THE CHALLENGES OF THE FRESH ACCOUNTING GRADUATE IN ASSUMING THE OFFICE OF AN ACCOUNTANT
A young swimmer who has won a lot of gold medals in so many competitions was taken to the middle of the Atlantic Ocean and asked to swim his way out. He was lost and confused and did not know which wave to follow and the way to the shore. He needed a compass but his knowledge in swimming kept him afloat for awhile so he did not drown until rescue team came to his rescue.
You are a fresh Accounting Graduate and you just assumed the office of an accountant with no practical experience? What will you do? This article is put together to give you a compass that will help you swim your way out of the Ocean.
The following point will be helpful to get you started.
- Establish what is on ground
- Familiarize yourself with the operations of the company and the nature of the industry.
- Obtain an understanding of the accounting and control system of the company.
- Document your understanding of the company’s nature of transactions and operations.
- Obtaining closing/opening balances
- Running the accounts/finance department.
The points above will enable you start the work that have been assigned to you. Below are further breakdown of these points;2. Familiarize yourself with the operations of the company and the nature of the industry. In doing this you have to determine the following:
1. Establish what is on ground.
To do this, you have to:
- Determine if there is an existing accounting system
- Determine if the system is capable of continuity
- Find out if the company maintains a complete system of accounting or incomplete records
- If there is a complete system, find out if it is manually operated or computerised system
- If it’s a computerised system, find out if it’s a windows package or a accounting software
- If it’s accounting software, your work is easy. All you need do is to get trained in the company’s accounting software (Peachtree, Sage pastel, Tally, Oprah, FirstKlass, or a Sales System e.t.c.)
- If it’s a windows package, find out the type and get trained. Understand the way it was formatted for the company’s accounting use (e.g. Microsoft Excel)
- If it’s an incomplete records, find and search out the method of work done by the former accountant and the method of book keeping, accounting books maintained, reports generated and method of reporting (e.g. use of Cash Analysis book, General Ledger book, hard cover notes or even Excel)
- Whether it’s a complete, incomplete records, computerized or manual system, locate the type of documents and stationery maintained by the former accountant and the company. Below are some of the documents and stationery you will except to see:
- Invoices to customers (this is raised and given to customers once service or goods are delivered to customers)
- Receipts to customers and debtors (this is issued to customers when they pay up their invoices)
- Bin cards (this is used to record and update stock/material items in the store)
- Stock requisition form (this is used by user department to request for stock/materials from the store)
- Local purchasing Order (raised by the purchasing department for suppliers to supply goods)
- Work order (issued to contractors to perform a certain job or service)
- Goods received note (raised to record quantity, descriptions and value of items supplied and delivered by vendors)
- Invoices from suppliers and contractors (this is received from suppliers of goods and services to the company stating description, quantity and value of item delivered or service rendered)
- Cash requisition form (used to request cash for expenses. Mainly PETTY CASH expenses, stating what the cash will be used for)
- Cash retirement form (used to retire cash collected for expenses, stating what the cash was used for and any balance of cash advanced)
- Payment vouchers (raised to settle outstanding invoices from vendors. This must be authorized and approved for payment by a responsible officer)
- Receipts from vendors (this is received when the company settles its debts)
- Company’s cheque bookletsStaff salary payment slip
- And others as the nature of the business will demand
- Determine the reporting and management line of the company
- Understand how the various account heads are coded and classified
- The Nature of the business (Production, Construction, Wholesale, Supply, etc)
- The various lines of business the company is engaged in
- The sources of the business incomes
- The nature of expenses incurred by the company
- The business risk areas
- The operational activities of the company
- The industry (Shipping, Manufacturing, Oil & Gas, etc)
- The Staff strength of the company
- The Structure of the company
- The major Clients and Customers of the company
- The Major Vendors, Suppliers, Contractors and Sub-contractors of the company
3. Obtain an understanding of the accounting and control system of the company.
This will involve the following:
- Obtain a copy of the company’s accounting manual (if any)
- Obtain a copy of the Company's Accounting Policies
- Obtain the company’s chart of accounts (if any)
- Obtain a copy of the documented procedures of operations and control (if any)
- Obtain an understanding of the procedures and method of maintaining the company’s accounts
- Obtain an understanding of the procedures and steps for authorizing and approving transactions
- Obtain an understanding of the method and policies adopted in analyzing transactions into revenue and cost centers
- Obtain an understanding of the method adopted in recognizing and recording assets and liabilities
- Find out the type of documents and stationery maintained by the company’s account /finance department
4. Document your understanding of the company’s nature of transactions and operations.
This is very vital where there are no documented procedures of operations and nothing is on ground. And you have to start from the scratch. You can do these by:
- Observing the flow of transaction and financial information in the company
- Obtain the accounting policy of the company
- Observing how transactions are initialed and recorded
- Determining the debtors’ cycle (i.e. time taken from where service is rendered or product delivered to customers and when payments are made to the company)
- Determining when income is earned by the company
- Understanding the means by which money is received in the company (e.g. cheque or cash)
- Determining the creditors’ cycle (i.e. time taken from when vendors, suppliers and contractors deliver goods/materials or service rendered to the company and when payments are made by the company
- Determining when expenses are incurred
- Determining the means by which payments are made
- Determine if the company maintain a PAYROLL ACCOUNTING SYSTEM
- Determine the nature and types of allowances given by the company and obtain gross pay)
- Determine the nature and type of deductions made against the gross pay and how they are maintained and disbursed to appropriate authorities and managers (e.g. PAYE, Pension, Staff loan, Absenteeism, charges against Staff, e.t.c.)
