Tag Archives: Singapore accounting

How to record a payroll entry?

MoneyWorks is accounting software, not a payroll system; it will not auto-compute the staff salary (e.g. bi-monthly part-timer’s hourly wages or change of CPF contribution according to the employee’s age). A payroll system or a spreadsheet (if it is simple) will do a better job than an accounting system. 

Of course, although the accounting system does not compute payroll, you still have to record the monthly payroll via a general journal or payment transaction to update the ledger.

If you are entering the payroll in a lump sum via a general journal, then the journal could be:

DR. Salary expense (PL)
DR. CPF employer contribution (PL)
     CR. Accrued CPF payable (BS)
     CR. Accrued salary or the bank account (BS)

CPF, the Central Provident Fund, is like the Social Security fund in some countries. The contribution rate will change according to the employee’s age. The employer contribution is a company expense, whereas the employee contribution is deductible from the employee’s salary. Both CPF contributions will be accrued together with the SHG funds and paid out to the CPF Board on the next due.

SHG funds (Self-help group funds) include:

  • Chinese Development Assistance Council (CDAC) Fund
  • Mosque Building and Mendaki Fund (MBMF)
  • Eurasian Community Fund (ECF), and
  • Singapore Indian Development Association (SINDA) Fund.

Assuming the monthly payroll for the company is:

Salary: 10,000
CPF Employer (17%): 1,700
CPF Employee (20%): 2,000
Self-help group funds: 2

Then, the general journal will be:

DR. Salary (PL): 10,000
DR. CPF Employer (PL): 1,700
     CR. Accrued CPF (BS): 3,702
     CR. Accrued salary or the bank account (BS): 6,298

Credit the accrued salary account instead of the bank account, and then use a payment transaction to pay the employee individually with the accrued salary account to facilitate the bank reconciliation later. Of course, you should consider setting a security level on those payroll-related accounts to prevent unauthorised MoneyWorks users from viewing the transaction history.

Set the account security level
Setup Security Level

Payment transaction method

You may also consider using a payment transaction to enter the monthly payroll of each employee instead of using a general journal to record the payroll for the month in a lump sum. This method works if you prefer to view the ledger detail by the employee.

Assuming you have two employees. 

Employee A:
Salary: 3,000
CPF employer contribution (17%): 510
CPF employee contribution (20%): 600
SHG fund: 1

Employee B:
Salary: 4000
CPF employer contribution (17%): 680
CPF employee contribution (20%): 800
SHG fund: 1

To enter the employee payroll for the month, you have to add the expense and less the accrual within a payment transaction. In the payment transaction, select the appropriate bank account and payee, and in the detail section, enter as:

Row1: Salary expense: 3,000
Row2: CPF employer contribution: 510
Row3: Accrued CPF payable: -510 (for CPF employer contribution)
Row4: Accrued CPF payable: -600 (for CPF employee contribution)
Row5: Accrued CPF payable: -1 (for SHG funds deduction)

So, the transaction gross for the payment will be 2,399.00

Payroll payment transaction
Payment transaction

You can enter all the accrued CPF payable into a single row (lump sum) or multiple rows as in my above example, but having rows with descriptions separating different type of deduction facilitate inquiry and printing reports. 

Assuming you wish to print a report by the employee by account. You can first create an account inquiry, then shortlist the employees or transactions and print the list with subtotal by the employee.

Payroll report. By employee by account.
By employee by account report

A payroll system will be more complex in reporting, and more features available (e.g. adjusting CPF rate based on the employee age, calculating the hourly wage for each employee, etc.). Using an accounting system for recording payroll may be workable for those SOHO or small businesses with fewer employees or require only basic payroll entry.

Do visit the Cognito website if your development team would like to integrate the payroll system with MoneyWorks accounting software, or engage a MoneyWorks consultant if you wish to import transactions into the accounting system.

Should I use a credit note or cancel the transactions?

You have two options, credit note and cancel the transaction, to reverse an entry in MoneyWorks. Which method is better or rather when to use them?

Credit note

A credit note (a.k.a. Adjustment Note) is a document, usually for returns of goods or adjustments to past invoices. 

Assuming you issue an invoice to a customer. Then, due to an issue with the product sold, the customer has returned the goods, and you give a credit note to the customer to offset the amount owed.

How to enter a credit note in MoneyWorks?

You prepare an invoice (from the Show menu > Transaction > Sales Invoice) and click on the Reverse button to convert the sales invoice to a credit note. The credit note shows a negative quantity and extended price. 

Credit Note

The journal behind the sales invoice transaction:

    Debit Receivable account
        Credit Sales
        Credit GST Output
    Debit Cost of goods sold
        Credit Inventory assets

And the credit note will reverse the entry by:

    Debit the Sales
    Debit GST Output
        Credit Receivable account
    Debit Inventory assets
        Credit Cost of goods sold

Use the credit note to offset future invoices or the ‘Send refund to debtor’ function (from the command menu) if the customer has already paid the invoice.

Cancel transaction

The cancel transaction process in MoneyWorks is for reversing a wrong entry. 

To cancel a transaction:

  1. Highlight the entry.
  2. Go to the command menu, adjustment, then select cancel transaction feature.
Cancel transaction

Cancel a transaction will not remove it from the database. Instead, MoneyWorks create a reverse entry to offset the original.

Assuming you recorded payment (or purchase invoice) for utility expense twice, you may use a cancel transaction method to cancel the duplicated entry.

Although cancellation does a similar reversal as the credit note, you should not use cancellation for goods return or adjustment of invoices. Let’s say you use the cancel transaction method for goods returned from a customer, the journal behind the cancellation:

    Debit Sales
    Debit GST Output
       Credit Receivable account
    Debit Inventory assets
       Credit Cost of goods sold

Although it looks identical to a credit note, cancellation (and the cancelled invoice) will not show in the GST report. Therefore, you should consider using a credit note instead so the sales invoice and the adjustment shown in the GST report. Also, consider using a credit note instead of cancellation if both transactions are in a different financial period or cross between two GST cycles. 

You may consider adding a note (click add note button in the transaction) or a short memo in the description to indicate cancellation and wrong entry (and you may also change the transaction colour to facilitate future searching).

Those users, who understand coding, may consider adding a heading column into the transaction list with the formula:

    !testflags(flags, #3)

The test flags give a value of 0 or 1. 

The result ‘0’ indicate cancellation and a ‘1’ for a valid accounting entry.

In short, use the cancel transaction method for a wrong entry and credit note for all other reversals. Use credit note if you are confused between the two.

Profit and Loss by Date Range

Cognito has released the MoneyWorks 9.0.4 updates.

Besides bug fixes and improvements, Cognito added a new Profit and Loss by Date Range report.

Why needs a Profit and Loss by Date Range?

By Date Range means you can print the report within the specific date range instead of the usual financial period, such as from 1st to 15th January, instead of period January which will be from 1st to 31st January.

Profit and Loss by Date Range report
Profit and Loss by Date Range print wizard

This report also come in handy when printing the profits and losses of the closed period. MoneyWorks period list shows up to a maximum of 90 periods. Although those transactions beyond the 90-period range are still in the database, you cannot print them since you cannot select the period from the report wizard’s period dropdown field. With the Profit and Loss by Date Range, you can set the date range and print (e.g. from 1st January 2013 to 31st December 2013).

Profit and Loss by date range Report

Visit the Cognito website to find out more about the change history for v9.0.4.