Dear Friends,
I have an impression that like all other decipline there is minimal innovation to simplify accounting without compromising basic principals of accounting i.e. transperant clean and self explanatory Accounting statment Blamace sheet, I & E, Trail balance. Even the law practice has stare simplifying procedures at court..
I am maiantaing accounts of medium size NGO,
I have started simplifying accounts entries.
1 - we buy medicines from 20+ wholesalers. Per supplier there are six transaction of medicine purchase. till now we were purchasing by cash. Now we purchase the medicine and issue cheques the next day.
For the accounting Entries Normal practice would be fisrt purchase entries like Allied Medicals DR to Medicine purchase CR. and then when cheque is issue Bank DR to Allied MEdcine CR.
Insted of theat i make simple one entry Bank to Medicine Purchase
In narration i mention Wholesaleerss name , bill Number and other basic deatils
(2) For bank Entries the Normal practice is to assign the date of Bank entry is the date when the cheque is issued say cheque is issued on 9 may so entry would be for 1 may.
what i do is make the Entry of cheque on the Day when it is cleared by bank say the cheque is cleared on 10th May . Now with faster banking normally the next day the cheques are cleared by the bank. smy loogic is - the bank is reducing the chequ on 10 the may till then my balance is not reduce so why i should reduce in my bank accoun before that. I do know and i am good at preparing bank reconciliation.
I invite your humble opinion
1 is this very bad practice ?
2 can income tax department raise quation at the time of scrutiny ?
By this method we are reducing the total number of entries and ease the varification of Bank ledger with Bank passbook / statement. This practice is helpful to me as the auditors has limited time available and they are able to concentrate on vital issue of validity and solidness of Documentes atteched transaction vouchers.
Please please give you opinion
CAclubindia
