Session 2 - 03 Balance Sheet Accurate informations Supplier Cards Tax & Credit notes

Summary

This 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

00:00

📊 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.

05:02

🚨 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.

10:03

🏢 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.

15:04

🛒 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.

Keywords

💡Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time, detailing its assets, liabilities, and equity. It is central to the video's theme as it forms the basis for understanding a company's financial health. The script mentions that a balance sheet includes all the money in the bank, assets owned, and debts owed, such as land or fixed assets like computers and xerox machines.

💡Profit and Loss

The profit and loss statement, also known as the income statement, measures a company's financial performance over a period of time by comparing its income to its expenses. In the script, it is contrasted with the balance sheet, which captures a momentary state, while the profit and loss statement reflects ongoing financial activity.

💡Assets

Assets are resources owned by a company that have value and are expected to provide future benefits, such as cash, land, buildings, or equipment. The script uses the term in the context of the balance sheet, explaining that assets include everything a company owns and are part of the financial snapshot.

💡Liabilities

Liabilities are obligations or debts that arise during the course of business operations and are expected to be settled in the future, such as loans or accounts payable. The video script discusses liabilities in relation to the balance sheet, emphasizing that they represent everything a company owes.

💡Equity

Equity, also known as shareholder's equity, represents the residual interest in the assets of a company after deducting liabilities. It is a key component of the balance sheet, as mentioned in the script, reflecting the ownership stake in the company.

💡Reconciliation

Reconciliation in the context of the script refers to the process of verifying and ensuring that the figures on the balance sheet are accurate by comparing them with detailed records or external documents. It is an essential part of the financial review process to confirm the validity of the balance sheet's numbers.

💡General Journals

General journals are used in accounting to record transactions that do not fit into the standard categories of financial activity. The script warns about the risks associated with general journals, such as the potential for errors when manually moving money between accounts.

💡Suppliers

Suppliers are companies or individuals that provide goods or services to a business. The script discusses the importance of maintaining good relationships with suppliers and the risks associated with not paying them on time or mismanaging their details.

💡Strata

In the context of the script, strata refers to a system in place in Australia for the management and maintenance of common areas in multi-owned properties, such as apartment buildings. It involves a levy paid by property owners to cover collective expenses.

💡ASIC

ASIC stands for the Australian Securities and Investments Commission, which is the regulatory body that oversees companies, financial markets, and consumer protection in Australia. The script mentions ASIC in relation to company registration and the setting of corporate governance standards.

💡Sole Trader

A sole trader is an individual who runs a business on their own, offering goods or services under their own name. The script points out that sole traders do not have the same legal protections as companies and are personally liable for business debts.

💡PTY Limited

PTY Limited, short for 'Proprietary Limited,' is a type of private company in Australia with limited liability. The script explains that directors of such companies are generally not personally liable for the company's debts, unless they breach their director duties.

💡Subscriptions

Subscriptions refer to regular payments made by a company for services or products it uses on an ongoing basis, such as software or newspaper services. The script mentions subscriptions as a type of recurring expense that companies need to manage.

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