Overview of the Financial Module
The ABC Accounting Financial module could be called the core of this accounting program. It includes the Chart of Accounts, Check Ledgers, Checkbook Balancing, and a large variety of reports (including the very important Financial Statements).
The related modules, such as the Sales module and the Purchases module, are subsidiaries to the Financial module and channel their information into it.
The Financial module, as well as the other modules, can be operated independently; yet together they make up a complete accounting package.
The Financial module, independently of all the other modules, accumulates the financial data entered from checks, deposits, adjustments, etc., and uses them to prepare financial statements. It can be used to print out checks as the amounts are entered into the ledger. It is also capable of entering after-the-fact data from a check ledger as well as accepting non-cash adjustment entries.
The ABC Financial module includes two types of trial balances to insure that the total debits and the total credits entered are equal. The one trial balance prints out each account with a balance and lists that balance either as a debit or as a credit balance. The other trial balance shows individual transactions for each account. This option makes it easier to trace individual accounts.
The final product of any General Ledger system is the financial statements derived from the raw data. ABC Accounting’s Financial Module has the capability to print either individual financial statements or departmentalized financial statements with a multiplicity of departments.
To generate departmentalized financial statements, the chart of accounts must be categorized properly. Study carefully “Departmentalized Financial Statements” in your manual before setting up a chart of accounts for departmentalized statements.
BE SURE TO DO THIS BEFORE ENTERING DATA!
ONCE ENTERED INTO A STANDARD CHART OF ACCOUNTS,
IT IS TOO LATE
TO DEPARTMENTALIZE FOR THOSE ENTRIES!
Contact your ABC Accounting representative
for help in setting up or adjusting your Chart of Accounts.
The Chart of Accounts is the data base containing all the financial accounts of your business. Each category or account in the Chart of Accounts is referenced by a specific account number.
These numbers must fall within specific categories, so if you are unsure of yourself, make sure you contact your ABC Accounting representative before entering new accounts.
The Chart of Accounts gives account balances as well as monthly money amounts. It also has reports that show monthly or yearly trial balances.
Helps Accessed From the Chart of Accounts (G) Screen
Ctrl+N—clears the screen, without saving or unsaving the current record, and sets the reference number to the next available number.
F5—exits lookup.
F6—opens lookup.
F9—saves record.
Shift+F9—deletes record.
F10—goes to the Selection Screen.
Shift+F10—goes to the Menu Bar.
Esc—exits one level.
Alt+F4—exits ABC.
F7—loads previous record.
F8—loads next record.
Shift+F7—When the cursor is on an indexed field, press Shift+F7 to scroll through information in reverse.
Shift+F8—When the cursor is on an indexed field, press Shift+F8 to scroll through information going forward.
Tools Help (G)
Alt+C—This can be used when you want to transfer all the information from one account into another account.
Load the account that you want to transfer.
Press Alt+C.
When the message box: "Enter the account # to change to." pops up,
Enter the account # that you want to transfer the information to.
If the account:
did not previously exist, it is set up, using the same account name. The account data is transferred to the new account.
already exists, the a message box pops up, saying, "Acct.# xxx already exists. Do you want to merge detail? Yes / No?"
Press Y to transfers the information to the specified G/L account. It does not change the name of the existing G/L account.
Press N to cancel the operation.
Ctrl+G—Gets or jumps to the address of a certain field. When you press Ctrl+G, a message box appears telling you the address of the field your cursor is on. You are also given opportunity to jump to another address. Enter the location number of the field you want to jump to, or enter F and the field number of the field you want to jump to.
Ctrl+J—accesses a Journal to record anything that you want to remember about this account. To see previous notes, press Ctrl+J. When you are done, press F9. The notes will be saved with the date and time.
Ctrl+K—accesses a second journal. It is similar to the Ctrl+J journal, but saves your notes with only the date.
Ctrl+W—puts the currently loaded G/L # on a Word Processor list. To see the list, press F10, W, Ctrl+N (to clear screen) and then type GLIST. Ctrl+W
Ctrl+Z—Zap! Undoes latest changes to the line the cursor is on.
Shift+F3—brings up an accountant's* calculator when your press it the first time. The second time you press it, the final calculations showing are entered into the field the cursor was on.
+ adds or totals - subtracts / divides
* multiplies ) clears ( exits calculator
= totals or equals
*If you are not familiar with an accountant’s calculator, you may want to take a little time to familiarize yourself with the differences in usage here. Figures are entered as positive or negative: i.e. 100+50-75= would be entered as 100+; 50+; 75- The answer calculates each time you press the positive or negative sign. The = sign or Enter key seldom need be used unless you are multiplying or dividing.
Reports Help (G)
(The F11 hot key takes you straight to the Report Menu. Then you can just press the letter of the report you wish to run. Of course, using your mouse works too.)
L—runs the trial balance report for the previous month of the G/L account currently on the screen.
M—runs the trial balance report for the current month of the G/L account currently on the screen.
P—runs the Year-to-date trial balance report, as of the end of the Prior Month, of the G/L account currently on the screen.
Y—runs the Year-to-date trial balance, as of the current date, of the G/L account currently on the screen.
C—runs a Cash Flow report for the month.
Your ABC Accounting representative has set up a basic chart of accounts for you. To enter new accounts, make sure they fit appropriately under the existing headings.
Please feel free to contact your ABC Accounting representative for help.
