For SME COMPANIES (i.e. exempted private companies limited by shares), a financial statement must be presented in the AGM for shareholders and directors to approve. As most of these companies, are owned by individuals and have less than $10 millions’ turnover per year, the companies are exempted from statutory audit, preparing an UFS (unaudited financial statement) will suffice.
For your information, the UFS will consist of the following statements:
- Income statement (aka profit and loss)
- Financial position (aka balance sheet)
- Cash flow statement
- Movement in equity
- Notes to accounts
- Statement by directors
If the client is able to use accounting software, to prepare a profit and loss (aka Income statement) and balance sheet (aka financial position), then UFS (including a cash flow statement that is not produced by the standard accounting package) can be prepared easily based on the information provided.
Most of these reports must be adjusted for depreciation expenses, company tax provision, dividend payment, director fee etc. The book keeping staff normally are not trained to deal with such adjustments.
Some time, the client may not keep proper accounting record and never prepare profit and loss or balance sheet. Then the only way is to get these information from the monthly bank statements.
Normally the deposit will be assumed to be sales proceeds or capital injected by the owner. (It is important to distinguish the nature of the income, as it will affect the profit and loss). And the withdrawals are considered expenses. The client must provide the information on these expenses so that the nature of the payment can be ascertained and charged to proper accounts such as salary expenses, bank charges, cpf expenses, rental expenses, transport expenses etc.
If the client has filed the invoices for these payments properly and prepared payment vouchers for each of these payments, then classification of the expenses can be derived quite easily. However, if this is not done, then all these expenses must be considered COS (Cost of sales), the profit and loss prepared on such basis will have the right profit or loss, although the total expenses ARE correct but the nature of expenses will not be correct. Client must improve on record keeping so that the following year, such inaccuracy can be minimized.
Some clients are able to use excel to keep all these transactions.
An excel sheet will list down the invoices raised for the whole year in running numbers (of course it is better to use accounting software if there are a lot of transactions), total up all the invoices and that will be the sales for the year. And total up those invoices that are not paid by customers will be the debtor account (aka accounts receivable).
Another excel sheet will list down the expenses paid, again the total will be the expenses incurred for the whole year. The client can then use the excel sheet to classify them into proper headings such as rental, salary etc.
Total sales minus total expenses will be the profit or loss for the financial year
In short, the client must keep all the original documents such as invoices to customers, and invoices from suppliers for at least five years in case the authorities such as ACRA or IRAS wants to audit the company’s account.
In preparing the financial statement, the client must provide opening balance and closing balance of bank account for verification. The client is also reminded that certain expenses must be properly accounted for as they are not tax deductible items, amongst others:
Medical fee – there is a limit based on the total salary of the company.
Vehicle expenses – All expenses incurred by private plate cars are not allowed.
Legal fee – for property purchase
Subscription expenses – for private club, and not professional body
Depreciation expenses – to be added back for tax computation, capital allowance will be given by IRAS.
The client must provide NOA (NOTICE OF ASSESSMENT FROM IRAS) so that Loss carried forward if any, and tax paid during the year can be accounted for in the CASH FLOW statement and Form CS.
We would encourage our clients to set up a proper accounting system, and provide us with PROFIT AND LOSS ACCOUNT AND BALANCE SHEET.
If the clients do not keep proper accounts, we can help to prepare those statements based on incomplete records basis for the current year, but the client must improve on the accounting function in the following year. We will have to charge additional fee as these analysis and adjustments are part of the book keeping work supposedly to be done by clients in the first place.
If you have any doubts, or need any help in setting up proper accounting system, accounting software please contact me at : 94899429 or email me at yamjason@gmail.com,
I will respond within 24 hours.