Session 2 - 03 Balance Sheet Accurate informations Supplier Cards Tax & Credit notes
Summary
TLDRThis script offers an in-depth explanation of a balance sheet, contrasting it with a profit and loss statement, and discusses the importance of reconciliation and validation of financial figures. It highlights the risk associated with incorrect bank account details and the potential for fraud, emphasizing the need for diligent processes in managing supplier relationships and payments. The speaker also touches on different business structures, the role of ASIC in regulating companies, and the significance of maintaining good rapport with suppliers for business success.
Takeaways
- 📊 A balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, while a profit and loss statement reflects the financial performance over a period.
- 🏦 The balance sheet includes all the money in the bank, assets owned, and debts owed by a company, which are not necessarily spent to generate revenue.
- 🔍 Reconciling a balance sheet involves verifying each item listed, such as fixed assets, to ensure the reported figures are accurate and can be substantiated.
- 💼 Payroll obligations are reflected in the balance sheet, and it's crucial to verify these amounts against actual payroll records to ensure accuracy.
- 🔑 Understanding and following proper procedures is vital, especially when dealing with high-risk items like bank account details and supplier information, to prevent errors and fraud.
- 💻 The importance of using secondary source documents for verification cannot be overstated, as relying solely on ledger transactions can lead to confirmation bias and inaccuracies.
- 📝 General journals can be prone to errors if not handled carefully, emphasizing the need for meticulous accounting practices.
- 🏢 Pty limited companies offer a level of protection for directors and shareholders, limiting personal liability for company debts, except in cases of director misconduct.
- 🏦 ASIC (Australian Securities and Investments Commission) is the regulatory body overseeing companies, setting rules, and ensuring compliance with financial reporting and director duties.
- 📈 Subscriptions are regular payments made for services or products, and managing these can be critical for a company's cash flow.
- 🏘 Strata management in Australia involves a system of levies paid by property owners for the maintenance of common areas in multi-unit buildings, which is different from other regions.
Q & A
What is the primary purpose of a balance sheet?
-A balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, showing what the company owns, owes, and the value of the owner's equity.
How does a balance sheet differ from a profit and loss statement?
-A balance sheet captures the financial position at a single point in time, while a profit and loss statement summarizes the revenues, expenses, and net income over a period of time.
What are some examples of items that might be listed as fixed assets on a balance sheet?
-Examples of fixed assets include computers, xerox machines, and land, which are items that are not typically used up or consumed in the regular operations of generating revenue.
What is the process of reconciling a balance sheet?
-Reconciliation involves verifying the balance sheet figures against individual items and external documents to ensure accuracy and validate the total amounts.
Why is it important to verify the balance sheet figures against payroll records?
-Verification against payroll records is important to ensure that the amounts listed for obligations, such as wages and pensions, are correct and to prevent discrepancies that could lead to financial inaccuracies.
What is a general journal, and why is it important to review it carefully?
-A general journal is a record of financial transactions, including the movement of money between accounts. Reviewing it carefully helps prevent errors such as incorrect account entries, which can lead to financial discrepancies.
What are the risks associated with entering new supplier bank account details?
-Risks include human error in entering incorrect details and the potential for fraud, such as cybercriminals posing as suppliers to request changes in bank details to divert payments.
What is the significance of maintaining a good relationship with suppliers?
-A good relationship with suppliers can be considered an asset as it may lead to better service, such as expedited delivery, and can help ensure the business has reliable access to necessary goods and services.
What is the difference between a Pty Limited company and a public company in Australia?
-A Pty Limited company is a privately owned company with limited liability for its directors, while a public company is listed on the stock exchange, has different reporting requirements, and may be subject to additional compliance and auditing.
What is ASIC, and what role does it play in regulating companies in Australia?
-ASIC is the Australian Securities and Investments Commission, which is the regulatory body responsible for setting rules around directors' duties, company obligations, and overseeing the stock exchange and financial markets.
What is a strata levy, and why is it important for businesses that rent office space?
-A strata levy is a payment made by businesses to cover the maintenance and repair of common areas in a building they rent from a landlord. It is important because it ensures that shared spaces are well-maintained and any necessary repairs are funded.
Outlines
📊 Understanding the Balance Sheet and Reconciliation Process
This paragraph explains the concept of a balance sheet, which provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. It contrasts this with a profit and loss statement, which tracks income and expenses over a period. The speaker emphasizes the importance of reconciling the balance sheet by verifying each item, such as fixed assets, to ensure accuracy. The paragraph also touches on the risks associated with general journal entries and the need for external validation to prevent errors or fraud.