One general method for organizing the Chart of Accounts, as used by ABC Accounting is as follows:
100 Assets
110—998 Current Assets
1000—2799 Inventory
2800—2899 Fixed Assets
2900—2959 Accumulated Depreciation
2960—2999 Other Assets
3000 Liabilities
3010—3599 Current Liabilities
3600—4799 Long Term Liabilities
4800—4999 Capital Accounts
5000—6998 Sales
7000—8799 Cost of sales
8800—8999 Other direct Costs
9000—9799 General & administrative
9800—9899 Other Income
9900—9999 Other Expenses
The Inventory, Sales, and Cost of Sales should be a multiple of 100 apart from each other.
Enter the title of the account the way you want it to appear on the Financial Statement.
This field specifies how each G/L account is used on financial statements.
For example, will it be used as a heading, a subheading, an asset, a total, etc.?
You will use 0—2 letters in this field, depending on its function on financial statements. The following letters may be used. For a more detailed explanation of their functions, see the following pages.
1st Letter Options
B—Bank Account
O—Opening Bank Balance
M—Main Heading, Form Feed
N—Main Heading, No Form Feed
H—Heading
I—Centered Heading
S—Subheading
T—Total
A—Accumulate
E—End Accumulate
V—Inventory Valuation
2nd Letter Options
A—Assets
L—Liabilities
S—Sales & Tot. %
E—Expenses
O—Other Income
2nd Letter When 1ST Is T
M—Total Main Heading
H—Total Heading
S—Total Subheading
I—Total Income
E—Total Earnings
2nd Letter When 1ST Is V
(for use with Statement 1 field only)
B—Bill used for Cost of Sales
R—Receivable Invoice Cost
1st Letter Options for Statement Headings Explained
1. B (Bank Account)—Enter B for any ledger accounts.
2. If you use O (Opening Bank Balance), the 4—18 Statement will print the opening balance instead of the change for the period.
3. M (Main Heading)—Entering M indicates that this is a main heading (e.g. Assets). This heading will be centered on the line and will begin a new page. (See # 4 if you do not want to begin a new page.)
a. Enter MA for ASSET main heading. The A specifies that the following accounts will be assets (credits) until another account has a different second letter in the Statement field.
b. Enter ML for LIABILITIES AND OWNER'S EQUITY heading. The L specifies that the following accounts will be liability, owner(s)' equity, or other accounts which normally contain debit (negative) balances.
c. Create an account at the beginning of the Income Statement with no title. Enter MS as the statement field of this account. This account indicates the beginning of the Income Statement. This "dud" account is necessary to indicate that this is another page of the financial statements. This account cannot be used as the Sales heading because the Sales heading needs to be left-hand justified. An M centers the title horizontally.
4. N (Non-paging, Main Heading) Use N for main headings for which you do not want to begin a new page. The N option works exactly like the M option except that a new page will not begin here. The N option is most frequently used for the LIABILITIES & OWNER'S EQUITY account if a one page financial statement is desired. No second letter is needed for the Equity Accounts since they are credits, just as the liability accounts are.
5. H (Heading)—Use this entry for left-hand justified titles such as CURRENT ASSETS, SALES, etc.
6. I—This entry is identical to the H entry except that the heading is centered. This entry is used for the LIABILITIES and the OWNER'S EQUITY headings on the Balance Sheet.
7. S (Subheading)—Use this entry for a subheading such as ACCUMULATED DEPRECIATION. Also use it for the CURRENT LIABILITIES and the LONG-TERM LIABILITIES sections. The S indents the account title three spaces. In the case of the ACCUMULATED DEPRECIATION account, enter an L for the second letter in the statement field. Although this account is not a liability, it is a credit balance account on the Balance Sheet. Entering an L will keep the amounts from showing as negative numbers on the Balance Sheet.
8. T (Total)—The program automatically labels totals the same as the heading title. For example, when printing accounts under the title CURRENT ASSETS and it accesses an account which the statement field indicates is another heading, it will automatically print a line TOTAL CURRENT ASSETS and print out the total. Use the following choices if you desire to use a totals title which is different from the related heading title.
a. TM for total main heading
b. TH for total heading
c. TS for total subheading
d. TI (Total Income) Totals Income up to that account number on the income statement but doesn't close out income totals. This should be used for lines such as the Gross Profit line on the Income Statement.
e. TE (Total Earnings) Prints total earnings. This must be entered at the end of the Balance Sheet in the Year-to-Date account, the last account on the Balance Sheet.
9. A (Accumulate)—This option causes the program to accumulate totals from other accounts into the current account. All the accounts which follow this account will be accumulated and printed after the title of the current account until an account is accessed which contains an E (End) in this field or which is a heading account.
For example, if Account 160 contains an A in this field and account 169 an E, the total for all accounts from 160 to 169 will print after the title of account 160. This is merely a calculation; the figures are not actually moved from the G/L account in which they were entered.
10. E (End)—Ends accumulating and prints out total amount accumulated. See # 9 above.
2nd Letter Options for Statement Headings Explained
Note: The second letter automatically defaults to whatever letter was last entered as the second letter in the statement field. For example, the MA entered on the statement field of the ASSETS account automatically makes all the accounts assets until the SL entered for ACCUMULATED DEPRECIATION indicates the beginning of accounts with credit balances.
1. A (Assets)—Indicates the first asset account on a statement.
2. L (Liabilities)—Indicates the first liability account on a statement.
This label can also be used to reverse a negative number for printing, such as entering an L to keep the Accumulated Depreciation accounts from printing as a minus on the Balance Sheet.
3. S (Sales)—Indicates the first income account on the Income Statement. This letter shows which account will be the first account for accumulating sales. It keeps on accumulating until the program encounters an E for expenses.
The S as the second letter in the Statement field may also be used to calculate the percentage of sales on the Income Statement.
