Banking and Cash Book

In your system you can set up and maintain as many bank accounts as you have in your business.

Even for the smallest of businesses, it is not unusual to have more than one bank account:

• Current Account – for day-to-day business receipts and payments.
• Deposit Account/Reserve Account – to maintain short-term deposits – possibly accruing interest.
• Credit Cards – All credit card transactions can be posted through a bank account.
• Petty Cash – Although not a bank account – the postings are the same.

A bank account is otherwise a regular nominal ledger account for which extra reports and functions are assigned. These include:

• Perform a Bank Reconciliation
• Receive money from a Customer
• Pay money to a Supplier
• At-a-Glance drill down
• Cash Book listings etc

The software is pre-installed with one nominal ledger bank account: CA04 CURRENT ASSETS – BANK, and the installed parameters configuration reflects this.

You may wish change this, but we suggest you keep this as the default bank account and add others as you need them.

To add an extra bank account, first you must identify or create the new nominal ledger bank account – see Add & Edit Nominal Accounts.

Then you must identify this as a bank account by checking the field in on the Nominal Maintenance Form Or through the parameters – In Prelude Desktop see Nominal & Cash Book – Control Accounts Page and in Prelude Cloud see – VAT and Nominal Page .

A Bank Transfer is used when the transaction being made is between two accounts in the nominal ledger which are deemed to be bank accounts – examples are:

• Sterling Bank Current Accounts.
• Sterling Bank or Building Society Deposit or Savings account.
• Foreign Currency Bank Accounts.
• Credit Card accounts.
• Loan accounts.
• Business Mortgage Accounts.
• Till Floats.
• Petty Cash Accounts.
• Reserve or High Interest Accounts.

Why not a straightforward payment? There is a risk of duplication. e.g. A Petty Cash cheque is drawn for £500

The entry made in the Cash Book is Dr. Petty Cash Account £500 – Cr. Bank Account £500 (Payment)

The entry made (possibly by the cashier or person responsible for Petty Cash) is Dr. Petty Cash Account £500 Cr. Bank Account £500 (Receipt)

This results in errors of duplication in both nominal ledger accounts. This principle applies to all the types of bank acounts above. whilst you can say we’ll only make one entry a duplication will happen sooner or later.

For how to make transfers see Cash Book> Transfer Money Between Bank Accounts.

To record a bank fee or interest charge, click menu Daybooks > Cash Book > Payments > Nominal Ledger.

The Nominal Payment Entry Form will appear.

Select the paying Bank Account code, enter the details and analyse the payment accordingly:
to bank fees – e.g. EF01 – BANK CHARGES
to bank interest – e.g. EF02 – BANK INTEREST

You need to be aware of items that are not processed through the sales and purchase ledgers – they may include VAT or be split items – such as HP capital repayments and Interest – all of these must be posted into the nominal ledger. There may also be sundry receipts.

A business loan can be managed in your product as a bank account.

However, you should appreciate that Bank Accounts are either a current asset or a current liability (if in overdraft). A business loan is a long term liability and depending how your chart of accounts is structured this may affect the nominal account used and certainly the account should appear in the long term liabilities in the Balance Sheet

Generally, the bank only issue statements for loans quarterly or less and may only apply interest quarterly. In this case you may wish to accrue interest monthly and adjust when you receive the statement.

Set Up The Loan Account

See Set up a Bank Account for how to assign or create an account code specific to your business loan.

• Then record the loan as a bank transfer from this loan account to the bank account receiving the money.

Record Loan Repayments

• Loan repayments will typically consist of a capital repayment element and an interest element.

• You should consult your bank, your bookkeeper or accountant to determine the capital and interest elements as these can be different for each loan repayment made even if the amount being paid is the same.

Enter the loan repayment as two Cash Book transactions:
– The full repayment as a bank transfer from the bank account paying the money to the loan account.
– The interest element as a Nominal Payment from the loan account analysed as interest payable – e.g. EF02 – BANK INTEREST or separately as Loan Interest rather than overdraft interest.

Reconciliation

The set-up and repayment transactions should then be reconciled with your annual or quarterly loan statement from your bank.

There might be a small difference between the bank’s annual interest charge on the statement and the sum of the interest element transactions you have entered. Confirm that this difference is correct (or at least acceptable) and record a Nominal Payment (if the bank’s interest is more) or Nominal Receipt (if the bank’s interest is less) as above accordingly to balance.

Alternatively you may not wish to operate the loan as a bank account but as a simple nominal account – however the principles are the same except that payments will be made that need to be split rather than bank transfers.

A credit card should be managed in your software as a bank account.

If the credit card is used solely by one individual they must be responsible for obtaining as many receipts as they can to support the payments and certainly account for anything they couldn’t get a receipt for (some parking tickets and online purchases for example).

See Set up a Bank Account for how to assign or create an Account Code specific to your credit card account.

Then, for all transactions that are settled with your credit card, record the payment against this account code.

The majority of the expenses will be nominal payments and may include VAT but occasionally the card may be used to pay a supplier or refund a customer

See, for example, Record a Supplier Invoice Payment.

Similarly, process any refunds from your credit card. See Record a Customer Refund.

When you receive your credit card statement, you can then reconcile the transactions in the credit card statement with those recorded in your product – See Perform a Bank Reconciliation.

After the reconciliation, you can then process the credit card payment. See Record a Bank Transfer.

Direct debits and standing orders are used increasingly by individuals, households and businesses as a simple and effective way to manage and pay bills or make regular or occasional payments.

Direct Debits are facilities set up to allow individuals or businesses to withdraw money directly from your bank account. The facility must be authorised by you and there are rules about the amounts that can be withdrawn. You have the protection of the direct debit guarantee which covers you if something goes wrong – for example, if you want your money returned. You can cancel a direct debit facility at any time by contacting your bank. Understand more about direct debits by reading the web link below.

Standing Orders (or banker’s orders) are instructions that you give to your bank to pay a fixed amount of money at regular intervals (say on the 1st of the month) to another designated bank account either for a specific period or a number of payments or until cancelled.
You initiate the instruction and can cancel a standing order at any time by contacting your bank.

What’s the difference? There are two main differences:
A standing order is when you send money to another bank account whereas a direct debit is when another bank account claims money from your bank account.
After a standing order payment is sent, there is no way of claiming it back without contacting the recipient bank account holder and asking them to repay whereas you can instruct your bank to reclaim a direct debit withdrawal if you disagree with the amount withdrawn. So, in fact, you are more protected with a direct debit facility than you are with a standing order instruction.
You might like to read what the financial ombudsman has to say about these –

http://www.thesmartwaytopay.co.uk/

Having understood this, there is no difference between processing direct debits or standing orders and processing other supplier or expenses payments.
See Record a Supplier Invoice Payment if your DD/SO is a payment against a supplier invoice.
See Record a Bank Transfer if your DD/SO is, for example, to pay a credit card statement.

If your direct debit or standing order is for a regular amount and paid at regular intervals, you may wish to record this as an automatic journal, which will then be processed automatically to your pre-defined analysis and frequency. e.g. for a purchase ledger account debit the account in the purchase ledger and credit the bank account – See Post Journal Entries Automatically.