7) Accounting System

CHAPTER VIIACCOUNTING SYSTEMA. TRANSACTION CYCLES1. REVENUE CYCLEThe revenue cycle starts with the customer. He/she chooses the service to be performed for a menu furnished by the receptionist. The receptionist would entertain the customers inquiries and write accordingly the services the customer wants to avail of in an order slip. The job order slip is accomplished in duplicate, one for the cashier to be used for billing, and the other for the provider of the service. The order slip should contain the name of the customer, the services to be performed, the name of the service provider(s), and a breakdown of the prices of the service.After the service is performed, the customer is lead back to the lobby, where he/she is then presented with the order slip with the total cost of all services computed by the cashier. The customer is given the freedom to check if the bill is right, if the price corresponds to the services given to him/her. If correct, the customer then pays the bill to the cashier. An official receipt is then prepared in triplicate, one for the customer as proof of purchase, another to the bookkeeper, and the last for filing.The total receipts of the day would be computed by the manager, and checked if the amount of cash in hand coincides with the collections for the day. Only the treasurer, the managing partner, and the cashier can collect money from the customers.

Figure AS-1: Revenue Cycle of Vaihto Sauna2. PURCHASING CYCLEThe receptionist would check available supplies in the inventory. He then prepares a purchase request to be presented to the managing partner. The managing partner decides if he approves of the purchase request or not. If approved, the managing partner would now prepare a purchase order in triplicate; one to the supplier, the other to the receptionist, and one for the manager. When the supplies purchased arrive, the bookkeeper then checks if the supplies are correct and in good condition. The bookkeeper then makes a receiving report stating the items received. This is made in two copies, one for filing and the other for the managing partner.The managing partner compares the receiving report, the purchase order and the invoice. After this, he prepares a voucher for payment.

Figure AS-2: Purchasing Cycle of Vaihto Sauna

3. CASH DISBURSEMENTThe cashier would receive the invoice of the expenses made by the sauna for the vendors. The cashier would check if the expenses are correct, and then would make a voucher in duplicate, one for the managing partner and the other for the other for filing. The manager pays the voucher and the bill, if correct. Then the payment is prepared, preferably using checks. If the expense is equal to or lower than P2,000.00 however it would be taken from the petty cash fund. The check/cash payment is given to the vendors after by the receptionist, and the manager gives the voucher and bill to the bookkeeper for recording and filing.

Figure AS-3: Cash Disbursement Cycle of Vaihto Sauna

4. PAYROLL CYCLE Timecards are accomplished by the employees with the help of the Bundy clock. It is duly signed by the employee, and then summarized every end of the month by the bookkeeper. The owners and managing partner have the power to adjust the salary rates, additions of the employees. The managing partner will then inspect the employees time card, including his information and performance at work, rate of salary, bonuses and deductions. The managing partner prepares a report on the employees updated rate and bonuses based on his performance, and the updated salary rates. Together with the time card, it is given to the bookkeeper, who then prepares a payroll register for the employee in two copies, one for file and the other for the managing partner.The managing partner makes and signs the checks for the payment of services rendered by the employees, together with bonuses and less the contributions to SSS and PhilHealth and withholding taxes. A payroll summary prepared by the manager is sent to the bookkeeper for recording.

Figure AS-4: Payroll Cycle of Vaihto Sauna

B. INTERNAL CONTROLSAs an emerging business, the proponents believe that the more a business grows, the more safeguards are needed to be done to protect the business from internal and external fraud. It is increasingly important to observe and maintain control of bookkeeping and accounting records which includes the control of cash receipts and disbursements. Cash is very valuable, and many people would do irresponsible things to obtain it. There should be oversight of transactions done in the business and control of cash flow to eliminate the presence of weak internal control.The general managers and owners must have trust and confidence in each other. The proponents must choose their employees cautiously and well trained in all the duties assigned to them. They must also maintain the efficiency and effectiveness of the business operations. To achieve this, each business concern must develop and implement a system that serves its particular needs.Internal control is affected by plan management and other personnel, and those charged with governance, and designed to provide reasonable assurance regarding the achievement of objectives in the reliability of financial reporting. The business policies, procedures, organizational design, and physical barriers all are part of the internal control process. These key topics all work together to achieve the following: Safeguarding Assets Assurance against the fairness and reliability of accounting data and reports Managements congruence with the firms goals and objectives Minimizing the unauthorized use of resources Improving the effectiveness of the firms operations and to improve the firm in the long term. Fighting against fraud, dishonesty, and activities that could destroy the firm