Never use an S twice on an income statement, or sales will be accumulated only from the second S entry.
4. E (Expenses)—Indicates the first expense account on the income statement.
5. O (Other Income)—Indicates other income. The difference between the O and the S is that this option does not trigger the percentage of sales calculation.
Entering a Y in this field causes the cursor to stop automatically at the Remark field when entering amounts into this ledger account, using the Ledger screen.
An N will cause the cursor to skip the Remark field. Although not as convenient, it is still possible to enter a Remark by pressing Shift+Tab in the field immediately after the cursor skips the Remark field.
A T will require a tag when the account is used on a bill or a check. Tags allow you to track expenses by independent classifications; for example a piece of equipment or a vehicle. Tag codes are set up in the job class screen. Tags are entered in the Job Class field on a bill, or in the Remark field on a check. On checks, tags are marked by angle brackets. For example, if you use F1 as the Job Class for Forklift #1, the tag on the check would be <F1>. To get a report of expenses by tag, run report 4-15, Trial Balance from Detail, and at the summary/tag option enter the tag(s) you want.
A B will provide the functions of both the Y for remark and T for tag.
An entry in this field indicates that a Form 1099 is required for payments totaling more than a specified amount ($600 in most cases but $10 for royalties paid and interest paid by a bank or anyone in the business of lending money). At the end of the year, the program has the capability to prepare 1099s for those vendors to whom you are required to furnish Form 1099s. Entering a number in this field specifies the type of 1099 required.
11 Miscellaneous Expenses (1099 MISC)
12 Rent Expenses (1099 MISC)
13 Interest Expenses (1099 INT)
14 Royalty Expenses (1099 MISC)
15 Attorney Expenses (1099 MISC)
Note that even though several of these types of expenses are reported on Form 1099 MISC, they need to be kept separate because the amounts are reported on different blocks on the form.
See the helps titled “1099s—Generating” and “1099s—Required Entries” on the ‘v screen.
Note that any documentation referring to the Job Costing Module (Material, Job, or Job Detail screens) does not apply to most users. It is a custom feature.
ABC JOB COSTING MODULE—If you are not using the Job Costing module, leave this field blank.
1. If you are using Job Costing, enter M for Material, S for Subcontract, or A for All.
2. A Purchase Order or Bill that has a Job number and an S in the M)aterial, D)irect, S)ubcontract field requires an S or A in the Type M/S/A field of that account.
3. A Purchase Order or Bill that has a Job number and an M in the M)aterial, D)irect, S)ubcontract field requires an M or A in the Type M/S/A field of that account.
4. If the Purchase Order or Bill does not have a Job number, you may use accounts with an A type or with No type specified.
Alternate General Ledger Account # (G.6)
You can use this to give another number to this Account. This gives you flexibility when running Report # 4-18, FINANCIAL STATEMENTS.
When you run Report # 4-18, FINANCIAL STATEMENTS, and you choose S for Sort, the Accounts WITH Alternate General Ledger Account #s will be listed after the Accounts without.
This field is provided for your use as an informational field about this account.
In the event of a long note, just keep typing. The field will scroll and allow you to enter quite a lot here. To view it later, click on the little curved arrow icon. A box opens up for viewing whatever was entered here in its entirety.
You are given 3 statement format options. The same codes are used to identify headings, subheadings, totals, etc. as were described in the Statement 1 field help.
When Report # 4-18, FINANCIAL STATEMENTS, is run you are asked which Statement, 1, 2, or 3, is desired.
The code A is one which is often used in this type of Statement. It accumulates totals from various accounts and prints them all labeled with one account name.
You are given 3 statement format options. The same codes are used to identify headings, subheadings, totals, etc. as were described in the Statement 1 field help.
When Report # 4-18, FINANCIAL STATEMENTS, is run you are asked which Statement, 1, 2, or 3, is desired.
The code A is one which is often used in this type of Statement. It accumulates totals from various accounts and prints them all labeled with one account name.
Enter a use tax item code, set up on the Inventory item screen, to track use tax on expense accounts. Enter the code on any accounts for items that you use in your business, but not on purchases for resale. You will be able to get reports of purchases without sales tax to accurately report use tax to your state.
To set up a use tax item on the Inventory item screen, enter an Item# and Description, enter % in Unit, enter the use tax percentage in List (6.00 for 6%), and enter U in Tax.
Also on the Inventory items screen, you will want to set up an item for sales tax on purchases. On this item, enter P in Tax. Then when you enter a bill which already includes sales tax, use this item to enter the sales tax. This will prevent use tax being calculated on the bill.
When you pay a bill that is subject to use tax, the use tax item# is added as a tag in the Remark field on the check. Also, if you enter a check directly into the Ledger, a use tax tag is automatically inserted whenever you enter an account # that has a Use Tax Item # filled in. On checks entered this way you can manually remove or add the use tax tag. A tag is marked by angle brackets, such as <.PAU> for use tax item # .PAU.
To run a report on purchases subject to use tax, run report 4-15, Trial Balance from Detail, and at the summary/tag option enter the tag(s) you want.
Enter 12 if using monthly periods, 13 if using 4 week periods, 4 if using quarterly periods, etc. This field must be entered before beginning to enter data into the Next Period Ending field.
This field allows you to define the ending date for the Chart of Accounts periods.
However, the number of periods in a year must be entered in its proper field (the # Periods/Year field at the bottom right of the Chart of Accounts (G) screen) before beginning this procedure.
These periods must be set up at least one period ahead of the current period when posting open accounts payable and inventory value to the Chart of Accounts.
