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Whoever prepares and presents the accounts must be a practising member firm of the Institute of Chartered Accountants in England and Wales (ICAEW). This means they are subject to its ethical and other professional requirements which are detailed at http://www.icaew.com/en/members/regulations-standards-and-guidance/.

All service charge payments are kept in the nominal ledgers which contain each asset and each liability and at the end of the service charge year, the accounts are reconciled. This means making one account consistent with another, by allowing for transactions that began but were not completed by the end of the year. All the accounting records kept by the managing agent (comprised of the vouchers, records and other information and explanations) and the nominal ledgers are passed to the external accountants. The nominal ledgers support the trial balance which is based on double entry book-keeping so every accounting transaction has 2 parts or ‘sides’.

The most common number system used in a Trial Balance is:

1,000 – 1,999: Asset Accounts: These are Cash, Accounts Receivable (the most liquid assets behind cash) Supplies, Inventory,and Land (or any other asset that can be sold to be converted into cash to pay off current liabilities);
2,000 – 2,999: Liability Accounts: The Liabilities section is found in the Balance Sheet, opposite the Asset section and listed in order of payment terms, from shortest to longest. Liabilities are an integral part of the Fundamental Accounting Equation on which all accounting/bookkeeping is based on: Assets = Liabilities + Owner’s Equity;
3,000 – 3,999: Equity Accounts: These represents the leftover interest in the assets of an entity after all liabilities are covered, spread over the individual stockholders. When the owners of a business are stockholders, this is referred to as stockholders’ equity. It appears in the Balance Sheet, usually below the assets and liabilities sections;
4,000 – 4,999: Revenue Accounts (Sales and Cost of Goods Sold): Revenues are made largely with the sale of goods and services and can be found at the top of the Profit and Loss Statement, above the section of Expenses. The reason the Profit and Loss Statement is constructed in such a way is to calculate Net Income, which is equal to Revenues – Expenses;
5,000 – 6,999: Expense Accounts

A Trial Balance will usually consists of 4 columns showing a list of all the balances contained against each nominal code which allows all transactions (sale or purchase) to be traced. When it is run, for every transaction the value of the debit balance column and the credit balance column must have the same totals to agree i.e. one negative and one positive – giving a net balance of zero. It will look something like this:

001 – 10020 – Service Charges – Debit/Credit
002 – 10026 – Sinking Fund Income – Debit/Credit
010 – 20820 – Interest Received – Debit/Credit
220 – 20300 – Electricity – Debit/Credit
221 – 20326 – Emergency Lighting – Debit/Credit
225 – 20750 – Buildings Insurance – Debit/Credit
226 – 20790 – Directors and Officers Insurance – Debit/Credit
230 – 20500 – Repairs/Decoration – Debit/Credit
243 – 20660 – Gardening/General – Debit/Credit
323 – 20810 – Management Fee – Debit/Credit
324 – 20902 – Administration Fee – Debit/Credit
362 – 20845 – Company Secretarial – Debit/Credit
365 – 20840 – Audit & Accountancy – Debit/Credit
380 – 20821 – Bank Charges – Debit/Credit
411 – 20820 – Interest Earned – Debit/Credit
560 – Transfer to Reserves – Debit/Credit
565 – Tranfer from Reserves – Debit/Credit
710 – 91000 – Tenant Control – Debit/Credit
730 – Prepayments – Debit/Credit
751 – 93500 – Client as Debtor – Debit/Credit
760 – 60068 – Bank Service Charge Fund – Debit/Credit
761 – 60184 – Bank Reserve Fund – Debit/Credit
800 – Accruals – Debit/Credit
804 – 92000 – Supplier Controls – Debit/Credit
930 – Reserve Fund Brought Forward – Debit/Credit
935 – Sinking Fund – Debit/Credit
940 – Retained Earnings – Debit/Credit

Totals – Debit/Credit

Net Profit – Credit

There is much confusion about the inherent meaning of debits and credits so a good way to remember how they work is the golden rule of DEAD CLICK:

Debits increase Expenditure (Rent, Wages) Assets (Cash, Accounts Receivable, Inventory, Land, Equipment, etc.) Dividends (credits decrease them) and Credits increase Liabilities (Accounts Payable, Notes Payable Interest Payable etc) Income, and Capital. (debits decrease them). So, debiting a cash account increases the amount and debiting an accounts payable account decreases the liability.

Chart of Accounts

All codes are usually held in the Chart of Accounts, which provides structure to the nominal ledgers. It can be tailored to need the needs of the company in the form of manually adding, editing and removing nominal codes and can import a whole new chart of accounts (with or without opening balances). It can also show the general ledger account number which is automatically assigned by the accounting software and split into three columns:

  1. The account name;
  2. The type of the account i.e. asset, liability equity, income, cost of goods sold, or expense;
  3. A description of the type of transaction which should be recorded in the account, i.e. a debit entry or a credit entry.

In addition to holding Nominal Codes, the Chart of Accounts may also hold:

  1. Expenses codes;
  2. Cost centre codes;
  3. Project codes.

The accountants will then adjust each entry on the nominal ledger through the trial balance in order to properly state them for the purpose of preparing the service charge financial statement at the year-end. Those adjustments cover such reasons as:

  1. Mis-postings;
  2. Reversal of opening balances;
  3. Timing differences for accruals and pre-payments;
  4. Additional invoices for late payments.

 

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