The proponents have set up internal controls in the business, particularly in these areas:1. Cash on Hand Cash on hand are put in a secure lockbox. This lockbox would be placed in the managing partners office. Only the owners, the cashier, and the general manager are authorized to access and open the lockbox. There must be two people present to open the lockbox in the managers office so that there would be a witness to such opening. Cash gained for the day and cash disbursed is kept track by the cashier and manager. At the end of the day the cashier audits the amount of cash on hand if the total amount of cash adding receipts and deducting disbursements is equal to the actual amount of cash. Overage or shortage of cash is informed to the manager or owners immediately.2. Cash in Bank Bank statements and book statements are reconciled on a daily basis to check if inconsistencies arise. Expenses via check and Deposits in the coming days are kept on track.3. Petty Cash Fund The imprest system would be used for the petty cash fund. All expenses paid through the petty cash fund will be accompanied by vouchers. The vouchers are numbered. Replenishment is done with the consent of the general manager/ general managing partner, when the balance if below P500.00 The petty cash fund would only be P1,000.00 per month. 4. Cash Disbursement Petty Cash is used for disbursements equal to or under P1, 000.00. If higher, checks are used. Outstanding Checks for long periods of time will be fold up by the proponents and checked its whereabouts. Before the check is signed the appropriate invoice, receiving reports, and vouchers concerned should be checked if the amount written coincides with the actual cost. Only the manager and the owners can sign checks. Invoices are kept for safekeeping. They are stamped as paid with the signature of the vendor in it. Blank Checks are not allowed. Pay to CASH is not allowed. Corrections by the bank regarding the checks are checked right away.5. Receipt of Cash Only the cashier, the owners, the receptionist (if none is available) and the general manager are allowed to receipt cash The customer can only pay in the billing area. The cashier will compute the bill of the customer. The customer is asked to check if the computation is correct to avoid conflict. An official receipt is prepared in triplicate. One for the customer as proof of purchase, the other to the bookkeeper, and the other for filing for future reference. The cash is deposited to the bank the following day. ORs are numbered, and must be signed by the customer. Prices of services availed by the customer and its corresponding additions due to overtime, are kept track and recorded by the receptionist in the bill.6. Fixed Assets Bringing home equipment is not allowed. The sauna would be inspected thoroughly for any missing fixed assets and employees would be inspected before leaving the sauna premises. An inventory of assets would be done regularly, and compared with the control account. Physical Count of fixed assets are done every few weeks. Only the owners and general manager can buy, sell, or accept donations of fixed assets. A consistent depreciation policy would be implemented year to year. Additions to fixed assets originated by requisition or by any other means should be explained as to the reason for addition, who needs the fixed assets, the cost if reasonable. Fixed assets acquired would be check if in good condition before accepting. A Locker Assignment System is implemented to protect the customers personal property. The front desk representative shall give a pre-numbered key that will serve as the customers key to the assigned locker after letting the client fill up the form that will be asked to be completed by the front desk representative.7. Payroll Pay additions and deductions can only be decided by the general manager and owners. A Bundy clock is installed to ensure the correct time is written on the time cards of employees. The time card must have the signature of the employee as certified true and correct before it is given to the bookkeeper. The total time of each employee must be approved by the manager, or owners. Payroll Payment should be by check, with the employees name written and the managers signature. Payroll checks are pre-numbered. Payroll should be checked regularly by the partners if just and reasonable.8. Expenses Purchase orders and expenses in general are scrutinized. The number of items to be bought, the reason behind the purchase/expense, the price, and the trustworthiness of the supplier is considered. Receiving records data should be matched with the vendors invoices. Invoices are to be properly approved for payments The cashier would compute if the amounts in the invoices are correct. Invoices paid and cancelled are stamped to prevent duplicate payments.

