"How did you enjoy your week learning to operate the new computerized accounting system, Johnny," the senior accounting manager of a medium sized manufacturing operation asked his senior clerk early one Monday morning, just after the start of a new financial year.
"Oh, it was great Mr Robinson," Johnny replied. "Everything's going to be so much easier now. I've never been so excited about coming to work before."
"That sounds good." Johnny's boss said. "Now off you go into the new computer room and see if you can put what you learned last week into practice."
Johnny smiled and disappeared into the new facility carrying his new manuals under his arm taking a further step along his career path as he did so. The system had been tailored to meet the company's needs by an employee of the software company, who Johnny had come to know as Peter. Peter had run the training course for Johnny the previous week, and Johnny had Peter's telephone number. Six month's free telephone support came with the cost of the package.
Johnny excitedly switched on the brand new computer and accessed the accounting program.
Peter had set up the opening balances from the old financial year, and Johnny was able to start inputting the first month's data. Things started well, but within an hour a frown appeared on Johnny's face. He had come across a problem and he didn't even have a pencil handy to suck on as he thought through it. Eventually he called Peter.
"Peter, remember you told me never to post to a designated bank account without using the bank entry module, as any directly posted transaction wouldn't appear when I performed a bank reconciliation."
"That's right, well remembered," Peter replied. "What's the problem?"
"Well, how do you post a transfer from one bank account to another? You know we've got five. The debit to the receiving bank account won't be going through the bank entry module and so the bank reconciliation of the receiving account will be mucked up."
"Have a look in the balance sheet section of the chart of accounts. There should be an account called 'Interbank Transfers'," Peter answered as he checked his copy of this particular client's chart of accounts which he accessed on his computer screen.
"Can't see one," Johnny stated after a minute or two.
"No, you're right. I've forgotten to set one up, sorry," Peter said. "Do you remember how to set up a new account?"
"Yes, no problem."
"Well make it a balance sheet account. It doesn't matter whether it's classified as an asset or liability. I would use an easily remembered code number, say 2-9999."
"Okay, consider it done, but how do I use it? Johnny continued.
"Well, for every transfer you will need to make two entries, one from each bank account, but you'll post both to account 2-9999. The payment from the bank account giving the money will debit the Interbank Transfers account and the receipt by the receiving account will credit the same account. At the end of each period, you must ensure that the balance of account 2-9999 is zero. That's why it doesn't matter whether it's classified as an asset or a liability."
"Okay, I think I understand, but will I not need five such accounts."
"No, you can use the same account no matter which bank account the money is coming from and which bank account the money is going to. The debits will always cancel out the credits. But you must remember to check that the balance of account 2-9999 is zero at the end of every period, in case you've mis-posted a payment or receipt or forgotten to post a bank account's transactions completely. You should add that check to the end of month checklist I made up for you," Peter suggested.
"Consider it done,"Johnny replied. "Thanks, and I try not to bother you any more."
"That's what I'm here for," Peter responded. "And if I don't her from you with a problem at least every other day, I'll be surprised. But you'll find that there's always a solution. You've got a good knowledge of double-entry bookkeeping and that is what the program is based on, just like your old manual system, so you'll understand the solutions without too much trouble. Bye for now"
"Bye," Johnny replied before hanging up the telephone. As he did, he thought, 'there I was thinking that I had wasted all those years studying double-entry bookkeeping. How wrong I was!'
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Phil Ramage CA (Scot) CA (Aust)
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