After receiving an initial orientation from Shagun about ‘tax deducted at source’, Ishaan gets ready to get more accounting gyaan about accounting policies from the workshop recommended by Shagun. Ishaan set aside all his work to learn more from the weekend accounting workshop. Before reaching out to the training program he did a bit of reading to acquaint himself better with the accounting jargons.
He wore his formal clothing, gathered all the necessary gadgets and reached the workshop venue. After entering the seminar hall he was glad to see Shagun also as one of the panel members with two other accounting experts and a panel moderator. After the assembly of all participants in the seminar hall, Bose, the panel moderator taps the mike to check its functionality. The tap diffused the chatter among the four walls enabling participants to settle down from their networking chat.
Bose begins the speech by welcoming the participants, introducing the panelists and revealing the agenda of the workshop. One of the agenda items caught Ishaan’s attention which was about “Setting Accounting policies in a startup”.
Raj, a panelist who was a lawyer, initiated the panel discussion by stating that, a company is a different person and you are a different person. Ishaan had heard this n-number of times from Shagun and he had to hear it again. Raj went on to say, that thought you have created and own the company; accounting principles do not treat this relationship the same way. As per accounting standards and the The Companies Act, 1956 a company is treated as a separate entity which means it is taken as an artificial person that earns profits for itself and raises capital for itself. The entrepreneur, especially in the case of sole proprietorship needs to maintain this discipline of two separate entities to maintain books of accounts. Such discipline helps to comply with the statutory obligations laid by the law in case of a “company”.
This distinction implies to the entrepreneur that he cannot consider the profits earned out of a company as his own and mislead the other stakeholders in the company. This provides for the owner to be a shareholder and not the sole receiver of revenues.
Ishaan understood that this was one of the mistakes that occurred in his company. He used to always mix his personal and business expenditure. He had poor discipline of segregating objectives and hence the money of the company. He understood that this principle raises the bar of accountability on entrepreneur and is a firewall to avoid malpractices in company’s books of accounts.
The second panelist Bhargavi, a well qualified bank manager was the next speaker. She took up the matter of importance of maintaining a corporate credit card. The subject didn’t sound as important as the title. She said that the principle shared by Raj is going to be extended to her topic too. She starts with ‘What is a corporate credit card?’. A corporate credit functions just like a normal credit card, but is meant to be used for the purpose of spending only for company’s activities. It is to record company’s expenses separately and not mix it with one’s personal expenditure. This confusion occurs most times among the top management who need to travel around to conduct business. At such times of travel, circumstances arise which require the employees to use corporate credit card since some costs are meant to be accounted in the corporate accounting books. Sometimes managers tend to raise bills from their personal credit card and claim it as company expenses from their employer. It is a great feeling for the employee but it is not a great accounting policy especially when the company has to undergo an accounting audit.
Ishaan after hearing these words relives the moment of audit that was exercised in his company. He faced issues in raising appropriate bills to authenticate employee travel reimbursement that rose from his marketing manager.
The third panelist Shagun, who is Ishaan’s CA addresses the audience on billing policies. She says “Being a chartered accountant I always face the problem of reconciling the company bills to the numbers stated in the accounts.” The crowd laughs hearing this, since they almost all share a similar equation with their CAs. Shagun continues to say that billing policies are not made concrete especially in startups because entrepreneurs succumb to self-lenience while constructing policies. Adherence to policies brings certain amount of discipline within the organization. She shares a few basic aspects to be included in the billing policy:
Encourage your suppliers to raise invoices in the name of your company and not an employee who interacts with the supplier.
Bills need to have dates mentioned to track by chronology.
They need to be filed by department.
It is good to maintain physical copies of bills pertaining to the previous and current fiscal year.
It needs to be duly signed by the supplier and person-in-charge in your firm.
Taxes, discounts and dues have to be mentioned on the bills.
If you are in a situation where you cannot attest a bill for an expense then, generate vouchers stating the kind of expenditure, reason for the same and the amount spent towards it.
Shagun, concludes by stating that implementing accounting policies in a company is extremely essential irrespective of the size or type of legal entity of the business.
Bose, the moderator takes over the podium while assuring that the seminar essentials would be provided to all participants. He summarized the discussion for all the participants stating the following:
“Today’s discussion was all about accountability, credit card usage and billing processes for startups. With valuable insights provided by our panelists we can infer that accounting policies need to constructed as per the processes of our business and assign the same to people by distinguishing personal and company objectives. We will continue the workshop with another interesting topic tomorrow.”
The participants get back to their networking activities while Ishaan reaches out to Shagun to thank her for her advice. He also mentions that he is curiously looking forward to the next session. Shagun promises Ishaan of another educative session the next day.
This article contains fictitious characters and circumstances. Any resemblances to real characters, individuals or organizations are a coincidence and unintended. We do not hold any responsibility for such resemblances. The article is presented to share the challenges an entrepreneur faces while starting a business. However, the factors affecting one’s entrepreneurial journey is not exhaustive and is subject to the nature and type of business and the team involved.