Table AS-1: Chart of Accounts of Vaihto Sauna

CHART OF ACCOUNTS

BALANCE SHEET ACCOUNTS

CURRENT ASSETS

100Cash & Cash Equivalents

110Supplies Inventory

NON-CURRENT ASSETS

200Land

210Building

211Accumulated Depreciation - Building

230Equipment

231Accumulate Depreciation - Equipment

CURRENT LIABILITIES

310Accrued Utilities Payable

320SSS Payable

330PhilHealth Payable

340PAG-IBIG Payable

350Withholding Tax Payable

360VAT Payable

370Income Tax Payable

380Dividends Payable

SHAREHOLDER'S EQUITY

500Share Capital

510Reserves

520Retained Earnings

INCOME STATEMENT ACCOUNTS

REVENUE

600Service Revenue

610Rent Income

EXPENSES

700Advertising Expense

710Utilities Expense

720Depreciation Expense - Building

721Depreciation Expense - Equipment

730Massage/Sauna Supplies Expense

731Office Supplies Expense

740Repairs & Maintenance

750Salaries Expense

751Salaries Expense - Office

760Organization Expense

770Taxes & Licenses

780SSS Employer's Contribution

790PhilHealth Employer's Contribution

800PAG-IBIG Employer's Contribution

810Miscellaneous Expense

820Income Tax

C. DESCRIPTION OF ACCOUNTS1. CURRENT ASSETSa. Cash and Cash Equivalents - This account shows the cash effects of a business transaction. Cash is legal tender as a medium of exchange at face value. Cash includes currency, coins, money orders, checks (except post-dated, non-sufficient fund, sale and defective checks), and certificates of deposits. Included whether on hand or in bank, and petty cash funds kept by the sauna.Debited for:Receipt of cash from customers, banks, or other meansCredited for:Disbursement of Cash via purchasing, supplies, other assets and expenses of the sauna bathb. Supplies Inventory These represent the massage and sauna and office supplies used in Vaihto Sauna.Debited for:Purchase of suppliesCredited for:Using up supplies

2. NON-CURRENT ASSETSa. Land - This is the lot bought by the owners, and being used as the spot for Vaihto Sauna. Currently measured at its fair market value.Debited for:Increase in value of the landCredited for:Decrease in value of the landb. Building The structure constructed and currently used to house the sauna.Debited for:Improvement and increase in value of the buildingCredited for:Decrease in value of the buildingc. Accumulated Depreciation Building This is the contra-asset account that shows the total amount of allocated depreciation from the date of acquisition.Debited for: Disposal of the building Credited for:Allocation of depreciation expense of the period for the buildingd. Equipment These are the equipment used in the office and usual operations. This includes the purchase price, freight, handling, storage and other costs related to the acquisition.

Debited for:Acquisition of new equipmentCredited for:Disposal of equipmente. Accumulated Depreciation Equipment The expense allocated to the equipment according to its useful life.Debited for:Disposal of equipmentCredited for:When expense is allocated for the equipment for the period3. CURRENT LIABILITIESa. Accrued Utilities Payable This account is the amount owed by the business for communication, water, and electriCity.Debited for:Payment of ObligationCredited for:Unsettled bills for communication, water, and electriCityb. SSS Contribution Payable - This account is the amount owed by the employee and employers share on SSS coverage.Debited for:Settlement of the contributionCredited for:Accumulated payable contributionsc. PhilHealth Contribution Payable This account is used to record the amount payable by the employers share on the PhilHealth coverage of the employee as required by law.Debited for:Payment of PhilHealth ContributionCredited for:Accumulated payable PhilHealth contributionsd. PAG-IBIG Contribution Payable This account is used to record the amount owed by the employer on the PAG-IBIG coverage of the employee as required by law.Debited for:Payment of PAG-IBIG contributionCredited for:Accumulated payable PAG-IBIG contributionse. Withholding Tax Payable This account is used to record the amount of tax withheld by the employee not yet remitted to the BIR.Debited for:Settlement of withholding taxCredited for:Unsettled withholding taxf. VAT Payable Business tax owed by the business to the BIR.Debited for: Payment of Value Added Tax to the BIRCredited for:Value Added Taxes incurred but not yet paidg. Income Tax Payable Represents income tax still due and payable to the BIR for the current year.Debited for:Remittance of income tax to BIRCredited for:Recognition of incurred taxes not yet paidh. Dividends Payable Amount owed to stockholders as dividends.Debited for: Payment of dividendsCredited for:Dividends incurred but not yet paid4. EQUITYa. Share Capital Shows the amount of shares bought by shareholders at par value. Buying a share gives them part ownership of the corporation.Debited for:Retirement of treasury sharesCredited for:Issuance of shares to shareholdersb. Retained Earnings This is the amount of profits not given away as dividends to shareholders. It is also called Accumulated Profits for that reason.Debited for:Paying dividends to shareholdersAppropriation of Retained Earnings for projectsCorrection of prior period errorsCredited for:Net Income earned for the periodc. Reserves This is the amount appropriated for the companys expansion plans and contingencies. Amount stored away for future use of the company.Debited for:Payment of projects, debts or contingenciesCredited for:Appropriation for projects, debts or contingencies6. REVENUEa. Service Revenue Shows the amount earned during the ordinary course of business. Earned from services rendered to customers.Debited for:Overstatement of revenueClosing to Income Summary accountCredited for:When income is earned from serviceb. Rent Income Represents the amount earned from rental activities from the building.Debited for:Closing to income summary accountCredited for:Income earned from rent7. EXPENSESa. Advertising Expense Amount used to promote the sauna to the potential customers. Explained in detail in the market study.Debited for:Incurred expense for advertisingCredited for:Closing to the income summary accountb. Utilities Expense - Utilities consist of water, electriCity, and communication costs incurred in the period.Debited for:Incurring water, power and communications costs

