Balance Sheet Explained

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					Department of
Education and Training
CASES21 Finance

The Balance Sheet
A practical example and explanation
                                                               Balance Sheet Example

                                                                                             General Ledger
                                                                                     Balance Sheet (GL21160S)
                                                                                          As at January 31, 200x

                                                                                                                            Current    Represents opening balances, movements
        A Balance Sheet Example                            3   Accumulated Equity                                                      in revenue / expenses, plus/less results of
                                                                                                                                       surplus/deficit from Operating Statement in
        1. Introduction                                    4   Accumulated Funds                                         -269,277.30
                                                                                                                                       previous years. Page 4

        2. Accumulated Funds                               4                                                             -269,277.30
                                                               Total Funds
        3. Non Current Assets                              5
        4. Current Assets                                  6   Represented by:
                                                               Non Current Assets

              4.1 Bank accounts                            6   Computers/IT Equipment >$1,000                              3,000.00
                                                               Musical Equipment >$1,000                                   3,000.00

              4.2 Accounts Receivable Control              6   Other Assets >$1,000                                        7,506.36
                                                                                                                          13,506.36    Historical cost of assets >$1,000. Page 5
              4.3 Sundry Debtors                           7
                                                               Current Assets
                                                                                                                                       Closing bank balances including
              4.4 GST Purchases (Reclaimable)              7   High Yield Investment Account                             108,000.00
                                                                                                                                       unpresented cheques/deposits. Page 6
                                                               Official Account                                           98,000.00
              4.5 GST Clearing Account                     8   Accounts Receivable Control                                24,000.00    Outstanding family charges & Outstanding
                                                               Sundry Debtors                                             50,000.00    debtors eg hall hire. Page 6
              4.6 Provision for Non Recoverable Subject        GST Purchases Reclaimable                                   1,243.10
                                                                                                                                       Accumulated balance of GST paid until BAS
                                                               Provision for Non Recoverable Subj Cont.                    -8,000.00
                  Contributions                            8                                                                           is processed. Page 7

        5. Current Liabilities                             9   Total Assets                                              286,749.46    Journal entry reflecting estimated non
                                                                                                                                       collection of subject contributions. Page 8
              5.1 Group Tax Clearing Account               9   Current Liabilities
                                                                                         Payroll Clearing Account          -4,289.18   Holding accounts for the collection of
              5.2 Accounts Payable Control                 9                             Group Tax Clearing Account        -1,126.97   current period’s obligations. Page 9
                                                                                         With-Holding Clearing Account       -425.00
              5.3 Revenue in Advance                      10                             Revenue in Advance                -5,233.00   Revenue charged in the previous calendar
              5.4 GST on Sales                            11                             Accounts Payable Control
                                                                                         GST on Sales
                                                                                                                                       year relating to current year, but yet to be
                                                                                                                                       journalled. Page 10
        6. Non Current Liabilities                        11                                                              -17,472.16

                                                               Non Current Liabilities
                                                                                                                                       Amount owing to creditors. Page 9

                                                               Total Liabilities                                          -17,472.16   Total of assets less liabilities and should
                                                                                                                                       always equal accumulated funds.

                                                               Net Assets                                                269,277.30
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        1. Introduction                                        2. Accumulated Funds                                    3. Non Current Assets                                                                        Debit (Dr) Credit (Cr)
        The Balance Sheet is an important document             This figure consists of:                                The asset accounts (the 2XXXX series of accounts in          Furniture and Fittings>$1,000
        for schools using CASES21 Finance (C21F). This                                                                 the Chart of Accounts) shown here are those accounts         (Asset)                             2,500
                                                               • opening balances for assets and liabilities brought
        document outlines the major accounts listed in the                                                             that relate to items that will appear on a school’s Asset    Accounts Payable Control
                                                                 across at implementation from CASES Finance
        Balance Sheet and the effect of transactions on each                                                           Register (all Assets > $1,000). The amounts represent        (Liability)                                     2,500
        account. The document aims to provide a better         • movements during the month or year of assets          the historical cost of the asset (purchase price). Note:
        understanding of the purpose and the make up of          and liabilities through processing of accounting      As depreciation is not calculated as part of C21F, Non
        accounts presented in a school’s Balance Sheet.          transactions                                          Current Asset amounts in the Balance Sheet will reflect
                                                               • result of final surplus/deficit at December 31        the original purchase price of an asset until the point
                                                                 each year (calculated as Revenue less Expenses)       in time when the asset is disposed of. This will result in
                                                                 and represented in the Operating Statement at         an inflated value in a school’s Non Current Assets and
                                                                 December 31. A surplus increases Accumulated          Accumulated Funds.
                                                                 Funds, and a deficit decreases Accumulated Funds.     All assets purchased will also need to be recorded on the
                                                                                                                       school’s asset register.

                                                                                                                       Once the purchase of an asset is recorded on the C21F
                                                                                                                       system, at its historical cost, the relevant asset account
                                                                                                                       is debited by the amount of the asset as seen in the
                                                                                                                       following example where a piece of furniture is purchased
                                                                                                                       for $2,500. Accounts Payable is also credited (Refer 5.2).