We recommend entering as a part of the initial setup the ending dates for each of the periods in the current year up to the present date. The first entry to be made is the previous year-end date.
For example, if setting up accounts on a monthly basis, first enter the ending date of the last year and then set up the monthly periods by entering the last day of each month.
If your accounting year is the calendar year and the current year is 2005, the first entry into this field would be 12-31-04, the end of the previous year.
Upon pressing Enter, the program will request that you verify the date, and then will enter it onto the lower half of the screen.
The next entry will be the end of the first period in the current year, in this case 1-31-05. Repeat the process for 2-28-05 and so on up to the end of the current month.
Once you have completed these entries for the first account, the remaining accounts which you set up in the G/L Chart of Accounts (G) screen will automatically contain the same dates.
It is possible to clear these dates from the screen by entering Alt+D. HOWEVER . . .
ONLY DO THIS BEFORE ANY AMOUNTS ARE ENTERED INTO THE G/L ACCOUNTS. IT IS VERY DANGEROUS TO DO THIS IF DATA HAS BEEN ENTERED INTO THE G/L ACCOUNTS BECAUSE THE DATA ALREADY ENTERED WILL NOT NECESSARILY BE IN THE CORRECT PERIOD IF NEW PERIODS ARE THEN SET UP.
Chart of Accounts Setup—Entering Account Balances (G)
1. Obtain setup balances from your accountant.
2. Enter these under F10, - (dash), 2 (Adjustment Entries).
3. Check # 1 will automatically be selected unless it was used already.
4. Enter the date of the setup balances, usually the end of a month.
5. Type SETUP BALANCES in the Vendor Code & Name field.
6. Skip the Check Amount field.
7. Enter each account # and amount from the setup balances provided by your accountant.
8. Enter credits with a minus sign.
9. When all account #s and amounts are entered, the Distribution field should be zero.
10. If it is not zero, enter the amount that is in the Distribution field into the Owner's Equity account. (ABC's standard equity account is 4010).
11. Press F9 to save the entry.
12. Enter any transactions that took place after the setup balances were calculated that have not yet been entered. (This would include things like hand written checks rather than printed ones.)
13. Enter these into the check ledger, usually F10, - (dash), 3.
14. Enter the check #.
15. Enter the date.
16. Enter the vendor code.
17. Enter the amount.
18. Enter the disbursement (account # and amount).
19. Remember to use F9 to save each entry.
20. Ledger entries MUST be in order by months. For example, Check # 100 must not be in May if Check # 99 has a June date.
21. Make entries for any other transactions, such as bank charges, interest, payments automatically deducted from your account, etc.
22. Enter all deposits made to your bank account since the date of the setup balances.
23. Enter an adjustment entry for the sales for each month since the date of the setup balances.
Departmentalized Financial Statements (G)
Departmental Financial Statements are financial statements which disclose the financial information for both the enterprise as a whole and the individual departments of the business.
For example, a retail firm which markets both hardware and dry goods could, with proper accounting procedures and arrangement of accounts, generate financial statements which disclose both the financial statements for the individual divisions as well as an overall financial statement. This firm would then receive three financial statements, one for the hardware section, one for the dry goods division, and one for the entire business.
It is also possible to create statements in which only the Statement of Income is departmentalized.
BE AWARE that useful departmentalized financial statements require more detailed record keeping and data entry than does a standard financial statement.
ABC's departmentalized financial statements are designed by structuring a chart of accounts in which the accounts to be combined are 100, 1,000, 10,000, or 100,000 numbers apart.
For example, if the combined Income Statement account number for Sales is 501, the account number for Sales—Hardware would be 1501 (501 + 1000) or 10501 (501 + 10000) and the account number for Sales—Dry Goods would be 2501 or 20501.
You are allowed a total of nearly 1,000,000 accounts.
Therefore, if the corresponding account numbers are 1,000 apart, 999 departments with 999 accounts are possible. (You would use three digit account numbers and three digit department numbers).
If they are 10,000 apart, 99 departments with 9,999 different accounts are possible! (You would use two digit department numbers and 4 digit account numbers).
To activate the departmentalized function, two fields need to be accessed on the Company Setup (#) screen. To go to that screen, press F10 and then #. These fields are the Department Start number and the Multiplier number.
Department Start #
This is the account number where the departmentalization is to begin.
For example, to have a combined Balance Sheet and a departmentalization of the Income Statement, enter the first sales number in this field. No entry is needed if the entire statement is to be departmentalized.
Multiplier
Enter here the number of available accounts intervening between corresponding account numbers.
For example, if combined sales is 501, Hardware Sales is 1501, and Dry Goods Sales is 2501; the multiplier is 1000.
Overview of Financial Statements (G)
In order to organize your financial records in a way that will produce accurate, intelligible financial statements, a rudimentary knowledge of accounting fundamentals is necessary. An overview of financial statements follows.
The two principal financial statements are the Balance Sheet and the Income Statement (also called the Profit and Loss Sheet). The Balance Sheet shows the net worth of a business as of the last day of the accounting period. This includes the assets which a business owns, the debts (liabilities) which they owe, and the equity or the net worth of the business. The net worth of a business equals the assets of the enterprise minus its liabilities.
The Income Statement shows the profit or the loss of a business during the accounting period ending on the Balance Sheet date. The profit (or loss) is calculated by subtracting expenses for the period from the corresponding revenues.
The Income Statement has a basic format, but the details vary somewhat according to the type of business being reported.
A service business (like tax preparation services) usually has the simplest Statement of Income because it simply lists the revenues and then the various categories of expenses and subtracts the total expenses from the total revenues.