🚨 High Risk Items and the Importance of Due Diligence
The speaker discusses the high-risk nature of certain financial transactions, particularly the potential for error or fraud when entering bank account details or changing supplier information. They share a cautionary tale of a company that lost a million dollars due to a cybercrime incident, where fraudsters manipulated email communications to redirect payments. The paragraph underscores the necessity of following strict procedures, such as verifying bank details and treating any request to change financial information with skepticism, to mitigate these risks.
🏢 Types of Companies and Their Legal Implications
This paragraph delves into the different types of business entities, such as partnerships, proprietary companies (pty limited), and public limited companies (Ltd). It explains the concept of limited liability, where the company is a separate legal entity from its directors and owners, protecting them from personal liability for company debts, except in cases of directorial misconduct. The paragraph also introduces the Australian Securities and Investments Commission (ASIC) as the regulatory body overseeing company compliance and the stock exchange.
🛒 Supplier Management and the Benefits of Good Relationships
The speaker highlights the importance of managing supplier relationships effectively, advocating for timely payments and good rapport as a valuable business asset. They argue against the practice of withholding payments to maximize cash flow, as it can lead to a loss of reliable suppliers. The paragraph also covers the process of dealing with suppliers, including verifying invoices and establishing communication for resolving issues. The speaker emphasizes the benefits of a proactive approach in building strong supplier relationships for mutual business success.
Mindmap
Keywords
💡Balance Sheet
💡Profit and Loss
💡Assets
💡Liabilities
💡Equity
💡Reconciliation
💡General Journals
💡Suppliers
💡Strata
💡ASIC
💡Sole Trader
💡PTY Limited
💡Subscriptions
Highlights
Balance sheet provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.
Profit and loss statement covers a period of time, showing income and expenses to reflect financial position.
Balance sheet includes all assets owned and all debts owed by the company.
Reconciliation of balance sheet involves verifying the total of individual items against stated amounts.
Payroll obligations and their verification process are crucial for accurate balance sheet reporting.
Bank account balance on the balance sheet must be verified with bank statements to ensure accuracy.
General journals can be prone to errors, emphasizing the need for careful review and reconciliation.
Risk management is essential, especially when adding new suppliers and handling bank account details.
Fraud prevention measures, such as verifying bank account changes, are critical to protect company funds.
Different types of companies, such as proprietary companies and public limited companies, have distinct legal and financial obligations.
ASIC (Australian Securities and Investments Commission) sets rules and regulations for companies and acts as a watchdog.
Subscriptions are regular payments for services or products, which may have different implications for a company's finances.
Strata management and levies are specific to Australian property ownership and maintenance.
Supplier relationships are vital for business operations, with timely payments fostering goodwill and support.
Maintaining good rapport with suppliers can lead to preferential treatment and better service in times of need.
The importance of accurate supplier management, including invoice verification and prompt communication.
Transcripts
i'm sure that a lot of you already know
what a balance sheet is but i'm going to
explain what what it is in any case just
for
the sake of it sorry
belongs tonya sorry
it's called bilan stania
serbian good excellent um
yes so a balance sheet um
takes a snapshot of a company's assets
liabilities and equity at a point in
time
a profit and loss on the other hand
actually over a period of time
takes the income and expenses and shows
a financial
position the balance sheet has all of
the money that you have in the bank all
of the assets that you own
everything that you owe um if you have
land whatever it may be
all of those items that um that you
don't necessarily
um spend to make your revenue will be in
your balance sheet
now when when we're looking at a balance
sheet it's got some serious numbers in
there it'll
it'll say things like um
so it'll say for example um that you
have
250 000 worth of fixed assets
and that'll be um when you drill down
into that you'll see
okay there's computers that are 5 000.
there's
um you know a xerox machine that's you
know 25 000.
