Class notes for 4/27/2015

Thank you, Tony, for this review of the "Credits and Debits" presentation in class.

 

Accountants and bookkeepers record transactions as debits and credits while keeping the accounting equation constantly in balance. This process is called double-entry bookkeeping.

Debit and Credit Definitions

Business transactions are events that have  a monetary impact on the financial statements of an organization. When accounting for these transactions,  we record numbers in two accounts, where the debit  column is on the left and the credit column is on the right.

Double-entry bookkeeping records both sides of a transaction —  debits and credits —and the accounting equation remains in balance as transactions are recorded.


​

Debits and Credits for Business Transactions 

 

Sale for cash: Debit the cash account & Credit the revenue account

Sale on credit: Debit the accounts receivable account & Credit the revenue account

Receive cash in payment of an account receivable: Debit the cash account & Credit the accounts receivable account

Purchase supplies from supplier for cash: Debit the supplies expense account & Credit the cash account

Purchase supplies from supplier on credit: Debit the supplies expense account & Credit the accounts payable account

Purchase inventory from supplier for cash: Debit the inventory account & Credit the cash account

Purchase inventory from supplier on credit: Debit the inventory account & Credit the accounts payable account

Pay employees: Debit the wages expense for the Gross Amount. Credit the payroll tax accounts and then credit the cash account for the Net Amount

Take out a loan: Debit cash account & Credit loans payable account

Repay a loan: Debit loans payable account & Credit cash account

Example 1:

Arnold Corporation sells a product to a customer for $1,000 in cash. This results in revenue of $1,000 and cash of $1,000. Arnold must record an increase of the cash (asset) account with a debit, and an increase of the revenue account with a credit.

Example 2:

Arnold Corporation also buys a machine for $15,000 on credit. This results in an addition to the Machinery fixed assets account with a debit, and an increase in  the accounts payable (liability) account with a credit.

Class notes from 4/22/2015

Thanks to Tony for these notes on the class!

4/22/2015

You will reconcile the main checkbook

The bank balance on the current system date is

A trailer is a fixed asset.  It has two sub accounts.

You will account for the purchase, finance, and depreciation of that trailer:

You will set up an account for (Account Number 15400) Trailer 

You will set up a depreciation allowance account for the trailer (Account Number 15402), which is a sub account of (Account Number 15400) Trailer, with an opening balance of -1300 (negative $1,300)

You will set up a Cost of Trailer account (Account 15401), which is also a sub-account of (Account Number 15400) Trailer, with an opening balance of $30,000

You will then Add it to the Fixed Asset List under Lists

It will link or map to (Account Number 15400) Trailer
It was purchased from East Bayshore Auto Mall

It will have a description of White Trailer with Company Logo

It will have a serial number of 7WXYZ185151728150

You will add the Trailer Loan to the loan manager

The loan manager is under Banking

The Account it maps to is the Trailer Loan

The Lender is The Great Statewide Bank

The Term of the loan is 36 months

The first payment is due a month from the date that the trailer is purchased

The loan has no escrow payment

The monthly payment amount (principal and interest) is $500

The Interest rate is 6%

The Payment Account is your main checking account

You can create an invoice or a sales receipt

A sales receipt assumes that money has been traded for products or service

Create an Invoice for one of your customers for labor at $25 per hour for 40 hours. Labor is not taxable.

You can save time by Memorizing by clicking the memorize button.

You are then able to access memorized transactions from the memorized transactions list under lists

Create a new Item.  It is a service called plumbing.     The rate is $55.00

It's repair income

A price level listing is available under listings and can be set for the company under company preferences.

Class notes from 4/20/2015 class Thanks to Tony for collecting this information!

You can sort a chart of accounts by Type (Default), Name, and Balance.

Some companies use account numbers as well as account names.  You can turn on account numbers by selecting Show Account Numbers in the Accounting - Company area after selecting Edit, Preferences.

You can merge multiple items, vendors or customers by changing the incorrect name to the correct name.  Quickbooks will ask you if you would like to merge the accounts. You can do this by copying the correct name and pasting it into the name area of a vendor, customer or item that you want to change.