A retail organization first of all subtracts the cost of goods sold from the sales to arrive at the Gross Profit. Then the overhead expenses are listed and totaled and subtracted from the Gross Profit to arrive at the Net Profit.
The Income Statement of a manufacturing concern is much like that of a retail business except that the cost of goods sold section is much more involved.
These descriptions of the financial statements are generalizations. Actual statements can be much more complex.
See the illustrations of the Balance Sheet and the Income Statement on the following pages. A more detailed description of both financial statements follows.
Preparing Financial Statements
A. Methods of Accounting
1. The Cash method of accounting records income when the payment is actually received. Expenses are not recorded until the bills are paid.
2. The Accrual method declares income and reduces inventory when the accounts receivable invoice is made. Expenses and inventory increase are declared when the accounts payable bill is received.
While the Cash method is a simple method of bookkeeping and defers declaration of income until you receive the money, it can distort your profitability because inventory fluctuates without reflecting the fluctuating balance.
B. The Balance Sheet
1. The Asset section of the balance sheet shows the value of all assets of monetary value which the business owns. Asset accounts are categorized in three classes.
a. Current Assets—Current assets include cash and other assets which are likely to be converted into cash during the next fiscal year.
b. Fixed Assets—Fixed assets are those assets which will be used in the business over a period of several years or longer. These are not written off as expenses in the year purchased, but are rather depreciated over the life of the asset (the most notable exception being that land is not depreciable). The value of fixed assets shown on the balance sheet is usually their cost minus the depreciation that has already been claimed.
c. Other Assets—Those assets other than fixed assets which will not be converted into cash during the next year are referred to as Other Assets. An example of other assets would be the long-term portion of notes and bonds receivable.
2. The Liability section of the balance sheet lists all debts owed by the company and is usually divided into two classes.
a. Current Liabilities—Liabilities which are due to be paid within the year, such as accounts payable, taxes payable and the portion of notes payable within one year, are current.
b. Long-term Liabilities—Liabilities which are not due within the next year are long-term liabilities. Examples of long-term liabilities include the long-term portions of notes payable, bonds payable and mortgages payable.
3. The Owner's Equity part of the balance sheet shows the cost of the enterprise and is equal to the assets minus the liabilities.
a. The Owner's Equity section has different names depending on the form of the business. The accounts included in this section are known as the capital accounts.
i. Owner's Equity is the title used for a sole proprietorship (when only one person owns a non-incorporated business). If the enterprise is a sole proprietorship, the capital account will usually show the name of the owner (for example, John Doe, Capital).
ii. Partnership Equity is used for a partnership. A partnership will list the capital accounts of each partner and often includes a loan account and a draw account for each partner as well.
iii. Stockholders' Equity is the title for a corporation. A corporation will show the value of the stock or of the various classes of stock.
b. For sole proprietorships and partnerships, the earnings accumulate in the owner's Capital Account. (However, a Year-to-date Earnings Account is often used until the end of the year and then the total earnings or losses for the year are adjusted into the Capital Account.) For a Corporation, the profits and losses accumulate in the Retained Earnings Account.
4. The final line on the balance sheet is titled Liabilities and Owner's Equity. Because the debits must equal the credits, the Total Assets equal the sum of the Liabilities and Owner's Equity.
5. Notice that the Balance Sheet for XYZ Distributors is set up with a three column format. This displays the months November and December respectively, and then shows the difference between what was earned or lost those months.
