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by David Lowe, rolnstTA

16th October 1970
Page 59
Page 59, 16th October 1970 — by David Lowe, rolnstTA
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Which of the following most accurately describes the problem?

IRRESPECTIVE of the date on which you have decided to change to decimal accounting, you will find yourself dealing with firms who have changed before you or who will not be changing until after you.

These firms will mainly be those from whom you make purchases of fuel, oil, tyres, spare parts and accessories, office supplies and any other items used in the running of your business.

Although your purchase invoices will arrive in both £sd and £p form, it is not advisable to keep two sets of record books. If £p invoices arrive before your changeover they should be converted into £sd for book-keeping purposes, and likewise if £sd invoices are received after your change-over they should be converted into £p. Once you have changed to decimal working your purchase ledger should always be in decimal figures. Although you may receive invoices in decimal amounts and because you have changed to decimal accountancy before D-day you are recording in decimal amounts, payment of such invoices must still be made in £sd until February 15, subject to provisions about writing cheques immediately before the bank closure which were dealt with in the last article. In such cases where you record in your purchase ledger in decimals but pay in £sd, any differences in conversion should be recorded in the conversion difference account. This was also referred to last week in connection with sales invoices.

You may continue to receive purchase invoices in £sd amounts for the full official change-over period of 18 months after D-day.

£sd cash book

Sales and purchase ledgers must be kept in decimal style once you have changed but if the date of your change is before D-day you will have to continue keeping your cash book in £sd until D-day. This is because payments and receipts will still be in £sd cash or cheques. An additional column in the cash book could be used to show the decimal conversion and entries in the two ledgers can be made from this column, as can entries in the conversion difference account.

On D-day the cash book can be changed for recording in ip with the additional column then being used for recording transactions which continue 'to be made with those customers still on the £sd system.

Once your ledger and cash book entries have been made in decimal style it follows that trading accounts and profit and loss accounts and the balance sheet will all be in decimals. Even before you decide to start general accounting in decimals you could begin to change other records over to decimal figures-for example capital ledgers and depreciation records, nominal and expense ledgers, cost and stores ledgers. And if you have a vehicle costing system this too could be changed in advance (this item will be dealt with in more detail later).

Rather than make the big change on one particular day your accounts staff could be starting work on this well in advance when they are not under pressure and when they will have time to become accustomed to making the conversions.

In cases where accounting is done by mechanized. electro-mechanical, electronic or computer systems it is essential that there are consultations with the supplier of such equipment to ensure that the conversion or replacement can be made when desired and is not delayed because conversion equipment is not obtainable or there is a long waiting list. It is estimated that some 5m machines will be affected by the switch to decimal. As mentioned in the first article this item should be dealt with immediately.

Whole pound accounting

Since the very first talk of going decimal there has also been talk, and very controversial talk at that, about whole pound accounting.

The prime advantages are that by reducing the number of figures. the amount of work is reduced, as is the risk of errors -and of course there is not then the problem of conversion to decimals. The Decimal Currency Board has quoted a saving of 50 per cent in staff machine and computer preparation time.

For these reasons this subject is worthy of mention at the present time.

The most common system of whole pound accounting is one in which amounts of less than lOs are ignored and amounts over lOs are rounded up to the next pound. Where an exact amount of 10s occurs this is rounded to the nearest even number pound (for example £7 lOs becomes £8). Experience will show that over a wide range of figures distortion in the final result will not be unacceptable. Only in cases where an amount frequently recurs will there be unacceptable distortion. A less drastic system is to adopt whole shilling accounting which is carried out in the same manner as described above for whole pound accounting. The advantages of this system are that while it does involve decimal conversion, it does not involve conversion differences and there is very little final figure distortion. Many firms adopted this system for payment of wages under £sd currency long before the considerations of decimalization.

Accounting stationery

Existing accounting stationery should be examined to see what changes are necessary for the change-over to decimals. In many cases existing three-column ruled stationery will be usable with the references to s and d erased and the shillings column used for new pence and the existing pence column used for new halfpence. New two-column stationery should, however, be introduced as soon as is economically possible to simplify accountancy work. Here I must repeat my warning given that orders for new stationery should be placed soon so as to avoid delaying the change-over.

Wages

The biggest single item which will face the operator in his change-over to decimalization is that of wages and, incidentally, because of the interest we all take in our pay slips, the one with which he can least afford to make mistakes.

The first essential when changing the wages system to decimals is to establish wage rates in decimal form. This can be done in ways, either a straight conversion of existing rates into decimal figures (which can lead to slight discrepancies due to the inaccurate conversion of amounts of less than 6d) or the introduction, following negotiations with staff of new wages rates more suitable for decimal calculations.

If it is decided not to alter existing £sd rates but to convert them to decimals and then round off the final figure for payment in £p on or after D-day, to avoid discrepancies it will be necessary to convert on the basis of Id =p.

Existing hourly rates in many cases are of amounts which, even before decimal working, cannot be conveniently paid (for example where the farthing is used). To convert such figures to decimals would be such a complex operation involving the use of up to four places of decimals that it is just not worth considering.

An example illustrates this point: Present hourly rate 6s 4+d 40 hours worked at 6s 41d £12 14s 2d By decimals hourly rate 6s 4+d= £0.3177; 40 hours worked 40 x £0.3177 =£12.708 -= £12.71 converted to isd=£12 14 2d.

Tags

Organisations: Decimal Currency Board
People: David Lowe

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