Some experts deny the analogy between Cash Statement and Cash Flow Statement because of the differences that exist between the two statements, but in this exposition we will look for the analogy between them by highlighting the differences. Let’s consider the cash statement as a report that reflects incoming and outgoing cash flows, considering the enterprise always at the center of the event in relation to external organizations and individuals. It is characteristic of the cash statement that there are cases in which some of the cash flows do not pass through the budget enterprise, but are nevertheless reported in its cash statement, regardless of the fact that there is no direct passage of the flows. Such is the example of the transfer of insurance contributions and DOD of budgetary organizations (except for municipalities), which are transferred directly to the insurance institute, the health fund and the NRA from the Ministry of Finance without passing through the enterprises. In this case, the billing process coincides with the payment. There is also an exception to this rule, where in the cash statement an expense is reported under the paragraphs of the EBC without actually having been incurred either directly or indirectly. This is the case of finance lease and trade credit reporting, where there is reporting on the capital paragraphs of the DMA purchase amount along with the purchase accrual.
To understand, however, the meaning of reconciliation of accounts and paragraphs, let’s look at the classic example where the enterprise is in the center and we have incoming and outgoing cash flows.
| CASH OUTFLOWS | ← | BUDGET ENTERPRISE | ← | INCOMING CASH FLOWS |
| A) payment of expenses and assets | A) Revenues from fees, services, taxes | |||
| B) transfers of funds to a first-tier distributor | B) transfers from other managers of budget funds | |||
| Equalized cost flows | Equivalent income streams |
The chart of accounts in budget enterprises is very detailed and detailed, as for each type of asset, expense or income there is a precisely defined account to which they can be charged. The same approach is adopted in determining the codes of the paragraphs of the cash report. Most of the accounts and paragraphs are defined in the same way and have exactly the same content regarding the scope of the type of reporting units. The relationship between accounts and paragraphs is obvious and the two processes are easy to see: accrual and payment. Budget funds are subject to prior planning and their allocation is targeted. In business life, it is a normal phenomenon under a contract to pay sums in advance to a supplier or to have deferred payment for goods and services received. These amounts are reflected in the current accounts as receivables or payables. In connection with the management of budget funds and their correct accounting, the analysis of the differences between the accrued amounts that are subject to subsequent payment and the amounts paid in advance, paid liabilities for previous periods, received in advance or those that were not paid in previous periods is of interest. The existence of differences between the amount charged by accounts and the amount paid by paragraphs is not unusual, but these differences must be analyzed and their existence justified. The unjustified existence of differences may be the result of a possible error. For example: Purchased materials whose invoice is recorded as a material expense and the payment on the invoice is reflected as an external service payment. Such a difference, however, can also be due to a deliberate accounting of the funds, due to the fact that in the organization’s budget there are funds for external services, but there are none for materials.
The accrual of assets, liabilities, income and expenses is not always the result of a business transaction that will result in the receipt of money or the payment of cash by the enterprise . In justifying the differences between accruals and payments, it is good to distinguish between the two types of accruals: those that lead to the movement of cash and those that will not lead to the movement of cash flows. This analysis is performed on the basis of a ledger of accounting accounts, which reflects the amounts on the accounts in correspondence with the other accounting accounts. This distinction of transactions is important because the receipt and payment of cash is the subject of budgeting, and when doing analysis we should be interested in the differences between the accrual process and cash flows.
An example of analyzing differences between accounts and paragraphs
We need to look carefully at the company’s turnover sheet and pay attention to the existence of turnovers on accounts for donations, transfers, etc. Examples of movements that are not related to cash flows are as follows:
A) donations
DT 30..
DT 20..
DT 60..
DT 21
KT 74…
B) transfers from other budgets or internal transfers
DT 30..
DT 20..
DT 60..
DT 21
CT 76..; KT 4500..
C) expenses related to transfers to other budgets or internal transfers
DT 76
DT 4500
KT 30; CT 20; CT 21
D) expenses from marriage or depreciation
DT 69
DT 78
KT 20; CT 21; CT 30
These turnovers on the accounts will not result in cash inflows or outflows, but at the same time they participate in justifying the difference between accounts and paragraphs and must be separated from the turnovers that result from purchases and sales in order to see the differences that we are interested.
EXAMPLE:
On account 3020, we have posted purchased materials for BGN 1,000 and we have paid BGN 800, reported under item 1015. In addition, we have received a donation of materials of BGN 500, which we have posted:
DT 3020/KT 7413 BGN 500
I.e. the reported amounts by paragraphs and by accounts is as follows:
P-f BGN 1015 800
DT 3020 BGN 1500
The difference between the balance sheet and the invoice is BGN 700: BGN 500 from a donation received (posted to account 7413), which is not related to cash flow, and BGN 200, an unpaid part of an invoice that should be reflected as a liability for payment possibly on account 4010.
In the process of analyzing differences between accounts and paragraphs, incorrectly posted amounts by paragraphs or accounts may be discovered. In fact, one of the tasks of this analysis is precisely this – to check whether the presentation of the amounts on the accounting accounts and their payment is correctly accounted for. When differences are discovered that are due to incorrect accounting, the report preparers should correct the relevant errors, not explain them.