|
XYZ Distributors Periods as Indicated Balance Sheet
ASSETS |
|||
|
Current Assets |
12/31/04 |
11/30/04 |
Change |
|
Cash—Commerce Bank |
119.73 |
129.38 |
-9.65 |
|
Accounts Receivable |
4123.43 |
3978.40 |
145.03 |
|
Inventory |
12483.54 ______________ |
11659.32 ____________ |
824.22 __________ |
|
Total Current Assets |
16726.70 |
15767.10 |
959.60 |
|
Fixed Assets |
|
|
|
|
Fixed Assets Before Depreciation |
|
|
|
|
Equipment |
21347.83 |
21178.65 |
169.18 |
|
Office Equipment and Fixtures |
4138.87 |
4182.45 |
-43.58 |
|
Buildings and Land |
102456.92 ____________ |
102456.92 ____________ |
0.00 ________ |
|
Total Fixed Assets Before Depreciation |
127943.62 |
127818.02 |
125.60 |
|
Less Accumulated Depreciation |
|
|
|
|
Accumulated Depreciation of Equipment |
2395.00 |
3129.00 |
-734.00 |
|
Accumulated Depreciation of Office Equipment |
1159.00 |
1084.00 |
75.00 |
|
Accumulated Depreciation of Buildings |
7084.00 ____________ |
6884.00 ____________ |
200.00 __________ |
|
Total Accumulated Depreciation |
10638.00 _____________ |
11097.00 _____________ |
-459.00 __________ |
|
Total Fixed Assets |
117305.62 _____________ |
116721.02 _____________ |
584.60 __________ |
|
TOTAL ASSETS |
134032.32 ============ |
132488.12 ============ |
1544.20 ========== |
|
LIABILITIES |
|||
|
Short-term Liabilities |
|
|
|
|
Accounts Payable |
2385.69 |
2673.94 |
-288.25 |
|
Payroll Taxes Payable |
537.94 |
45.21 |
492.73 |
|
S/T Mortgage Payable—Commerce Bank |
3730.52 ___________ |
3648.89 ____________ |
81.63 _________ |
|
Total S/T Liabilities |
6654.15 |
6368.04 |
286.11 |
|
Long-term Liabilities |
|
|
|
|
Note Payable—Jason Doe |
9000.00 |
9000.00 |
0.00 |
|
Mortgage Payable—Commerce Bank |
53492.74 ____________ |
53792.74 ____________ |
-300.00 __________ |
|
Total L/T Liabilities |
62492.74 _____________ |
62792.74 ____________ |
-300.00 __________ |
|
TOTAL LIABILITIES |
69146.89 ============ |
69160.78 =========== |
-13.89 ========= |
|
Owner’s Equity |
|
|
|
|
Robert Doe, Capital |
52168.32 |
52168.32 |
0.00 |
|
Year-to-date Earnings |
12717.11 ____________ |
11159.02 ____________ |
1558.09 ___________ |
|
Total Owner’s Equity |
64885.43 ========= |
63327.34 ========= |
1558.09 ======== |
|
LIABILITIES AND OWNER’S EQUITY |
134032.32 ============ |
132488.12 ============ |
1544.20 ========== |
C. The Statement of Income (Profit/Loss Statement)
1. The first part of the Statement of Income is Revenue. If there are several classes of revenue, they are totaled.
2. The second section of a Statement of Income is the Cost of Goods Sold. This shows what the retailer paid for the goods which were sold. The cost of goods sold is calculated by:
a. adding Beginning Inventory to Merchandise Purchased For Resale. (The sum of these two items equals the cost of goods available for sale.)
b. then subtracting the Ending Inventory to arrive at the Cost of Goods Sold. (The Chart of Accounts makes this adjustment by calculating the inventory change for the period and adjusting the purchases by that amount.)
3. The third entry on the Statement of Income is the Gross Profit. To find this, subtract the Cost of Goods Sold from the Total Revenue.
4. The fourth section of the Statement of Income is Operating Expenses. This section contains the overhead expenses for a business and includes such items as office supplies, transportation, and heating.
5. The fifth entry is the Net (Operating) Income. To find this, subtract the total operating expenses from the Gross Profit. If there are no other income or expense sections on the Income statement, this is called the Net Income. If there are other income or expense entries, it is called Net Operating Income.
6. Sometimes the Income Statement includes a section titled Other Income and Expenses. This section includes income and expenses not related to normal operations, such as gain or loss from Sale of Assets and income or expense from Interest. The income/gains and expenses/losses are first subtotaled individually. These subtotals are then combined to arrive at Total Other Income and Expenses which is, in turn, combined with the Net Operating Income to arrive at the Net Income.
7. Notice that the Statement of Income for XYZ Distributors shows four columns. The first and third columns display the totals for December and the entire year of 2001 respectively. The second and fourth columns display the percentage of each entry compared to sales.
|
XYZ Distributors Periods as Indicated Statement of Income |
||||
|
|
12/1/04-12/31/04 |
1/1/04-12/31/04 |
||
|
|
$ |
% |
$ |
% |
|
Revenue |
|
|
|
|
|
Sales |
25741.91 |
100.00 |
272178.54 |
100.00 |
|
Cost of Goods Sold |
|
|
|
|
|
Purchases |
16122.79 |
62.63 |
168750.69 |
62.00 |
|
Inventory Adjustment |
-824.22 —————– |
-3.20 —————– |
-3333.95 —————– |
-1.22 ————— |
|
Total Cost of Goods Sold |
15298.57 —————— |
59.43 —————– |
165416.74 —————— |
60.78 ————— |
|
GROSS PROFIT |
10443.34 ======= |
40.57 ====== |
106761.80 ======= |
39.22 ====== |
|
Operating Expenses |
|
|
|
|
|
Transportation |
102.99 |
.40 |
1171.22 |
.43 |
|
Office Supplies |
112.89 |
.44 |
1232.89 |
.45 |
|
Postage & Shipping |
199.95 |
.78 |
2089.34 |
.77 |
|
Telephone |
232.72 |
.90 |
2635.45 |
.97 |
|
Electricity |
705.22 |
2.74 |
8235.78 |
3.02 |
|
Heating |
305.23 |
1.19 |
1823.45 |
.67 |
|
Labor |
5899.36 |
22.92 |
63146.89 |
23.20 |
|
Supplies |
452.23 |
1.76 |
4562.84 |
1.68 |
|
Depreciation |
541.00 ————— |
2.10 ————— |
10638.00 —————– |
2.36 ————– |
|
Total Operating Expenses |
8551.59 ————— |
33.22 ————— |
91312.86 —————– |
33.55 ————– |
|
NET OPERATING INCOME |
1891.75 ====== |
7.35 ====== |
15448.94 ======= |
5.67 ===== |
|
Other Income |
|
|
|
|
|
Interest Income |
26.21 |
.10 |
349.25 |
.13 |
|
Gain on Sale of Assets |
338.65 ————— |
1.32 ———— |
5846.14 —————– |
2.15 ———— |
|
Total Other Income |
364.86 |
1.42 |
6195.39 |
2.28 |
|
Other Expenses |
|
|
|
|
|
Interest Expense |
698.52 ————— |
2.71 ———– |
8927.22 ————— |
3.18 ———– |
|
Total Other Inco/Expe |
-333.66 —————– |
-1.30 ———— |
-2456.43 —————– |
-.90 ———— |
|
NET INCOME |
1558.09 ======= |
6.05 ===== |
12717.11 ======= |
4.77 ===== |
Chart of Accounts—How to Add Account Numbers
Before adding new accounts, print out a copy of the current Chart of Accounts. To do this, press F10 and then 4. Type 1 and press Enter five times. Press P to print it out.