and it'll have a list of all of these
expenses
in this instance when we're reconciling
the balance sheet
what we're actually doing is we're
saying okay um i don't believe that it's
250 000
how am i going to prove it so that is
when you run
the ledger that actually breaks down the
individual items that equal
250 so you verify now imagine
um you know when you every every
business even in serbia has payroll
obligations
right so you have employees there's
certain pensions and things that you
need to pay
right your balance sheet will have a
number that number
could be you know 50 000
unless you actually go in and go okay um
i'm gonna verify it up against payroll
records
we have you know 200 employees
employee one there we owe for them it's
this much employee two it's this much
it's when we can say this is the list of
people this is what we owe
each person the sum of that equals the
balance
i'm confident now that that amount is
correct
you know it's it's similar to think
about your bank balance
as a symbol as a thing that would happen
in a balance sheet
it might say that you have a thousand
dollars in your bank account
until you run that statement to go okay
what are all of the things that have
come in
how much money came in how much money
went out you can actually prove my
starting balance was this this is what i
spent this is what came in
this is what my bank balance is yes it's
correct
um that's exactly the same thing here
now with the balance sheet you would be
going through
every single item and and um basically
making sure that yes i can validate it i
feel confident
that it's correct the reason why it's
important is people do general journals
and i have to jump around a bit general
journals um when you
are manually moving money from one
account to another
and balancing it up right somebody can
easily
flip a journal pick the wrong account
and they can put money or take money out
of one of those accounts so easily and
it could be completely wrong
completely incorrect so that's that's
the reason why we go through and then we
look at
the sum of the individual transactions
um what they make up but we can't just
run that
particular account and look at those
transactions because it's those
transactions that make that amount
that's why we need the external source
document
something else that's um different to
what we're actually looking at
it's going to sound really weird but
people do this they actually run the
ledger
so imagine if you've got um you've got
five transactions and those five
transactions make up
a thousand dollars the person runs those
five transactions and they say
yep it's right it makes a thousand
dollars of course it does because it's
those five transactions
that make that thousand dollars that's
why you need the second source document
you always need to go okay how can i
prove that it is
where else is um this information that i
can validate it
you guys can explain the procedure later
but what i'm going to say is this
remember we talked about risk
and high risk items right
every time you add a new supplier you
guys have had some exposure to creating
new suppliers
every single time you do that you
actually need to enter the
bank details bank account details into
the system
we always ask that you copy and paste so
that you're not
keying in numbers and we also ask you to
do a process where you get somebody else
to sign
to site to check it and sign off on it
because it is a high risk item
the reason is that if we pay the money
into the wrong bank account if you
invert a number and that bank account
exists there's a chance that we won't
get that money back
and there are times when we're paying
doing transfers of 500 000 a million
it could be a lot of money um yes we're
in short but
if we're um if we're slack and they
they see that we haven't followed
process or procedure
um it doesn't mean that we're going to
get reimbursed and this is such a high
risk item
that it can actually break a company
my friend was working for an
organization there's also
the element of fraud so my friend was
working for an organization who had
insurance
they ended up losing a million dollars
because
um now they have cyber uh crime
uh so um they're so savvy with the cyber
crimes they actually
managed to log into the email account of
the accounts email and they were
watching
what was happening and then um they saw
that they were supposed to pay
two lots of payments for a million
dollars to a supplier
and they made their email look like the
supplier email
and they emailed them and said could you
please change our bank
bank account details and pay into this
account the finance person just did it
even though the process was that they
had to call the company to verify
that actually it is a genuine request
and that the bank details are correct
because they didn't follow the process
they lost that million dollars
because the money got paid to the um the
fraudsters
so there's two elements with the bank
details the first one is
human error and making sure that you get
the details incorrectly
and every single time you're entering
bank account details i want you to be
thinking that this is a high risk item
and what i do when i'm doing it i copy
and paste it
then i split the numbers in three and
then i split them backwards
to check them to i start with the last
two numbers and i
i check two two two three three i i
check it about
two three times because i i know that
it's so high risk i never
um and lax or or just rush through that
process
then the other aspect of it is um
approaching anytime somebody asks you to
change bank account details
um you know anything like that approach
the email as though it's a scam
and prove that it's not so the first
thing you will do is
click on the email address and look does
the email address come from the domain
does the tone sound like the person who
would normally be asking
um and if in doubt if there's even the
slightest inkling that you think it may
be
uh wrong i would um
look at it depending if they're if
they're already in the email and
watching then you'd have to think about
it and go okay
you know can i can i leave this payment
until the next day i would escalate it
then we'd have somebody call them or if
you can call
the supplier and say look we received an
email from you
but you would go online make sure that
you've got the telephone up but not the
telephone
number from the email because obviously
if they're being if they're scamming
they're going to change the telephone
number as well
so again that is a really really high
risk area i won't go through the states
that's something that you can work out
we live in new south wales
just so you know then there's the
different types of companies
and we don't have partnership in here
but i'm sure you guys know what a
partnership
is then there's the proprietary company
that is a bit like uh um
they're all is that right
no
pty limited is like a day or all right
yeah yeah
yeah okay so um in australia
most businesses are pty limited
companies then
when it's a pty limited um generally
it'll be
you know one or two maybe a few
directors privately owned company
limited um liability what that means is
that
