If you intend to have a career in Finance & Accounting or if you are already employed in the industry, it is good to be able to compare your annual income within the industry in order to know what to aim for with your current or next employer. The table below shows the low, average and high range of salary in most of the positions in Finance. Obviously the low range will probably involve part-time positions and new starters acquiring experience in their roles. Depending on the area where you live, this might again affect how you read the table. If you live in London and in the South East, you should probably be aiming at the top average/high range, whereas if you live in a less economically active area, the lower/average might be more relevant. There are still lot of disparities in the UK and you should take this into account.
(Click on the table to make it bigger)
It is interesting to notice that the average salary in Finance is £35,334 which is well above the national average of £26,500 . If we isolate the VP Finance & CFO (which probably represents less than 1% of the finance population), the average income in Finance only falls to £32,775, still well above national average income!
If you are thinking of a career in Finance, this should demonstrate that the industry is offering a lot of opportunities well reflected in this average income table. I would only advise you to push forward into that direction. Also I would encourage you to become qualified; passing your qualification will allow you to reach managerial positions in Finance where the average salary is £47,991. The non-managerial average income amounts to £27,144 (still above the national average), although still £20,000 less than managers and directors. As I’ve already shown in a previous post (see here) 78% of graduates in Finance are employed in the UK, second best after the business studies if we ignore medicine/health careers. High levels of employment with high average income should send you the right signals that studying in Finance is probably the right choice for your career!
On the other hand, becoming qualified (e.g. with ACCA or CIMA) will also allow you to establish your own business and work for yourself with a wealthy income, as I believe the rate per hour charged is around £55 for self-employed qualified accountants (please let me know if this rate is out of date. But this also involves more responsibilities, like first finding clients, which obviously is not required when you are employed. This could become another topic in the future: qualified and work for yourself, or work for an employer?
Finally, it is important to remember that although the average income is much higher than the national average, when you start in the industry you might find yourself in the lower range or below the national average. This is normal, don’t worry! Most of us have started with low incomes but as your experience develops, there will be opportunities for you to increase your income as well. However, if you find yourself stuck in your employment for too long, you might consider moving and changing employer. It is up to you to develop your career the right way. Employers will not come and knock at your door! Stay aware of the employment market for suitable positions in your area and keep looking for training and courses that will allow you again to improve your results and finally your income.
The data I have used to gather this information comes from Payscale , where you can do your own searches for free. Let me know if you want me to add any position in the table or if you don’t find yours and I’ll try to update it. Also I would like you to let me know if these incomes are relevant. Please comment if you think this is close to what you’ve imagined or close from what you earn if you are already working in the industry.
Author: Nicolas Buffault
Your entire career in a finance department will be ruled by month end whether you like it or not. During month end, you will not be able to take any holidays, you will work longer hours, you will work even if you should be off sick at home with a raging fever, you will complain about ad hoc projects falling at the most inconvenient time… Oh yes, and you will complain about random emails which you should not even receive. You will eat, breathe and think month end and organize all your work during the month in regards to it! So what exactly is month end? It is the process of finalizing all accounts for one period (e.g. one month) in order to present a report that will show the profit or loss for the month. In simple words, it is making sure that all transactions are recorded to show the total sales/turnover of the month less the total costs to show the profit/loss of the month. Obviously an invaluable tool to decision makers like your managing director (or board of directors), your banker or your shareholders!
So what exactly do we do during month end? We try to track all of the transactions and make sure they are recorded, and if they are we’ll make sure they are recorded accurately, for the right amount, in the right account, in the right period, in the right department… For all transactions?! Yes. Damn it, I will need more than 2 eyes! Agree! Although luckily for us we now have a lot of helpful tools.
If a transaction has already occurred but is not yet recorded i.e. the invoice is not received, we will have to accrue for it. This is posting an entry to make it look as if we received the invoice in the corresponding month. If you are not yet familiar with what is a prepayment and what is an accrual, you can read my post here. This is the same for sales; if I have sold some goods/services but the invoice is not yet raised/sent to the customer, I will recognize this sale in the month as if the invoice was there. The exercise becomes harder the following month, as we have to keep track of whether we have received the invoices of the month; but not only that, we need to make sure whether the accruals raised in the previous month still need to be recorded or if they can be released. In reality, usually some can and some can’t!
