InPractice Software

Ah, the Extended Trial Balance!

Any general practice accountant will confirm that the most efficient technique for preparing financial statements from Incomplete Records, is the ‘Extended Trial Balance’ (ETB).

The origins of the ETB technique are lost in the mists of time. However, ETBs have been widely in use in the UK from the middle of the last century, peaking in the '70s and the '80s. ETB usage declined as it became too expensive to train highly-paid graduates. Data was input into heavy-weight bookkeeping software.

Accountants complain trainees may have a BA in accounting, but many do not know how to pass a journal to adjust accounts - they do not know their debits from their credits.

Escalating competition amongst smaller accountancy firms has resulted in accountants charging very competitive fees for accounts production work. So, the need to control the production costs has grown acute. Since fees are tighter, time-consuming input into heavy-weight bookkeeping software is no longer cost-effective for either smaller, or Incomplete Records jobs.

The solution for this scenario has to be the greater use of the ETB technique, wherever appropriate. It was the fastest technique in the pencil and eraser days. Now used on Excel powered by a Pentium processor, it works at lightening speed.

What is ‘Incomplete Records’?
Small businesses do not have the time or the know-how to write up ledgers. Most are able to issue sales invoices and many are able to write their cashbook. They want their daily bookkeeping therefore to be straight-forward, since they prefer to concentrate on selling their widgets. Since VAT registration threshold is £54,000 (2001-2002), many micro businesses are not VAT registered. For turnover up to £600,000, the ‘VAT Cash Accounting Scheme’ can be adopted. So, tedious ledgers are not compulsory, or indeed necessary. It can be as informal as four spikes - one each for paid and unpaid sales invoices, paid and unpaid suppliers invoices. So, VAT is accounted for through their cashbook.

In these competitive times, one way for the accountant to maintain a healthy margin from fee income, is to encourage clients to switch over to the ‘VAT Cash Accounting Scheme’ and maintain an efficient cashbook. Where appropriate, encourage them switch over to the ‘VAT Annual Accounting Scheme’ to prepare VAT Returns with year-end accounts production. This excludes time pressure four times a year and running the danger of incurring penalties as many times. Besides, with the same fixed fee why be overburdened with low-paid bookkeeping work? By freeing up your time, you would have more time to recruit new clients, or even take time off to reduce stress.

However, many small businesses are notorious for providing their accountant with the proverbial ‘brown-paper parcel’, if not a supermarket bag (if you are lucky a Harrods bag!), with a varying degree of incompleteness in their accounting records. They fall into one of the following categories:
- Vouchers and bank statements
- Vouchers, bank statements, a cashbook
- Vouchers, bank statements, a cashbook, Sales Ledger
Very few provide a perfect set of financial statements for the accountant to sign-off.

Heard the brown-paper parcel joke?
A fish 'n chips shop had newly started in business. On engagement, the accountant's instructions sounded quite simple to the client - just keep a track of the income and the outgoings, call me after a year and leave it to us to produce year-end accounts!

After a year, the accountant is called in, a hearty fish 'n chips meal is offered and after a chat and cup of tea, the shop owner unceremoniously dumps a greasy brown paper parcel on the table for the accountant. The shop-owner scuttles off to the front of the shop to attend to his customers. ........ continued in next column ..............>

The accountant peels layers of greasy wrapping paper from the parcel and out tumble bundles of bank notes tied by rubber bands. "What is this?" the accountant roars, "How can anyone produce a set of accounts from just this?"

The fish 'n chips proprietor says "I have been entirely honest with business, guv! I put all the takings in there and paid out only the business expenses, so it is all there for you to produce the accounts. Just as you said. Any problem with that?"

That was just a joke. In real life, it is usually not as bad as that.

The accountant first completes the recording in the cashbook and reconciles the bank statement balance to the cashbook balance. Then a bank control account is prepared. A Cash Control Account is then prepared from the cashbook. If the sales and purchase ledgers exist, their respective control accounts are prepared.

A Credit Card Control Account is prepared from credit card statements. The odd statement may be missing (and it usually is), in which case the accountant requests copies from the bank and allocates the difference temporarily to 'Suspense A/C' (up-in-the-air instead of mystery).

As vouchers and information are analysed, handwriting is deciphered and compared with last year’s comparatives and an industry gross margin as well as a series of adjustments become necessary for:

• out-of-pocket expenses

• stock value adjustments for soiled goods,
   slow-moving items, shrinkage

• drawings and private consumption of stock

• liabilities incurred, but not yet paid

• prepayments, accruals

• capital injection

• hire purchase agreements

• banker's standing orders

• private expenses paid through the business
   bank account.

Discussions are held and clues are investigated. The ‘detective work’ becomes rather engrossing. If you do not control the time, you can end up making a thundering loss as fees are usually fixed.

The flexibility of InPractice ETB
InPractice ETB has been designed for flexibility and to keep control over small business jobs. It allows you to flexibly disentangle ‘Suspense A/C’ data little by little, as and when the details become clearer. InPractice ETB allows you to make adjustments in the ETB with journals and over-write corrections.

The ultimate feature in InPractice ETB is the simplicity, speed and effectiveness with which the following can be revised over and over again until the accounts are ready to sign:
• accruals            • prepayments
• stock                • depreciation provision
• tax provision       • dividend

Enter just one amount and the programming takes over to reflect it in both the Profit and Loss account and the Balance Sheet. Revise that single amount and the financial statements are revised in lightening speed. Along with lead schedules, notes to accounts and graphs.

Since each control account balances to the penny, the whole ETB will also always balance to the penny. InPractice ETB indicates any differences with in-built diagnostics flagged in red. By the way, if the difference can be divided by 9, it is an inversion error (35 entered as 53, 92 entered as 29).

General practice accountants have discarded their Analysis Pads, pencils, sharpeners, eraser and Snopake/TippEx. No more burning the midnight oil whilst trying to balance the ETB messed up by those last minute adjustments arising from the final meeting with their client.

Since the bulk of clients in 'smaller' practices are micro and small businesses, selective use of the ETB technique is one way of maintaining practice profitability. Use it for appropriate clients to improve the accountant's margins.

It is so efficient users of ‘InPractice ETB Final Accounts’ are unlikely to breathe a word about it to their rivals. Do not be surprised if its users do not tell you about 'InPractice ETB Accounts' at all. Why should other accountants become more profitable with this efficient software? Shhh!