(If necessary, consult with your accountant or with your ABC Accounting representative for the proper place to insert new account numbers.)
1. Click on the Financial module; then click on Chart of Accounts. (Or press F10, G.)
2. Press Ctrl+N to get a blank screen.
3. Enter the new account number.
4. Enter the account name.
5. If this account is used with Job Costing, put an M for Material, S for Subcontractor or A for All (both), in the Type M/S/A field.
Note that any documentation referring to the Job Costing Module (Material, Job, or Job Detail screens) does not apply to most users. It is a custom feature.
6. Press F9 to save the new account.
Setting Up a Brand New Chart of Accounts
1. Determine the financial statement format which best meets your accounting needs and decide how you want the data arranged on the statements. Your financial advisor and your ABC Accounting representative will probably have some helpful suggestions.
If you are planning to utilize the departmentalized financial statement capabilities of this package, BE SURE to read the section titled "Departmentalized Financial Statements" first.
2. Sketch out the chart of accounts you will need in order to produce the financial statements that will best suit your company’s needs.
Be sure to study the format the program uses to print headings, totals, and such like on the Statements.
The program obtains all the headings for the financial statements from the accounts you set up here on the Chart of Accounts (G) screen.
You may be able to use the Chart of Accounts which ABC Accounting has already set up. You can add or subtract accounts depending on your needs.
Below are several recommendations for assigning account numbers.
a. Number accounts in the order in which they will appear on the financial statement. The program prints the accounts on the financial statement in ascending number order (starting with the lowest number).
b. Use two, three, or four-digit numbers. (We have generally found four-digit numbers to be most practical.)
c. Number the Balance Sheet before the Income Statement.
For example, on a chart of accounts with 3-digit account numbers, 500 would be a good place to divide between the two statements. In that case, the 1st Sales Heading account number would be 500 and all numbers for the Income Statement would be higher than 500.
d. Skip several numbers between each account in order to allow room for additional accounts. Rare is the person who assigns a chart of accounts and never needs to revise it!
3. Verify the data on the Company Setup (#) screen.
Most of the fields are self-explanatory. The program has the capability to enter up to five checking accounts on separate ledgers. These are listed on the Company Setup (#) screen as ledgers 3 to 7. Enter the statement account number and the title for each checking account. Much of the rest of the information on the lower part of the page relates to the other modules as they interrelate with the Financial Module. No account numbers need to be entered in these fields unless you are using those modules.
The following fields are of interest:
a. Year-end Month—Enter the number of the month in which your financial year ends. Except for fiscal year taxpayers, enter 12 for December.
b. Retained Earnings Account #—The Retained Earnings Account is the account in which the cumulative profits are stored. It is a different account from the Year-to-date Earnings account. At the end of the year, the Year-to-date Earnings account is often closed out to the Retained Earnings account. Therefore, the Retained Earnings account shows the cumulative profits for every year except the current year. Presently the end-of-year adjustment is a manual adjustment. ABC’s standard Retained Earnings account # is 4010.
c. Sales Start Account #—Enter here the first revenue account. This marks the break between the Balance Sheet and the Income Statement. ABC's standard Sales Start Account # is 5000.
d. Department Start #—This field is reserved for departmentalized financial statements. Enter here the account number where the departmentalized part of the financial statements begins. No entry is needed if the entire statement is to be departmentalized. If only the Statement of Income is to be departmentalized, enter the first Statement of Income account number.
e. Department Multiplier—The multiplier indicates how far apart the accounts for the various departments are. Only 100, 1000, 10000, and 100000 are available. Keep in mind that this entry also limits the number of accounts each department is able to have.
For example, entering 100 limits each department to 100 accounts since accounts 210, 310, 410 etc. will accumulate into the same cumulative account (account 110 in this case).
4. Enter your chart of accounts on the Chart of Accounts (G) screen.
Enter the following information for each individual account in your chart of accounts:
a. Account #—Enter the account number which you assigned.
b. Name—Enter the title of the account.
c. Statement—This field specifies how the account is used on financial statements. Use from zero to two letters in this field, depending on its function in the financial statements. For more details, see the sections titled “Statement Heading Codes” and “Chart of Accounts Illustration” in your manual.
d. 1099 Field—Usually only a few accounts will need an entry in this field. For detailed help, see the section titled “1099 Field” in your manual.
The four fields mentioned above are the most frequently used fields on the Chart of Accounts (G) screen. For help with the other fields, press F1 while your cursor is on that field.
Once you enter all accounts from your chart of accounts, you can enter data. The next step covers this.
5. Enter the beginning balances on the Adjustment Ledger screen.
The first financial data on file is logically the beginning balance sheet amounts. These figures need to be entered as Adjustment Entries on the Ledger screen.
To access the Adjustment Ledger, go to the Ledger Select (-) screen. Choose Option 2, Adjustment Entries.
a. Enter ADJ as the Vendor code.
b. Do not enter anything in the Amount field beside the Vendor code.
c. In the lower part of the screen, enter your “Cash in Bank” account #. (ABC’s standard is 303.)
d. Enter a positive amount as a positive figure and a negative amount as a negative figure.
e. On the next line, enter the Proprietor’s Capital G/L account #. (ABCs standard is 4010.) Enter the figures here as exactly opposite to the figures on the line above. (A positive figure entered above would be entered here as a negative figure and vice versa.)
NOTE: If you are using the Sales Module (Accounts Receivable) and the Purchases Module (Accounts Payable), go on to step # 6 and skip step # 7. If you are using only the Financial Module, skip step # 6 and go to step # 7.