Now it makes more sense why the month end starts at the beginning of the month. In order to report the total sales and costs of one month, we obviously need to wait for that month to be over. Hence, only from the first of the following month can we start to gather relevant information which will include the whole of the transactions of the previous month.
The complete process usually takes from 3 to 7-10 days. I have never seen any company complete the month end in less than 3 days, however the technology allows us to work progressively faster; the computer assistance is vital in finance and makes our job much easier. I still remember when I started to work in the industry (early 90s) the month end deadline was around the 20th of the following month! The invoices were printed out during the first few days of the month, and only then could we transfer the sales file from one computer to another using a 3.5″ floppy disk and by typing some instructions in DOS! By then we were already on day 3 or 4 and could only report the final sales figure. Nowadays we are able to complete the whole process of month end in the same amount of time!
Thanks to fully integrated software including all of the functionality required in Finance we have drastically reduced the number of days required to complete this process. Usually big corporate and quoted companies will report the month end in 3-5 days, whereas privately owned companies and smaller size ones will allow few more days because there is less external pressure.
The financial markets dictate our deadlines, we need to face the reality, there is more and more pressure for companies to announce their results (hopefully good ones obviously) as early as possible. This allows faster internal decisions e.g. redundancy plan/launch of a new product, or external decisions from investors e.g. sell/buy/keep shares, or from lenders to allow/restrain lending.
As you can see, your involvement in the month end is vital to the company. And more than that, month end is vital to the company! Ok, so if my company reports in 3 days then that means we are awesome! Hmmm.. Are we really? What are the drawbacks of reporting the figures in such a tight deadline? The first major issue will be accuracy. It is very likely that some costs will not be included properly for the accurate amount. Now it all depends of the significance of these amounts. If the last bill for refueling the company car for £70 on the last day of the month is not included, this will probably not be considered as significant cost therefore the inclusion or not will not be very relevant. However, if the last marketing event organised during the last week of the month (which finance was not aware of) had not been included because the bill was not received and nobody in Marketing has warned Finance about this event (or is it because Finance didn’t ask Marketing?), this will probably have a significant impact on the final figures of the month.
I believe that nowadays with the technology available to us, we should be able to complete an accurate month end from 4 to 6 days in most companies. The danger of being quicker is forgetting to include/accrue for costs. The faster we push for the figures to be completed, the more likely they will require corrections the following month. One of the tricks to be able to report in the tight deadline of 3-4 days, will be actually to start the month end during the end of the corresponding month. In other words, to start working beforehand by recording some entries in the actual month and not indeed during the following month. A few items such as prepays, tax accrual (because they are often same from one month to another) can be accounted for early on and usually these can be posted as first items from the 25th-30th of the month. Also payroll can sometimes be posted early as some companies manage to have payroll completed and generate the payroll journal before the end of the month. By doing this, you will suddenly allow yourself a lot of free time for your “real” month end, the one that will really keep you busy starting on the 1st of the month.
Organisation is an invaluable skill to have for a successful month end and will also enable you to be accurate in the tight deadline given by your company, as ideally you will have started during the end of the month.
Have you got some experiences to share about your month end? In how many days are you closing and how easy/painful is it usually? Or have you got some tips you would find useful for our readers? Please share your experience and insights in the comments.
Author : Nicolas Buffault
In accounting we need to record each single transaction in what we call an entry. An entry will basically include an amount at the debit, and its counter part at the credit. Most importantly, the debit will always equals the credit. There is no other way, and if your entry doesn’t balance, this means that there is a mistake somewhere.
Common practice in accounting is to put debit on the left and credit on the right (occasionally only one column could be used, the debits would be positive amounts whereas credits would be negative amounts). Now, how am I able to determine what goes to the debit and what goes to the credit? Luckily there are some rules. And more than learning some just rules, it is much easier to understand them, as once understood, you can barely forget it as it becomes so obvious what goes where!
I will now try to give you that understanding which I’ve used since I started in Finance and Accounting. Let’s try to remember an easy name for a client. This will do the trick for us here. A client is also called a customer, that’s right but this is not the word we are after exactly here. A client is also called a debtor, yes. Interestingly enough the amount the debtor owes me will go to the debit. Now you see you will be able to remember this rule. Well done! If you can remember that a customer goes to the debit, you certainly can guess where the amount I owe to a supplier will go? To the credit! That’s exactly right. We are getting there! Again another easy tip top remember, a supplier is a creditor.
