UNIT 9

Accounts and Financial Services

In any business the accounts office is important because the survival of the business is
dependent on the proper control of money going in and out of the organization as well as
keeping proper/accurate records of these events. This department is controlled by the chief
accountant and supported by several other junior accounts clerks.

Role and Functions of the Accounts Office.

 Preparation of payroll – the payroll is the record or lists the money paid/withholdings
and deductions for all staff as salaries/wages paid either weekly/fortnightly/monthly.
This is one of the main functions of the accounts office.

Terms used to describe remunerations (payment for work completed) to employees.

 Salaries – paid to persons who work on a monthly or two weekly (fortnightly)

basis.

 Bonus rate – refers to payments or additional income paid to workers for

completing more work than agreed upon.

 Overtime – this is the number of hours an employee works above/after his

normal working hours. This is usually done when the company’s demand for
their product/service increases. Extra worked hours are usually paid at time
and a half as per labour laws (1.5 times regular hourly pay rate).

 Hourly rate – employees are paid a set rate for each hour worked e.g $8/per
hour.

 Piece work – this is sometimes referred to as a “payment by results” system.

Workers are paid a fixed rate for each item produced or action performed. E.g
a seamstress will be paid for each skirt/shirt/dress/pants produced. The more
items produced the higher the pay.

 Wages – payment given to workers labour oriented workers usually at the end
of every week or day (babysitters, gardeners, household helpers, etc).

 Commission – an employee is paid solely on performance or amount of sales

done. Usually calculated in percentage.

 Fringe benefits – ‘perks’ are incentives offered to employees by employers. Egs –

transportation benefits, company cars, medical facilities, health insurance,etc.
Wages and salary deductions.

Net pay = Gross pay minus (-) total deductions

Gross pay = regular pay plus (+) any overtime pay or commission

Every worker will have taxes and other deductions taken from their pay therefore the take
home pay (net pay) will be less than the original pay before deductions (gross pay). These
deductions can be either involuntary (ordered by law) or voluntary (done upon instruction of
employee).

Involuntary deductions include:

 National Insurance Services contribution (%)
 Income tax (%)
 Education tax (% some countries)
 National housing trust contributions (% some countries)

Voluntary deductions include:

 Life insurance premiums (payments)
 Payments to credit unions
 Mortgages (loans)
 Staff social clubs
 Payments to charity
 Superannuation (pension plan)

Payroll documents
 A payroll list/sheet – records either paper or electronic that shows hoe each
employee’s pay is calculated and includes:
Wages and salaries
Commission and bonus
Overtime
Holiday pay
Statutory payments

 A time card – itemizes the hours worked at different pay rates and the total earned.

 A pay slip - a document an employee receives when salaries are paid and documents
the gross pay, all deductions and the net pay. It acts as an advice to the employee that
payment has been made for work done.

 Collection of accounts – this is an activity performed by the accounts office that is

responsible for collecting all outstanding payments due to/owed to the organization.
This is done when customers become delinquent in their payments for goods/services
that have been taken on credit.

 Credit – refers to any situation where money is allowed to be owed.

 Credit period – is the length of time a customer is allowed before they must
pay the amount owing.
  Credit control – monitoring the amount of money owed by individual
customers ad chasing up overdue payments.
 Debit note – states the extra amount owed to correct a shortfall on an invoice
(if the bill was understated/total cost below what was actually owed).
 Credit note – states the amount that can be deducted to correct an over charge
on an invoice ( if the bill was overstated/total cost above what was actually
owed).
The layout of debit and credit notes are similar and contain information such as:

 The date
 The name and address of the customer
 The quantity of items
 A description of the items
 The price per item
 The total amount – quantity x price

 Audit – is an independent check of a business’s financial

records/affairs/transactions.

 Preparation of an audit – an audit is the independent check of the accuracy of the

financial statements prepared by the business accounts office. Auditing ensures that
these statements are free and fair of errors and is performed by independent persons
known as auditors. Auditing may be carried out by internal or external auditors.
An audit is usually carried out once per year and also for the purpose of
taxes.
Auditors usually –
o Assess whether or not a company or department is complying with
accounting and legal rules
o Assessing the reliability of financial information
o Detecting fraud
o Make recommendations for the prevention of fraud.

 Credit control – this is the process of control over payments coming into and going
out of the business. Most businesses operate by allowing some of their customers
(debtors) to be supplied with goods on credit and are issued based on their credit limit
(how much they can take goods worth up to). Each month a statement of account is
issued to the debtor summarising all transactions and total owed. The business then
checks for payment from the customer (debtor). The accounts office identifies the
overdue payments and takes necessary action.