In the Customer, Vendor or Items and Services Centers using the "Print" icon is not as useful as choosing a"Quick Report" from the activities list.  You can customize reports from the Report Center by adding columns, such as the customer’s phone number to the Customers and Balances Report.

You can write checks and transfer funds from the "Write Checks" icon in the Checking area of the Home page.

You can reconcile the balances in a cash account by: 1) choosing "Reconcile" in the Banking area of the Home page, right-clicking on the bank account of your choice and choosing "Reconcile" from the short menu, or clicking on the Banking menu and choosing "Reconcile."

You enter any bank charges as well as the ending balance on your bank statement as well as any interest paid to the account or bank charges.  Any discrepancies can be sent to an account called Ask my Accountant/

You can reconcile a credit card the same way you reconcile a bank account.  When you have selected the credit card that you want to reconcile, and chosen "reconcile" you enter the beginning balance and finance charges from the credit card statement.  At the end, after you have resolved any discrepancies, you can write a check or make a note to pay the outstanding balance.

Liabilities, Assets in Time:

Current - Any asset or liability that will be paid in one year or less

Long Term Liability or Fixed Asset - Take longer than a year to pay off or receive value.

You can create a fixed asset, we created one for a trailer.

You can also create sub accounts for a fixed asset, such as cost of trailer and depreciation accounts.

There should also be a general depreciation expense account to capture the depreciation amount of everything in the company.

The Accounting Cycle

Thanks again to Tony for these notes from our 4/15/2015 class!

A cycle repeats itself

​

1. You make Journal Entries of Transactions on a daily basis into QuickBooks
   
   Transactions involve the exchange of a product or service for value
2. QuickBooks automatically Post(s) Journal Entries to Ledger Accounts
3. You can request QuickBooks to prodce an Unadjusted Trial Balance
   
   If the debits and credits on an Unadjusted Trial Balance equal each other, it means that there were no arithmetic  or entry errors
4. Either You or Your Accountant make Adjusting Entries
   
   Adjusting Entries are made for things like:
   Posting errors - e.g. something that was a transportation expense should have been recorded as an automobile expense
   Depreciation and Depletion - the loss of value in assets
   Prepayments - the loss of value for things that you pay up front like insurance
   Physical Inventory - because people shoplift
    
5. Dividends declared for stockholders in a corporation
6. You or Your Accountant request an Adjusted Trial Balance from QuickBooks
   
   An Adjusted Trial Balance combines Adjustments and Trial Balance amounts
7. You or Your Accountant close all Income and Expense Accounts
   
   These are the accounts that appear on a Profit and Loss Statement
    
8. Closing an income or expense account causes it to revert to a zero balance.  Starting from a zero balance allows you to tell how much money was spent or earned during a specific time period, such as a year.
   A profit can be transferred to the Equity Accounts as Retained Earnings.
9. You or Your Accountant request a Post-Closing Trial Balance from QuickBooks
   
   When the books have been closed, the only accounts with amounts left are Assets, Liabilities, and Equity type accounts, which appear on the Balance Sheet
10. You or Your Accountant request Financial Statements from Quick books
    
    Important Financial Reports:  Profit and Loss Statement, Balance Sheet, Statement of Cash Flows

Thanks to Accounting for Dummies,  by John A. Tracy.

(http://www.booksamillion.com/p/Accounting-Dummies/John-A-Tracy/9781118482223?ad=PFBING)

What we did in class on Monday, April 13, 2015, as reported by Tony:

Double click Quick books premier

File then Open or Restore Company

Click Next

From the list, Click Sample Product Based Company.qbw

Follow through

When you see the Sample Rock Castle Construction at the top of the page, you have arrived.

Take a tour of all the different forms and reports for customers, vendors, employees

Enter information regarding a vendor a product and a customer.

Thanks again to Tony for these notes on our 4/8/2015 class: (pictures were removed as they did not appear.)

Proper Bookkeeping gives an excellent measure of how well a business is doing.

Customers - Anyone who pays you

Vendor - Anyone that you pay, except for employees

Item - Anything that you want to charge for on an invoice (parts, services, labor, discounts, etc.)