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        4. Current Assets                                         4.2 Accounts Receivable Control                                Links to other reports                                       4.4 GST purchases (Reclaimable)
                                                                  This is the total of all outstanding charges issued to         When Accounts Receivable decreases following a receipt       This account is the accumulated GST paid by the
        4.1 Bank accounts                                         families.                                                      of money, the school’s bank account (Official Account)       school. The account acts as a tax credit account.
                                                                                                                                 will also increase (again this is because there are always   This account will increase when purchases are
        In the Balance Sheet, bank account balances reflect the   Accounts Receivable increases when a school enters
                                                                                                                                 two effects of a transaction in double entry accounting).    made throughout the period. Each time a purchase
        closing balances for each bank account resulting from     family charges on to C21F.
                                                                                                                                 However the revenue from the original family charge          (including GST) is made by the school a GST amount
        YTD cash transactions entered in C21F. These balances
                                                                  Links to other reports                                         stays the same on the Operating Statement.                   is paid. The account collects the GST portion of
        are more useful figures than the bank account balances
        contained in bank statements because they include all     When Accounts Receivable increases, a revenue code on          If a school wishes to reverse the original family charge a   the payment. For example: a typical purchase of
        unpresented cheques and all outstanding bank deposits     the Operating Statement also increases. This is because        credit note can be entered. This will decrease Accounts      a computer would create the following entries.
        receipted. The preparation of a Bank Reconciliation       there are always two effects of entering a family charge       Receivable and also decrease the revenue on the
        Statement is the mechanism to bring agreement             (hence the term “double-entry accounting”). If the             Operating Statement. The amount of the decrease will be                                         Debit (Dr) Credit (Cr)
        between the school’s and the bank’s balance. For cash     charge was for a camp, then the camps and excursions           the amount of the family charge that is being reversed.
                                                                                                                                                                                              Computers (Asset)                         800
        flow monitoring and decision making purposes, the         revenue code will increase by the same amount as
                                                                                                                                 It is important that a school reverses anticipated non
        various bank account balances displayed in the Balance    Accounts Receivable.                                                                                                        GST – Purchases (Reclaimable)
                                                                                                                                 recoverable charges as soon as it is determined that the     (negative Asset)                           80
        Sheet, provide a more accurate and complete cash                                                                         charge won’t be paid. This process ensures that a school’s
                                                                  Accounts Receivable decreases when a family pays
        position compared to what appears on bank statements.                                                                                                                                 Accounts Payable Control
                                                                  money to the school that is relevant to a family charge.       Accounts Receivable amount more accurately reflects          (Liability)                                          880
                                                                  The accounting effect of entering this receipt into C21F       the amount of funds the school expects to collect from
                                                                  is a decrease in Accounts Receivable as it reflects that the   families. This also ensures that revenue on the school’s     The account is also a negative asset account and
                                                                  family no longer owes the money to the school for the          Operating Statement is not inflated.                         along with GST on Sales, is used to calculate the
                                                                  relevant charge.                                                                                                            BAS figure. The GST – Purchases (Reclaimable)
                                                                                                                                 4.3 Sundry Debtors                                           account is automatically calculated and cleared
                                                                                                                                 This is the total of all outstanding invoices issued to      out when performing end of period BAS.
                                                                                                                                 non-families for items such as Hall Hire.

                                                                                                                                 Sundry Debtors operates in the same manner as
                                                                                                                                 Accounts Receivable.

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        4.5 GST Clearing Account                                   4.6 Provision for Non Recoverable                            5. Current Liabilities                                      Accounts Payable decreases when a creditor is actually
                                                                                                                                                                                            paid. The accounting effect of entering the payment in
        This is an automated calculation of all GST related        Subject Contributions
                                                                                                                                                                                            C21F is a decrease in Accounts Payable as it reflects that
        amounts. The figure is used to calculate this period’s     This figure is an estimate of the amount of subject
                                                                                                                                5.1 Group Tax Clearing Account
                                                                                                                                                                                            the creditor is no longer owed any money (the liability
        BAS. This account is used to clear the GST Purchases and   contributions a school expects not to have collected by      The Group Tax Clearing account is a holding account for     has been reduced).
        GST Sales accounts and contains the net effect of both     the end of the year. This figure appears as a negative       PAYG tax to be paid on school level payroll. This account
        accounts (GST Purchases and GST Sales).                                                                                                                                             Links to other reports
                                                                   figure in the Current Assets of the school as it is an       will automatically increase during the period when the
                                                                   ‘offset’ account for Accounts Receivable (the true asset     payroll is processed and then be eliminated when a          When Accounts Payable decreases, the school’s bank
                                                                   account). This account is used to accurately portray the     school’s BAS is lodged.                                     account (Official Account) will also decrease (again this
                                                                   true expected receivables to be reported.                                                                                is because there are always two effects of a transaction
                                                                                                                                This account works in similar fashion to the GST -
                                                                                                                                                                                            in double entry accounting). However the expense from
                                                                   To recognise the expected uncollectible subject              Purchases account and end of period BAS lodgement.
                                                                                                                                                                                            the original invoice stays the same on the Operating
                                                                   contributions a journal must be processed. The journal
                                                                   reduces Subject Contributions (a decrease in Revenue)        5.2 Accounts Payable Control                                Statement.