Let’s recap so far:
Client = money to receive = asset = debit
Supplier = money to pay = liability = credit
Now everything else will come easy, because as explained earlier, each transaction has its own entry. So for a sale to customer we already know that the amount owed by the customer is going to the debit. Kinda easy to guess again where the amount of the sale will go? To the credit! Bingo!
For a purchase to a supplier, the amount owed to the supplier goes to the credit therefore the amount of the purchase (cost/expense) goes to the debit.
Hence we can summarize all of this is an easy table now
The + means this is the original position, and if we record more on the same side it will increase and vice versa for the minus sign.
Remember you don’t especially need to learn it, you can just understand and guess where it goes!
Now, let’s start to think at a transaction a little bit more tricky:
When I receive the payment of a customer on my bank account. I will need to increase my bank (asset) and I will need to decrease the debt that my customer (asset again) owes me. Ok now let’s try to imagine the original entry that generated the sale :
Dr Customer Cr Sale (see explanation at the start)
To record the payment received I will obviously have to record the customer at the credit. Which only leaves me with bank at the debit.
Payment receive will therefore be recorded by
Dr Bank Cr Customer.
If we double check at the take above, everything looks ok so far I have increased my bank asset at the debit and decreased my client asset by the credit. Wow! It all makes sense now! 🙂
This is not that hard at all, as long as you are able to trace the originating entry.
Another common practice is to use “T” accounts to describe a transaction. “T” accounts are very useful either when you start in accounting or when you have been in the practice for a while but try to find the origins of a specific complex transaction. It helps to determine what has been posted so far, the situation we are in at the moment and what still needs to be recorded. I have absolutely no shame in saying that I still occasionally use “T” accounts at work during complex transactions. T accounts would usually present like this
We would be able to identify the whole of the transaction, the accounts used, the amounts and their debit/credit sides. There is no limit, there can be more than 2 accounts, more than just 2 amounts obviously as long as your debit equals the credit. This is the most important control.
Finally, what works as well for the debits and the credits is to imagine your balance sheet and P&L, depending on where it stands you will have to use the same side of the entry to increase it.
In the balance sheet
In the P&L (Income Statement)
If you need to be more familiar with the balance sheet and the income statement you can also read my post here
Author : Nicolas Buffault
•What is Accrual (accounting)
-An accounting method that recognizes economic events regardless of when cash transactions occur. (Forget about when payment is realized)
-The term accrual is also often used as an abbreviation for the terms accrued expense and accrued revenue that share the common name word.
-Accrued revenue: Revenue is recognized before cash is received = Asset
–Accrued expense: Expense is recognized before cash is paid out = Liability
Now that we are familiar with the P&L (if you haven’t read my first post – you can still do so here to learn more about the P&L and the balance sheet). Let’s look at what happens if we record an accrual or not. Let’s say that I have hired a consultant (this can work with any other supplier/any other expense) for a cost of 250 per month. Unfortunately the January invoice arrived late (damn IT guys!) it was received in February. We have not accrued in January. Luckily February invoice arrived on time and it was recorded in February as well as the January invoice.
•Income Statement Without Accrual
As you can see although these 2 months should reflect the exact same profit, the first impression I get when looking at it is completely different. January seems to be making tremendous profit whereas February, dammit, I need to get rid of all of my staff!
This is where accrual accounting will help us to reflect the right impression, the right expense will go into the right period.
•Income Statement With Accrual
Wow that’s looks better!
Now thanks to the accrual, I realize that indeed I do not need to get rid of half of my staff! Phew! Both periods are profitable and we now have an accurate representation of the activities of the business. The periods are consistent and we can compare them in between each other.
As we can see my powers as accountant are limitless! I can turn profits into losses, losses into profits! Hmm well, indeed I wouldn’t advise you to do so if you want a long career in Finance. Most importantly you will need to put in place several sufficient controls in order to make sure that if a significant expense/invoice is missing (by missing I mean has not been recorded for which ever reason), an accrual is recorded to reflect the correct position as if the invoice had been received. Accrual accounting is accurate and consistent.
Note again that at this stage the date at which I am paying the consultant has nothing to see with when we record the cost either through the invoice or through the accrual. This is because the revenue/cost/profit is reflected in the P&L, whereas the cash/supplier/customer is reflected in the balance sheet.
