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)
|
50,000.00
-
-
-
-
-
-
-
-
|
-
500.00
4,000.00
3,000.00
4,000.00
2,000.00
500.00
5,000.00
31,000.00
|
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-Ã -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.