Example:
Division X has a sale of a means of transport, which it accounted for as follows:
D-t s/ka 5011 p-f 4025/K-t s/ka 7145 BGN 3000.
When checking the comparisons with PP EKVA, a difference was reported for p- f 4025 (+3000 BGN) and f-f 4024 (–3000 BGN). The system reads the sums by paragraphs reported in the Cash Statement and those by accounts in the Turnover Statement and reports:
BGN 3,000 on paragraph 4025 and BGN 0 on account 7146 – a difference of BGN 3,000;
BGN 0 under paragraph 4024 and BGN 3,000 under account 7145 – a difference of BGN 3,000.
These differences are actually due to the incorrect use of paragraph 4025 instead of 4024, which means that we have to reverse the amount from the incorrect paragraph and transfer them to the correct one, rather than explaining the error (difference).
The purpose of PP Equal Reconciliation is to support the reconciliation analysis process between accounts and paragraphs and to present a reconciliation analysis report in a standardized format. Correspondences between accounts and paragraphs are pre-set, where they firmly exist, the possibility of adding new accounts is given. The screen below shows the relationship between p-f 10-12 medications and drugs and accounts 3020 and 6013.
Account 6013 strictly reflects the cost of medications and drugs, and no other types of expenses can be reflected on it. Account 3020 already reflects all types of materials in the setting, it is set with the ability to fill in only those values that correspond to paragraph 10-12.
Accounts 6112, 6993, 7413, 7419, 7993 are accounts that can reflect the charge of various types of materials, not only from drugs and medicines. Therefore, these accounts are left to be filled by the operator with the corresponding amounts of paragraph 10-12. In the analysis of the differences between accruals and payments, two types of accounts are distinguished: revenue accounts, expense accounts, accounts for SMF and DMA, partial settlement accounts, on which the accrual of expenses, income, assets, transfers, etc. is carried out. and, which are part of the settlement and accounts that account for the estimates of subsequent payments, on which we will show the balances for receipt or payment of amounts.
Let’s consider the following example: Medicines and drugs were purchased in budgetary organization XX, which are reflected in account 3020 for BGN 5,000, which were partially paid – the amount paid is BGN 3,000. The liability is on account 4010. Received as a donation on account 7413 medicines and medicines for BGN 1500. Surpluses of BGN 200 were found during the inventory. They were reflected on account 7993. Medicines were sold for BGN 400. They are reflected on account 6112. Medicines for BGN 3,000 were issued. Medicines were purchased for BGN 200, which were immediately paid for and debited directly through account 6013.
The accounting items are:
D-t s/ka 3020/K-t s/ka 4010 – BGN 5000;
D-t s/ka 4010/K-t s/ka 7500; 5013 p-f 10-12- 3000 BGN; D-t s/ka 3020/K-t s/ka 7413 – BGN 1500;
D-t s/ka 3020/K-t s/ka 7993 – BGN 200; D-t s/ka 6112/K-t s/ka 3020 – BGN 400; D-t s/ka 6013/K-t s/ka 3020 – BGN 3000;
D-t s/ka 6013/K-t s/ka 7500; 5013 p-f 10-12 – 200 BGN
| Payroll | ||||||
| Account | NS Dr | NS k.t | ABOUT Dr | About the city | CS Dr | KS k.t |
| 3020 | 6700 | 3400 | 3300 | |||
| 4010 | 3000 | 5000 | 2000 | |||
| 6013 | 3200 | 3200 | ||||
| 6112 | 400 | 400 | ||||
| 7413 | 1500 | 1500 | ||||
| 7500 | 3200 | 3200 | ||||
| 7993 | 200 | 200 | ||||
| Reflected amount for mon-f 10-12 – BGN 3,200; | ||||||
Let us consider the following equality:
6700-1500-200-3400+3200+400=5200 BGN – this is the amount of purchased medicines and drugs;
The amount reflected in paragraph 10-12 is = BGN 3,200.
The difference between purchased medications and paid medications is BGN 2,000
= the amendment to account 4010 = BGN 2,000 – balance for payment;
In many cases, when justifying the differences, it is common practice to calculate the mathematical difference between what was charged and what was paid. In this case, we will say that the charged amount is: BGN 6,900; the paid 3200; the difference BGN 3,700 = 2,000 times 4,010 unpaid; 1500 from account 7413 and 200 from account 7993. In practice, this is another approach, which in itself leads to more explanatory notes, but does not directly give the difference between purchased and paid, which is actually the purpose of the analysis : to check whether the amounts charged to the purchase accounts are the accounts that correspond to the payment paragraphs or whether the accounts used to charge the sale/revenue are those that correspond to the payment receipt paragraph. (the example with the car sold).
The advantage and convenience of working with PP Equa is:
– Preset correspondences between accounts and paragraphs;
– Preset ties;
– Automated reading of the amounts from Cash Statement B3 and Turnover Statement of the Ministry of Finance, where we do not have a mixed reflection of several paragraphs in one account.
– Recapitulation of justifications;
– Uniform justification of all budgetary organizations;
– Possibility of automated summarization of several reports through Equa-control