Again if I receive the consultant’s invoice in February and pay for it in March for some work done in January, I will have to accrue for it in January.
-A current asset representing amounts recorded/paid in advance for future expenses/costs. As the expenses are used or expire, expense is increased and prepaid expense is decreased.
-12 months subscriptions (magazines, software licence, etc…)
OK now let’s assume that we receive the business rates for the year to come in April for an amount of 384. Let’s see again the results in the P&L
•Income Statement Without Prepayment
As we can see without any prepayment the business rates invoice is recorded as received in April. Once again, without prepayment we get the wrong impression that the company is making good performance from January to March, but all of a sudden in April, the profit turns into a loss! As you’ve already guessed, it will be much better if I can spread over the 12 months period the business rates.
•Income Statement With Prepayment
Now all of my periods are profitable. Once again thanks to the prepayment, consistency and accuracy have appeared. The P&L of the company is now meaningful and can be analysed, regardless of the payment dates. We are not analyzing the cash here but only comparing costs to revenues.
What is important to remember is that without any accrual or without any prepayment, we would not be able to understand what is recorded and if it is properly recorded. Thanks to this system we can now have a close look at the accounts and detect the potential big spender or where some cost reductions could occur. The right decisions can be taken.
Have you got any questions or suggestions? Please post in the comments.
Author : Nicolas Buffault
At my work as accounting manager I was once asked to train some of the Finance staff to the basics of accounting. Understanding the fundamentals is essential in accounting, knowing how to post an entry, that the debit=credit, how to read an income statement (commonly called P&L), a statement of financial position (balance sheet) and also how to post an accrual, a prepayment or how to reconcile a balance sheet account, understanding all of this must be your priority number one if you want to have a career in accounting but not only. If you are running your own business or if you are director managing a budget for your company/department, all of this should be common knowledge because this is part of your every day life.
Who has never heard the accountant saying, “oh well this month the profit is down because there was the accrual for this invoice”…?!? Say it again in English! Sure..”The cost was not posted therefore we had to accrue in order to recognize the expense”… Damn I know I shouldn’t have come to Finance this morning!
This post will guide you through these basics and will help you to understand hopefully a bit better how accounting works and help you to familiarize with some of the accounting language.
As we can see in the above example, I am now able to compare the revenue with the costs in order to determine a profit, but also to analyse the trend month by month, an evolution in time. We are able to see if sales are growing, if costs are in control or not for example. We could add more columns for variances or for ratio like net profit/sales, Gross margin/Sales, or comparison with previous periods like March this year and March last year… This is one of the most helpful tool to help you manage your accounts. It allows a simple understandable view from the top to the bottom, from the sales revenue to the net profit. In reality these income statements are obviously more complex, include more categories, more details, sub accounts per department, more months, etc… Don’t forget, once we are familiar with the basics we’ll be able to go more into depth!
As we’ll see there is always usually a way of checking that your figures are right in accounting, and this is something you should be striving for. Because when you say to your managing director that the company is making losses, you want to be right. You don’t want to put yourself into that type of embarrassing situation where indeed your figures were wrong! Well I don’t! So I usually pay attention to my work and I cross check whenever possible. This is also how you will earn respect from your fellow co-workers/directors. I can assure you that if you are constantly restating your announcements because you didn’t pay enough attention to your figures, your career in accounting will be short or not very successful (probably both). Accuracy and controls are probably the most valuable skills you will need in Finance, although this can easily be another post later on!
Back to our balance sheet. It is made of assets on the debit side (usually debit will be left side or positive amount) and liabilities on the credit side (usually credit will be right side or negative amount).
Assets are the belongings of the company, what the company owns, like computers, desks, buildings, called fixed assets but also cash in the bank, or cash still to collect (Accounts Receivables)
Liabilities are the debts of the company, what the company owes, debts, bank overdraft, suppliers still to pay (Accounts Payables) etc…
Note that technically speaking asset will appear in the balance sheet even if you still haven’t paid for them. That’s because the debt still owed to the supplier will appear as liability. Now it start to make sense when I say debit=credit, assets=liabilities? 🙂
Finally it is essential to remember that the balance sheet shows figures at a “certain date”, it does not show figures for 12 months (unless you compare 12 balance sheets). This “certain date” is essential and you need to make sure you are aware of it when looking at a balance sheet. Because if the company borrows a loan the day after that “certain date”, you will obviously not see it.