This is very important and necessary for you to start your job properly. In doing this you have to:
- Determine the financial year end of the company
- The last report generated by the former accountant (if any)
- Check if the company maintains a fixed asset register (this register is a list of fixed asset acquired by the company stating date of acquisition, amount purchased, vendor that supplied, the manufacturer, incidental cost attached to the asset, brand and serial number, location of the asset and mode of payment)
- Check if there is a closing trial balance for the just ended financial year
If nothing is on ground, establish the following
- Total outstanding liabilities of the company (creditors, loans, bank overdrafts, PAYE, income tax, WHT deducted from suppliers invoices but not remitted, VAT added to customers invoices but not remitted, accrued salaries, accrued rent, other accrued expenses and any other liabilities)
- Total assets of the business which includes; (a) Fixed assets (prepare a fixed asset register, obtain number of years in use, the depreciation method, accumulated depreciation and prepare a fixed asset schedule stating historical costs, additions and disposals, accumulated and current disposals and net book value) (b) Current assets (customer debtors, staff debtors, prepaid expenses, cash and bank balances, short term investments, stocks and work-in-progress and other current assets) (c) Obtain the memorandum of association to determine the authorized share capital (if any) and determine the issued and fully paid up capital (if any). Most growing businesses, the authorized share capital is fully paid up. (d) Prepare an opening trial balance of the information you have obtained above and an abridged balance sheet (e) Post the opening balances to the individual accounts in the general ledger (f) Continue analyzing economic activities of the business and posting transactions.
NOTE: Your employer may not give you “the much needed time” to observe all the procedures enumerated above before doing your daily work as an accountant. Once you are employed there is an expectation from you to perform. The business activities of the company will not shut down so that you can familiarize and understand the operating and financial environment of the business. Nobody cares if you know what to do or not. You need to do something. The point I am making here is that points 1 to 5 go hand in hand with points 6 and 7.
6. Running and Managing the accounts/finance department.
This is your day to day functions as an accountant. This involves the following steps:
(a) Analysis the daily business transactions. This will involve
- Classifying financial activities into cost and revenue centres
- Identifying income and debtors
- Identifying expenses and creditors
- Identifying payments and receipts
- Recognizing assets and liabilities
- Performing bank reconciliations (obtaining the bank company’s bank statements and reconciling them with your records of bank transactions and arrangements)
- Ascertaining bank charges
- Debiting and crediting transactions to accounts head (by the use of the CHART OF ACCOUNTS or accounts code)
- Observing all the principles of double entry
- Creating an account head for all cost centers, revenue centers, customers & debtors, suppliers & creditors, cash & bank accounts, bank charges, staff, salary payable, PAYE, pension, cash floats & advances and other account heads.
- Update ledger accounts as soon as journals are raised (Post the Journals).
- Transferring all the balances in the general ledger for the period under review to the trial balance by closing the various ledger accounts (Works with a click in automated systems)
- All the accounts balances in the debit side of the general ledger should go to the debit side of the trial balance
- All the accounts balances in the credit side of the general ledger should go to the credit side of the trial balance
- Confirm the trial balance.
(f) Prepare an Income statement (Statement of Profit or Loss) and Balance sheet (Statement of Financial Position).
(g) Post opening balances to the general ledger for the new period (month, quarter or year)
NOTE: The above steps will be possible with the use of all the documents and standard stationery of the company. The nature and level of work you will do will depend on the existing system (if it’s manual or computerized. If it’s on excel template or accounting software. If there are standard stationery and documents in existence). But in a case where nothing is on ground, you have to put something on ground. Below are some things that will help you
7. GETTING STARTED:
- Daily BOOK KEEPING. Keep records of all purchases and sales/services of the company. Keep record of daily payments and receipts of the company (through cash or bank). Keep records of all drawings by the management. Keep a cheque register both for cheques issued out and cheques received. Keep records of bank tellers for lodgements. Keep records of daily financial activities and obligations of the company.
- Maintain important documents. Ask the management to design standard stationery for the departments. The basic ones are: cash payment voucher (used when paying for cash expenses), bank payment voucher (used when expenses are paid through company’s cheque), INVOICE booklet for customers, receipts booklet for payments by customers, purchasing order booklet, goods received notes, stock requisition form, cash requisition form, cash retirement form, bin cards, etc. The stationery to be designed depend on the nature of the business. You have to be a creative accountant.
- If the system is manually operated, you have to get these stationery from the book shops: cash analysis book (used to record cash/bank receipts and expenses. The expenses are extended to their cost centers in the analysis book), general ledger sheets (used to create individual ledger accounts for the company), hard cover long notes (for book keeping and recording)