                                                                   and increases a Provision for Non Recoverable Subject        This is the total amount of outstanding creditor invoices                                       Debit (Dr) Credit (Cr)
                                                                   Contributions (an increase in a negative Asset).             – invoices awaiting payment. Accounts Payable increases
                                                                                                                                                                                            Accounts Payable Control
                                                                                                                                when a creditor invoice is entered in C21F.                 (Liability)                               200
                                                                                                       Debit (Dr) Credit (Cr)
                                                                                                                                Links to other reports
                                                                                                                                                                                            Official Account (Asset)                               200
                                                                   Subject Contributions (Revenue)           500                When Accounts Payable increases, an expense code on
                                                                   Provision for non-recoverable                                the Operating Statement also increases. This is because
                                                                   subject contributions                                        there are always two effects of entering an invoice
                                                                   (negative Asset)                                      500    (hence the term double-entry accounting). If the creditor
                                                                                                                                invoice was for ‘Bob’s Plumbing’, then the Repairs and
                                                                                                                                Maintenance expense code will increase by the same
                                                                                                                                amount as the Accounts Payable.

                                                                                                                                                                   Debit (Dr) Credit (Cr)
                                                                                                                                Repairs and Maintenance
                                                                                                                                (Expenditure)                             200
                                                                                                                                Accounts Payable Control
                                                                                                                                (Liability)                                           200

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       If a school wishes to reverse the original creditor invoice
       entered in C21F a credit note can be entered. This will
                                                                      5.3 Revenue in Advance                                          Secondly, a reversal of this journal entry occurs at
                                                                                                                                      the beginning of the next school year. This ensures
                                                                                                                                                                                                   6. Non Current Liabilities
                                                                      When charges are processed for subject contributions
       decrease Accounts Payable and also decrease the                                                                                that revenue is recognised in the correct school             Non Current Liabilities are those liabilities that
                                                                      that relate to the next school year, this account is used
       expenditure on the Operating Statement. The amount of                                                                          year. The reversal has the effect of reinstating the         are not specifically related to the current period,
                                                                      to separate next year’s revenue from this year’s revenue
       the decrease will be the amount of the original creditor                                                                       original revenue amount in the Operating Statement           that is, they are debts that the school has to pay
                                                                      so as not to over/understate revenue in the two affected
       invoice that is being reversed. Using the Bob’s Plumbing                                                                       and eliminating the Revenue in Advance liability.            that span a timeframe greater than the current
                                                                      periods (this is the essence of accrual accounting,
       example from earlier, if a credit note was processed the                                                                                                                                    accounting period. A Co-operative loan account
                                                                      being the need to record transactions within the period
       following adjustments will occur:                                                                                              1st January                         Debit (Dr) Credit (Cr)   is the best example of a Non Current Liability.
                                                                      they occur). This process is commonly referred to as a
                                                                      “balance day adjustment”.                                       Revenue in Advance (Liability)           5,000
                                            Debit (Dr) Credit (Cr)
        Accounts Payable Control                  200                 Firstly, a journal entry is processed at the end of the         Subject Contributions (Revenue)                      5,000
        (Liability)                                                   school year to reverse the original subject contributions
                                                                      revenue entered in the system. This has the effect of
        Repairs and Maintenance                                200                                                                    5.4 GST on Sales
        (Expenditure)                                                 decreasing revenue in the Operating Statement and
                                                                      increasing a Revenue in Advance liability account in            This account is calculated automatically and represents
       It is important that a school reverses creditor invoices as    the Balance Sheet. The Revenue In Advance account is            the GST collected on Sales (Liability Account) during the
       soon as it is determined that they will not be paid. This      treated as a liability, as it is revenue that the school has    current period. Each time an item is sold the purchase
       process ensures that the Accounts Payable figure more          recognised without providing any services. The school           price will incur GST and this account calculates the
       accurately reflects the amount of creditor invoices that are   has an obligation to perform the services in the next           running total of this GST collected.
       still awaiting payment. This also ensures that expenditure     school year.
       on the school’s Operating Statement is not inflated.                                                                                                               Debit (Dr) Credit (Cr)
                                                                      31st December                         Debit (Dr) Credit (Cr)
                                                                                                                                      Camps and Excursions (Revenue)             800
                                                                      Subject Contributions (Revenue)            5,000
                                                                                                                                      GST on Sales (Liability)                    80
                                                                      Revenue in Advance (Liability)                          5,000
                                                                                                                                      Accounts Receivable (Asset)                            880

                                                                                                                                      This value is used in the BAS calculation for the period.

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Department of
Education and Training
CASES21 Finance

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