Accounts - In bookkeeping, they group similar transactions together.

(e.g., You may want to create expense accounts to track advertising and rent)

Chart of accounts - organizes accounts according to similarities (Income, expenses, assets, liabilities, etc.)

The basis of accounting

1. Cash basis - income and expenses are recognized when cash changes hands

2. Accrual basis - income and expenses are recognized when earned or incurred

1. Accounts receivable - for people who owe you money
2. Accounts payable - for those that you owe money to

The fundamental accounting equation says that: Assets must always equal liabilities plus equity

Assets - what a business owns

1. Land
2. Buildings
3. Accounts Receivable

Liabilities - What your business owes others

1. employees
2. credit balances
3. loans
4. Accounts Payable
5. Taxes

Equity - What the business is worth to owners or stockholders
The Total of your Debits (the left side of a ledger) must always equal the total of your Credits (the right side of a ledger). Quick books insures that this happens when it sets up transactions.
Practice Exercise on the computer: Starting a new company

1. Start Quick Books
2. If you are asked if you want to update the company file, click yes
3. Click File, then New Company
4. Click Express Start
5. For the company name, type your name, followed by the word company
6. For the industry, pick one
7. Click help me choose for Type of Industry
8. Pick the form of ownership
9. Select Yes to indicate that you have employees
10. Fill out a fictitious address and phone number, then create the company file
11. Click Start Working
12. Click the Quick Start Close button X to view the home screen for the new company
13. Click Chart of Accounts and Maximize its window.
14. Click Account then New
15. Pick Bank then continue
16. Enter some information for a Business checking account, including a fictitious checking account number, and then click Save & close.
17. Skip the direct deposit option
18. Double-click the new bank account to get an introductory journal entry
19. Record the following transaction:
    
    
    ​
20. Click Record
21. Click Company on the menu then Chart of Accounts
22. Set up a new account as follows, enter an opening balance of $5,000 using the button and pass up on an electronic banking options:
    
    
    ​
23. Click View then Top Icon Bar
24. Click the Home button
25. Click Enter Bills on the home page
26. Quick Add The Carn Co
    
    
    ​
27. Add Merchandise Inventory for the purchase of widgets for $5,000​
28. Add Office Supplies Purchase of $5,000 as follows (Quick Add Staples as a Vendor):
    
    
    ​
29. Click on Write Check
30. Pay $1,000 to Commercial Real Estate Inc for Rent (Quick Add them as a vendor).
31. Click on Create Invoices
32. Invoice Joshua Novelties $400.00 for 40 Widgets at $50.00 a widget (Quick Add Joshua as a Customer and Widgets as an Item Associated with the Account Inventory).
33. Write a check for $1,500 to Lewis & Lewis as Attorneys.  Quick Add Lewis & Lewis and Legal Expenses.
34. Display a balance sheet and a P&L statement

Tony sent in this summary of the information from our first class:

Professor Scott's website on QuickBooks

Email: mslizny@gmail.com

Before you accept a book-keeper's job, find out if they have a licensed accountant.  A licensed accountant can indemnify you through their insurance policies.

QuickBooks uses the Generally Accepted Accounting Principals (GAAP)

Book-keeping is for creating and keeping financial transaction records

Accounting involves the interpretation and preparation of financial statements, tax returns and internal reports

Internal controls - Every record keeping system needs quality controls built into it. 

Accounting includes measuring the financial effects of economic activity, financial reporting of values, and performance measures to those that need the information.

Internal controls 

(1) minimize errors 

(2) detect and deter theft, embezzlement, fraud, and dishonest behavior of all kinds

Sample Internal controls:

• Don't get a signature stamp
• Put passwords and access levels on Quick books files

The home page is divided into five areas: Vendors, Customers, Employees, Banking & Company

​If ADP does payroll, you import ADP's Excel format file into your QuickBooks. 

Time tracking is important because it enables you to pass those costs along to the client.  QuickBooks enterprise are units that are separately purchased that are custom tailored by industry (e.g. Non profits).

A balance sheet reflects assets, liabilities, & equity

Assets - what a business owns

Liabilities - what it owes

Capital or Equity - what it worth