Credited for:Closing to the income summary accountc. Depreciation Expense amount allocated as expense of the non-current assets for the period. This is a sum of depreciation expenses of all non-current depreciable assets.Debited for:Incurring Depreciation ExpenseCredited for:Closing to Income Summaryd. Supplies Expense Use to record used office supplies now recognized as expense.Debited for:Used office suppliesCredited for:Closing to the income summary accounte. Repairs and Maintenance represents the cost of repair of the equipment in the sauna bath.Debited for:When repairs and maintenance is incurredCredited for:Closing to the income summary accountf. Salaries Expense Represents the payroll of the employees in relation to the service they performed for the good of the business. Debited for:Salaries incurred for the periodCredited for:Closing to the income summary accountg. Organization Expense This is the amount of expenses incurred to set up and organize the business establishment. The expenses included in this account were explained in the earlier studies.Debited for:Organizational expenses incurred for the periodCredited for:Closing to the income summary accounth. Taxes and Licenses Represents the business taxes, licences and other fees due to the BIR.Debited for:Amount of tax incurred in the periodCredited for:Closing to the income summary accounti. SSS Employers Contribution The employers share of the SSS coverage as required by law.

Debited for: Amount of employers contribution to SSSCredited for:Closing to the income summary accountj. PhilHealth Employers Contribution The employers share of the PhilHealth coverage as required by law.Debited for: Amount of employers contributionCredited for:Closing to the income summary accountk. PAG-IBIG Employers Contribution The employers share of the PAG-IBIG coverage as required by law.Debited for: Amount of employers contribution to PAG-IBIGCredited for:Closing to the income summary accountl. Miscellaneous Expense This account shows the amount paid for small, unidentifiable expenses not mentioned above.Debited for:Amount of expense incurred

Credited for:Closing to the Income Summary accountm. Income Tax Income tax obligation to the BIR for the period ended. Debited for:Amount of income tax incurred for the periodCredited for:Closing to the Income Summary accountn. Income Summary the account used in closing entries when a business has finished a fiscal year.Debited for: When an expense account is closedCredited for:When an income account is closed

VAIHTO SAUNA

30 Legarda Street, Baguio City

TIN# 000-000-000

BIR Permit No 000000

No. 000000

OFFICIAL RECEIPT

Date: ____________

Received from: _____________________________________

Address : ___________________________________________

The amount of: ______________________________________

(P__________________) in full payment of:_________________

_________________________________________________

Payment received by:

___________________________

Figure AS-5: Official Receipt

VAIHTO SAUNA

30 Legarda Street, Baguio City

TIN# 000-000-000

PURCHASE REQUISITION

No. 00000

Date:__________

QuantityDescription

Prepared by:Approved by:

__________________________________

Figure AS-6: Purchase Requisition

Figure AS-7: Purchase OrderVAIHTO SAUNA

30 Legarda Street, Baguio City

PURCHASE ORDER

TIN# 000-000-000

TO:No. 00000

Date: ___________

QUANTITYDESCRIPTIONUNIT PRICETOTAL PRICE

Prepared by:Received by:

________________________________________________

Figure AS-8: Receiving ReportVAIHTO SAUNA

30 Legarda Street, Baguio City

TIN# 000-000-000

RECEIVING REPORT

QUANTITYDESCRIPTIONREMARKS

ACCOMPLISHED BY

VAIHTO SAUNA

30 Legarda Street, Baguio City

TIN# 000-000-000

CASH REGISTER

DATE

ACCOUNTSPAYABLECASH INBANK

CHECK NO.PAYEEPAYABLEDISCOUNTBANKDEPOSIT

DEBITCREDITCREDIT

Figure AS-9: Cash Register

Figure AS-10: Payment Form

VAIHTO SAUNA

30 Legarda Street, Baguio City

TIN# 000-000-000

PAY TO

NO

ADDRESSDATE

EXPLANATION

ACCOUNTDEBTCREDITRECEIVED FROM VAIHTO SAUNA

TITLE

THE SUM OF

APPROVED FOR PAYMENT

Figure AS-11: Daily Time CardVAIHTO SAUNA

30 Legarda Street, Baguio City

TIN# 000-000-000

DAILY TIME CARD

NAME

MONTHPOSITION

AMPMOVERTIME

INOUTINOUT

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

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28

29

30

186