Duties of the accounts clerk

The accounts clerk is responsible for helping with the efficient operation of the
accounts office and duties may include;
 Posting journalized data
 Handling accounts receivable and payable
 Preparing payroll
 Billing customers
  Operating accounting equipment
 Preparing financial statements
 Providing information
 Answering incoming information
 Reconciling monthly statements
 Writing receipts and cheques
 Writing up cash book
 Filing

Attributes of an accounts clerk

 Integrity – they can be trusted to handle sums of money particularly cash.

 Confidentiality – they can be trusted not to disclose sensitive information.
 Reliability – they can be depended upon to deal with all tasks thoroughly and
accurately
 Honesty – they can be trusted to provide truthful information at all times.

Resources used in the accounts office

Resources are the devices that are used in the accounts office to allow for the smooth flow of
information and works to be carried out efficiently and accurately.

These resources include –

Calculators – performs the basic operations of arithmetic.
Adding machines – this is a type of calculator usually specialized for book keeping
calculations and have now been replaced by computers.
Computer – programmable machine that is used for keeping records of sales and
purchase transactions, producing invoices, debit and credit notes and statements of
accounts, producing debtor reports, producing payroll and payslips, storing names
and contact details of customers.
Printers, scanners, copiers – to print and copy and duplicate documents used in the
office.
Software resources include –
Accounting packages – software application that records and processes
accounting transactions such as accounts payable, receivable, payroll,
spreadsheets and trial balance. E,gs – quickbooks, peach tree, fundware.

Financial institutions and their services

Financial institutions are those organizations involved in providing various types of financial
services to customers. These institutions are controlled by rules and regulations of
government authorities.

Financial institutions and their services

Type of financial Services
institution
Central Bank All Caribbean territories have a central bank that controls their overall
financial policy. The main functions of the central bank are to keep
 inflation down, to encourage commercial banks to lend money to
promote the economy, to act as the government banker and to issue
currency.
Commercial banks These are the banks that you see everyday such as rbtt, scotia
bank,bosvg etc. they deal with businesses and private persons by
setting up bank accounts for them, accepting deposits and issuing
loans. They provide account holders with regular bank statements that
can be checked (reconciled) against the persons’ business records for
accuracy.
The types of loans they offer include – Secured loan in which the
borrower pledges some asset (property, car) as collateral (security) for
the loan.
Mortgage loan – used to purchase property such as houses, land and
cars.
Unsecured loans – monetary loans that require no security form the
borrower.
Investment company These are businesses that invest in other businesses by using monies
from private investors. Profits and losses are shared among the
investors according to the amount of money invested.
Insurance companies These enable people to protect themselves against misfortune, such as
fire or flood. Policy holders pay a regular premium so that they will
be compensated if the insured event occurs. Some types of insurance
are required by law such as car insurance. Many companies offer a
wide range of policies to cover business and domestic property,
vehicles, house contents and redundancy.
Credit unions These are financial institutions that are owned and run by their
members. Members save money, borrow money from their credit
unions just as they do banks.
Bureau de These businesses specialize in buying and selling foreign currency.
change/cambios/ They make their money by selling at one price and buying at a higher
exchange bureau price or by charging commission on each trasaction.

