i-Clarity and Double Entry Bookkeeping

Origins» First formalised by Luca Pacioli,

1446(?) - 1517» Clever chap – he taught his roomie

mathematics…» … his roomie being Leonardo da Vinci!» At the same time as Italy was being

engulfed in regional wars…» …Luca was laying down the rules that

would make capitalism possible

Luca Pacioli

Double Entry – But What does it MEAN?

Luca’s great insight:If we record each change in our assets , e.g. our bank account going UPAnd at the same time, record how that change came about, e.g. by selling stuff…

We get 3 benefits…

Instantly check that our bookkeeping is accurate:

‘a person should not go to sleep at night until the debits equal the credits.’

Benefit 1

Benefit 2

Instant snapshot of our business – Our tangible assets and our

liabilities:

The Balance Sheet

And at least as important - a map of how we got there:

The Profit & LossWhich also gives a guide as to how we will do in the future

Benefit 3

It was important in the middle ages…

» Because you needed accurate bookkeeping to engage in joint business ventures

» You needed the concept to create companies that limited your liability, so you could take risks

It is important Today…

» So you know that all your hard-earned is accounted for…

» So you know exactly how much your business is worth in tangible assets…

» And how much it is worth in intangible assets – good will, momentum, track record, growth… And which is more important?

Sample Valuation

How much would you value a business turning over £300,000?

Annual Turnover £300,000

Instruments: £30,000

Stock: £15,000

Debtors: £10,000

Cash in bank: £15,000

Total: £70,000‘Goodwill’ – Your P & L! ???

Valuation: £70,000 + Goodwill!

Accounting is too important to leave to accountants!

OK So - How does it work?

» You sell a pair of specs…» So you record a sale…» …but because you haven’t taken

any money…» …The asset that has increased is

your Debtors

» Px returns and pays for the specs…

» So your bank account increases…

» …But the amount you are owed (the Debtors) goes down.

» Refunds

» Write offs

» NHS/Corporate

» Direct Debits/Standing Orders

Some complications …

» No Problem

» Simply a minus sale – Sales are reduced by refund amount…

» …and you have less money in the till at the end of the day

Refunds

Used when you will NEVER collect an outstanding balance» ‘Write off’ payment amount

automatically creates a reverse sale for the write off amount

» The effect is cash neutral» But your sales (and VAT liability) are

reduced

Write offs…

Also no problem!» Sales/VAT are counted when the

goods or services are supplied» The value increases the debtors

control as usual» … But the debtors control is

typically reduced in big lumps when payment received

NHS/Corporate

» Money is received into your current account

» It’s a liability on your balance sheet» Sales/VAT are counted when the goods or

services are supplied, as usual…» But make an end of month adjustment for

sales made in the month (and are therefore in debtors control)…

» … transferring the DD/SOs funds used from Debtors control to DD Control

Direct Debit / Standing Order Sales

SummaryAccurate bookkeeping is important because» It is your unavoidable, legal responsibility

» It complements your other practice activities, ensuring you get paid for your goods and services, reducing the possibility of fraud and even contributing significantly to patient care

» It gives you an accurate valuation of your business – both tangible and intangible assets

» And with a correctly designed Practice Management system, it isn’t even hard to do!