petty cash. In exceptional situations where the petty cash finishes before the agreed period, there may be supplementary petty cash granted. Exceptions must not be allowed to become the rule.

Sample form of Petty cash records:

Date
Particulars
Receipts
Payment
Balance


01.01.10

01.01.10

10.01.10

14.01.10

20.01.10

22.01.10

27.01.10

31.01.10


31.01.10


Bank

Purchase of Kerosine

Ink for Printer

Snacks for meeting

Fuel

Payment to Casual cleaner

Gift/Charity

Cult (Mass Wine and Altar Bread)

Bank (retirement of unspent Petty cash)
    N

50,000.00

-

-

-

-

-

-

-


-
   N

-

500.00

4,000.00

3,000.00

4,000.00

2,000.00

500.00

5,000.00


31,000.00


      N

50,000.00

49,500.00

45,500.00

42,500.00

38,500.00

36,500.00

36,000.00

31,000.00


-




It is important to note that every petty cash expenditure must equally be approved by a responsible Officer, just like any major expenditure. Petty cash is NOT pocket money.

At the end of the relevant period (usually at the end of the month) the petty cash expenditures will be added to the similar spendings in the individual ledgers/account heads.

BUDGETS
He who fails to plan, plans to fail. Consequently the relevance of Budgeting cannot be over-emphasised.

Towards the end of every financial year, there should be informed budgeting of income and expenditures taking note of variances from the preceding year. The essential processes in any budgeting are as follows:

  i.      Recommendation
The requiring departments/individuals originate their needs. A Budget Committee receives all the requests of the concerned departments/individuals.

  ii.   Review
The Budget Committee which is usually made up of articulated, well informed and experienced officials now reviews the budgets in total.

iii.            Authorisation
The Budget Committee authorizes the expenditures following aggressive interview and flawless defence of the budget by the requesting department.

   iv.            Control and Monitoring
This is very important and involves
a.      Timing of payment
b.      Monitoring process on implementation, i.e. ensuring stage by stage control of progress of involved projects.

Report by the Accountant to top management must be made periodically especially if there is a major project. Such report should include:
·        Budgeted cost of a project, date started, and scheduled completion date.
·        Cost and over/under expenditure to date
·        Estimated cost to completion

c.      Post completion Audit
This involves a re-examination of capital expenditure items in terms of:
1.      Scale of operation envisaged vis-à-vis what obtains after implementation
2.      Accomplishment of objective
3.      Satisfactory performance in general.

Kindly note that if any project embarked upon materially proves to be unviable long before the completion in terms of cash requirements, the project should be courageously suspended and after thorough review and it is found to be unprofitable, the painful step of stopping it, selling it, or converting it to some other more income generating projects should be taken.

A typical Budget statement should look like this:

A.          BUDGET FOR YEAR 2011

i.              INCOME

YEAR 2010                                                        YEAR 2011

S/no

Account Head
(Income Head)

Budgeted
a

Actual
b

Variance
c =b-a

Budget
    d
Increase/(decrease)
in percentage
e=d-a×100%
      a

House mtce.
200,000.00
180,000.00
(20,000.00)
210,000.00
(5.0)

Light and heating
150,000.00
165,000.00
15,000.00
180,000.00
20.0

Security
300,000.00
297,000.00
(3,000.00)
270,000.00
(10.0)

Feeding
100,000.00
100,000.00
0.00
130,000.00
30.0

Charity
70,000.00
170,000.00
100,000.00
200,000.00
185.0












ii.                 EXPENDITURE

YEAR 2010                                YEAR 2011

S/no

Expenditure head


Budgeted
     a


Actual
   b

Variance
c = b-a

Budget
d



Variance in %
e=d-a  ×100%
      a



































                               TOTAL








              G


Expected Balance at the end of year 2011= F-G.
Note that F-G can be zero, positive, or negative.
If F-G is zero, it is called zero based budget;
If F-G is positive, it is called surplus budget;
If F-G is negative, it is called deficit budget.

NOTES
1.      PROFIT ON SALES

If an establishment has income yielding venture(s) the profit on sales will be calculated as follows:
                                                                            
                                 ‘A’Business       ‘B’Business  ‘C’Business      Total

A. Sales proceeds                130,000.00           xx                         
♣. Opening stock @ cost         20,000.00        x
♣♣Add inputs                           100,000.00                  x                                                               
                                            120,000.00             xxx                                   
Less ♦closing stock @ cost          55,000.00              xx                                                  
B.   Cost of sales                      60,000.00        xxx                    
Gross profit on sales (A-B)    70,000.00(i)      xxx (ii)    (iii)         N70,000+(ii)+ (iii)
C.  Less ♦♦overhead expenses (say)   60,000.00
D. Net profit to go to income account  10,000.00



AGAIN NOTE:

♣ Opening stock is made up of all stocks at beginning of the period (at cost), e.g.
-         stock of animals or materials concerned
-         stock of feeds
-         In fact all materials AT THE BEGINNING of the relevant period, before fresh injections.

♣♣ New purchases of all sorts in the period, excepting fixed assets. Cost of fixed assets are credited to (i.e. deducted from) the cashbook and debited to (i.e. added to) the involved fixed asset.

♦ Closing stock is valued at the LOWER of cost AND net realizable value. The stocks in question may involve all items in the opening stock, less, or none.
♦♦ Overhead expenses would comprise all other expenses, including (but not limited to) salaries, car maintenance, electricity bill, depreciation, etc.

It is the net profit on sales (D), as above that should go into the Income statement as profit on sales.

If on the other hand there is a net loss, the figure goes into the Income Statement as a subtraction.

2.      SUBSIDIES
These should be stated in details. For example

Date
From
Purpose
Amt.(foreign currency)
Amt.in Naira
03.02.10



10.02.10


15.02.10


.
State Government


???


???


-
General running expenses


To buy computers

To equip the library

-
-



€5,000.00


$10,000.00


-
300,000.00



1,000,000.00


1,500,000.00


-





TOTAL
      XYZ





It is this total of NXYZ that should go to the income account as subsidies.
3.      SERVICES
Analysis of income from various services should be attached, and the total carried to the income account, e.g. Income from Testimonials, Identity cards etc.

4.      SUNDRIES
These are unusual incomes that do not occur every year, and which do not fit into any of the above account heads.

5.      GENERAL
-         Accounting as a discipline generally requires a lot of patience for a meaningful application.
-         It is strongly suggested that our Dioceses diversify academically to accommodate professional studies like Accountancy, Architecture, Civil Engineering, Computer Engineering, Medicine and Para medical studies. I recall the paper I presented to this Diocese on 3rd December, 2001 on the topic: THE ECONOMIC ETHICS OF THE MINISTERIAL SERVICE OF THE PRIEST, especially pages 10 to 13 of a 15 page presentation.
-         Especially for Church finances, right conscience, sincerity and detachment are of prime importance.
-         Priests should be encouraged to venture into fields of study they have a propensity towards, all for the economic near self-reliance of the Diocese.
-         It is advisable to employ tested lay people who are professionals to assist in running some of the offices of the Diocese, including the income-generating outfits. Priests must be humble enough to accept their limitations….What you do not know, you do not know, until you know it!
-         Regular preparation of Bank Reconciliation Statements is very important, judging from what unfortunately can be experienced from the Banks. A format for this is annexed in this paper.
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