Banking
Businesses may choose to lodge their money with banks for any of the following reasons;
Large amounts of cash are safer in a bank
Mo storage space is needed on the firm’s premises
While money is in the bank, trade can be done by using cheques and bank
transfers. This is safer and quicker than carrying large stacks of cash.
Services provided by banks include;
Deposit/savings account
Current/cheque account
Standing orders
Direct debit facilities
Credit transfer system
 Advice on stocks and shares
Overdrafts
Mortgage facilities
Debit cards
Banker’s draft facilities.
Types of bank accounts –
 Savings account – encourages savings from the general public, account holders are
able to make deposits and withdrawals at their convenience. Interest is earned yearly
and account holders are able to use ATM machines and debit cards to withdraw and
make payments that are deducted directly from their personal account.
 Current account – also called a cheque account allows the holder to make purchases,
pay bills and other transactions without the use of cash. This type of account is often
used y business organizations and individuals who make payments on a day to day
basis.
 Premium plus account – this is a first class savings account designed to improve
returns (interest) for the account holder.
 Certificate of deposit – also known as a time deposit or fixed deposit that requires te
holder to deposit a certain sum of money and agree to leave the funds in the account
for a fixed time period. They attract a higher interest rate.
 Money market account – a higher interest rate is paid and there is a minimum balance
that must be maintained in the account before interest can be earned. Withdrawals ae
restricted per month.
Making and receiving payments.
Types of payments –
 Cash and cheques
Advantages of using a cash payment is it’s a quick way of settling a debt, recipient knows
payment is received.
Disadvantages of using cash payments include stolen cash possible to trace and a receipt is
essential to prove that payment was made.
Advantages of using cheque payments include safe to send by post if crossed, bank record is
proof of payment, two signatures by senior staff and helps protect against fraud.
Disadvantages of using cheque payments include – must be taken to the bank, may bounce if
drawer has insufficient funds in account.
 Credit cards – plastic card with a magnetic strip that contains key information about
the card holder. It works as follows;
The credit card account holder is issued with a credit card and allowed credit
to a fixed level each month.
The card is used to make purchases/payments
The company that issued the card pays the retailer the amount involved minus
a small percentage.
The credit card company keeps a record of all the payments made and sends a
statement once a month to the account holder.
If the account holder pays off the total in full, no interest is charged. If only
part is paid the card holder pays interest on the balance owed.
 Money orders and postal orders – these are both supplied by post offices. Postal
orders are for a small amount and are paid for and posted by the sender to a named
person or business. They are mainly used by people who do not have a business bank
account. Money orders are for larger amounts and are paid for by the sender. The
recipient must take the order to the post office to receive the money.
 Standing order – written instructions to the bank by a bank account holder to pay a set
amount of money at regular intervals to another account. These are usually used to
pay rent, mortgage, loans, etc. A fee is charged for this service by the bank.
 Bank draft – this is a cheque made out by a bank on its own account. The customer
pays the amount to the bank plus a fee for eh service, the bank then issues the draft to
be sent to the payee. The payee presents the draft to the payers bank for remuneration.
 Direct debit – is an instruction given by the bank account holder to the bank to collect
a sum of money directly from another bank account holder. The person whose
account the funds are being paid from must ensure that sufficient funds are in the
account.
 Overdraft – this is a borrowing arrangement with the bank to permit withdrawal of
more funds than are in the account of the holder.
 Electronic transfers and credit transfers – these are both methods of transferring
money between bank accounts without the need for cash, cheques, postal or money
orders. The sender simply instructs the bank to transfer an amount of money to the
receiver’s bank.
  Cheques – these are written orders from the owner of a cheque (drawer) to the bank
(drawee) to pay on demand the sum of money stated on the cheque to the third party
(the payee/name on cheque). A cheque is generally valid for 6 months.
Payee – is the person to whom the cheque is made out and who is receiving the payment.
Drawer – is the person who wrote the cheque and is drawing money out of their account to
pay it.
Parts of a cheque
Cheques generally contain;
1. Name and address of issuing bank
2. Cheque number
3. Date of issue
4. Name of payee
5. Amount in figures
6. Amount of currency in words and figures
7. Bank logo (optional)
8. Bank identifying number
9. Drawer’s account number
10 & 11. Signature of drawer

Types of cheques Characteristics How they are used

Open cheque Does not have two parallel lines Can be paid into the
printed/drawn on it. receivers’ bank account or
exchanged for cash at the
bank on which it is drawn
or endorsed over to
another person.
Certified/managers Signed by the manager or other Used to pay who may be
Cheque designated senior staff member at concerned about the credit
 the bank branch. worthiness of the buyer.
Payment is guaranteed at
the bank.
Counter cheque Made out at the counter of the Can be cashed by the
payer’s bank and is similar to a receiver at any bank.
bank draft.
Crossed cheque Two parallel vertical lines are Can only be paid into the
drawn on the cheque. Normally bank account of the
‘not negotiable’ or ‘A/C payee’ is named receiver. Cannot be
written between the lines. paid into anyone else’
account
Endorsement Written on the back of an Instruction to the bank
Postdated/stale uncrossed (open) cheque about who should be paid
dated cheque the proceeds of an open
cheque.
Travellers cheque These are usually bought at the Tourists usually use these
bank by persons who are about to to make payments in
travel and do not wish to walk with various amounts to
large sums of money. represent money instead
of raw cash.
Order cheque Cheques payable only to the named Done to instruct bank to
payee or his/her endorsee and pay only the name written
usually contains the words pay to on the cheque from
the order of (name). drawers account.
Dishonoured A cheque that has been made out to A cheque may be
cheque a payee but there is insufficient dishonoured; the issuing
funds in the cheque account to of a stop order on a
make payment from. cheque, insufficient funds,
frozen account, past
expired date, not signed,
errors on the cheque.
Blank cheque Has no numerical value written on Accounts clerks will then
it but is already signed. fill in the relevant
information to make
payments when needed.
Usually done if managers
have to leave for lengthy
periods of time.