the company is a separate legal entity
from the people and the directors
that means that the directors aren't
personally liable for the company
expenses there's a protection except
when
the directors breach their director
duties then there's an op
then there is a recourse there's a
chance that they can get sued
if they purposely um reach their
director's duties
if they trade while insolvent if they
they continue to um
buy things on credit when they know they
don't have the money and that they're
going bankrupt
they're kind of times when they could be
exposed but generally speaking pty
limited companies if people if the
directors
do their duty and do the right thing
there is that separate legal liability a
separate legal
um uh protection
most of our clients have um either a
partnership or
or a limited or a pty limited
actually yep this one should be pty
ltd sorry ltd
a limited company is a public company um
and basically it'll have ltd we do have
some public companies as well
some that are on the stock market some
that are charities
when a company is limited and they are
public and they're on the stock exchange
that means that they have a whole set of
different reporting requirements and
auditors come in and we have to support
the auditors and there's a whole host of
um
you know additional compliance that
needs to happen a sole trader you guys
would know what this
is what do you what do you call them in
serbia
buddha
so in australia sole traders would
usually be single operators
that really are just sort of working for
themselves
they don't have any protection if
something goes wrong
their house could go they could be sued
because there's no
legal protection australian security is
an investment commission you'll hear
asic
people will say asic um you know
every country has got its own you've got
nasdaq you've got the footsie they're
all of asic
um is is our sorry the asx that's asx
sorry asic
is our regulatory body that regulates
all the companies
public and private also for the stock
exchange for assets and all of the um
the you know trading um
we every year every comp um every
company has to pay
uh registration fee it's usually a
couple of hundred dollars
about 200 and something to be part of
asic asic is the governing body
it sets the rules around directors
duties
around company obligations around um
even public companies and it's it's
basically the watchdog
and um it has the power to
deregister companies um
and you'll be hearing mainly when you're
paying that bill
that around asic i'm sure you know what
subscriptions are
it's anything that you pay regularly
that you're subscribing to
software um newspapers
uh it could be a whole host of things
um
strata do you guys have strata
i don't think so i don't think so
like we don't have struggling
building you're paying everything for so
what happens when you uh
okay when you have a flat for example
you own a flat
and there are common walls and if
something happens to the outside of the
building
don't isn't somebody collecting money
to fix those things and to maintain the
grounds
yes but some small you know usually if
you own a flat
we do it just now buildings need repair
it's a really small amount it's it's
totally different than australia in
australia it's really um
strict and it's different but
but you can explain it
all right yeah so i'll explain that like
this
most um you know if you're looking at it
from the perspective of a business
a lot of businesses will rent offices
they'll rent office space
um that office is owned by somebody the
landlord
and you're paying them rent um there's
you know if you need to clean inside
your office or inside the walls of your
building obviously you pay for that
but there are common walls there are
common corridors that everybody uses
so basically there's an organization
called a strata company
and um every uh person in the building
pays a levy a strata levy an amount
to to strata they cool and collect all
of that money
so when for example um a pipe bursts in
the corridor and
all the carpet is ruined you cut how do
you get that fixed
like who do you ask to pay for it um if
uh the roof of the building gets damaged
who do you ask to
pay for it this is what strata does and
strata gets paid usually quarterly
and most of your clients will have um
you know
some kind of strata bill coming through
a supplier
um that's an organize that that is
somebody that you buy
um things from what would you call what
would you call a supplier over there
what about it
so yeah so you could have suppliers that
are on a cash account and you could have
suppliers that give you credit terms
um suppliers are the people that are
going to send you invoices
um they are going to be the people who
will
call you and hassle you for payment um
you know can you please pay me it's
really good to develop a good
relationship with the suppliers as well
i've always been of the belief that
having a good relationship with
suppliers and paying on time
we don't have always the option to pay
on time if our clients don't have the
funds they get to decide that but
personally me
i think that when you pay your suppliers
and um you have a good relationship
that's almost like an asset
to the business uh your suppliers will
then go over and above for you
particularly if you're in industries
like construction if you're a good payer
and you um treat your suppliers well
and if you need material delivered
tomorrow morning at four o'clock they're
going to do it for you
whereas they won't do it for somebody
who's 60 days late
um paying them so for me personally as a
business owner having a good
relationship with a supplier is is
optimal there are there's a school of
thought
where they say screw the supplier hold
the money as long as you can get as much
money as you can
and um only pay when you absolutely have
to
i don't agree with that um i've
been in business for a long time and i
don't i don't think it works well
because
what ends up happening is most suppliers
that are good don't want to work with
you they don't have to work with you
you lose the good suppliers you end up
with the really crappy ones basically
uh so yeah for me you know you'll be
getting emails from your suppliers and
you'll be dealing with issues and
problems
you'll be following up for emails sorry
for invoices
um when they send you an invoice you're
going to be checking the invoice you
know
is it in the right name do they have an
abn on there
is the abn australian business
registration number
is it correct um does everything look
okay
do you have bank account details so when
anything's wrong or missing you'll be
um you know dealing with the supplies
and you have to think about the supplier
depending on how big they are
you're either you could be dealing with
the business owner of another company
or you could be dealing with another
accounts person
you know so getting your job done
the better rapport and relationships you
can build with people
the more they're going to be willing to
get you information when you need it
and that's going to help you do your job
well and and reduce frustration around
following up things all the time
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