6. Post any required amounts accumulated in Sales, Purchases, Inventory, and/or Payroll Modules to the Financial Module.
If you are utilizing the Sales (Accounts Receivable) and Purchases (Accounts Payable) Modules, you will be making very few entries directly into the Financial Module, other than the beginning entries and other adjustment entries. Most of your financial data will be entered into the other modules and there will be some posting to do at the end of each financial period.
(If, on the other hand, you are using only the Financial Module, you will need to enter all your financial transactions manually on the Ledger Entry screen. Study the Helps for the Ledger screen to learn how to use it effectively.)
Following is a list of transactions, brief instructions as to where they are entered initially, and instructions as to how to post them to the Financial Module.
a. Posting Sales to the Financial Module.
Sales are entered into the Accounts Receivable module. They are recorded as credits (negative numbers) in the Ledger Entry Screen.
The posting process varies depending on whether you are using the Cash or Accrual method of accounting. (On the Company Setup (#) screen you should specify which method you are using by entering C or A in the Automatic Deposit Posting field. This must be done for the Cash Basis deposit posting, described in the next paragraph, to work.)
i. Cash Basis accounting does not record income until payment is received. It is the cash received which will be posted to your bank balance when you have saved a deposit by entering a Y in the Deposit Total field.
ii. Accrual Basis accounting records income as soon as the sale is made (by entering an invoice on the R screen) and posted (by running Report # 3-27, A/R SALES BY G/L #. This posting affects the Accounts Receivable G/L account on the G screen.
b. The next thing to be posted (only used with accrual accounting) is the Accounts Receivable G/L account to the Cash in Bank G/L account.
This is done by running Report 3-37, CASH DEPOSITS BY G/L.
This report causes the actual deposits sent to cover the invoices previously entered to be posted to the Cash in Bank Account #, which immediately increases your Cash in Bank account as shown on the G screen and decreases your Accounts Receivable account.
c. Posting Purchases and Expenses to the Financial Module.
Vendors' bills are entered into the Bill Entry (B) screen.
The expenses and purchases are entered into the Ledger Entry screen automatically as you select these bills to be paid on the check writing screen.
i. No further adjustment is needed for a cash basis system, because in that case purchases and expenses are only recorded in the Ledgers as they are paid.
ii. For accrual accounting systems, an end-of-period adjustment needs to be made by running Report # 2-11, PAYABLES BY G/L #.
Posting accounts Payable creates 2 entries in the Computer Entries ledger.
The first entry, dated the end of the report month, posts the totals of all open accounts payable (such as bills that have not yet been paid).
The second entry, dated the 1st of the following month, reverses that first entry.
Both entries use Accounts Payable as the offsetting account. As a result, each offsetting account is cleared at the beginning of the month and reset at the end of the month. So the Net Change reflects the change in balance.
d. Posting Payroll Expenses to the Financial Module.
If the Payroll module is being used, payroll expenses post to the Ledger Entry Screen when Paychecks are printed and Report # 4-39, PAYROLL CATEGORY REPORT is run.
(This report posts all the entries that were entered on the paychecks. Non-paycheck entries such as Federal Unemployment Compensation Expense as well as Workmen's Compensation Expense entries require manual entry.)
e. Posting Inventory Adjustments to the Financial Module.
Inventory is generally increased when purchases are entered as Bill Entries and decreased when sales are entered as Invoices.
The inventory is posted to the Chart of Accounts at the end of the period by running Report # 1-7, INVENTORY VALUE. This report will adjust the ending inventory and the purchase accounts.
Because keeping inventory is an accrual basis concept, the process for adjusting inventory is the same for the cash and the accrual basis accounting systems.
In summary, with the use of the complete ABC Accounting program, very little data will be entered directly into the Financial Module. It will automatically collect and post the payments made in Purchases and Payroll, receipts from Sales, and adjustments from Inventory. It will then use this data to prepare financial statements.
7. Enter data from your source documents (usually the check register) into the Ledger (L) screen. For further help on entering data there, go to the chapter about the Ledger Entry screen.
8. Print a detailed trial balance to examine the data entered and to insure that debits equal credits.
After you have either entered or posted from the other modules all the financial data for the period, you are ready to do the end-of-period work.
The first step is to print out some preliminary reports.
Following is a brief summary of the reports which you are most likely to use to examine the data for the period. See help on the Financial (4) Reports for further information.
The first statement you should print is the trial balance. Report # 4-14, TRIAL BALANCE FROM ACCOUNTS, lists the following information about each account:
Column 1 is the beginning balance.
Column 2 is the total change of those accounts in which the net change is a debit.
Column 3 is the total change of those accounts in which the net change is a credit.
Column 4 is the total change of all accounts containing balances. A net debit change is shown as a positive number and a net credit change as a negative number.
Column 5 is the Year-to-date balance in the account.
Use this report to verify that total debits and credits at the very bottom of the report (Columns 2 and 3) are equal. If they are not, you will need to try to discover why they are unequal.
Turning off the computer during the posting of an entry could result in an improper balance, not to mention a system crash, which could interrupt posting.
1. There are two utilities which correct certain trial balance problems:
a. First go into the Ledger (L) screen. If an error message saying, "GL is out of balance. Should correction be attempted? Y/N" Press Y.
b. If this does not correct the problem, MAKE SURE YOU HAVE A CURRENT BACKUP OF YOUR DATA, and run Report 8-37, G/L LEDGER REPOST.
Print out Report # 4-15, TRIAL BALANCE FROM DETAIL. This report prints out information from each individual check under the account(s) to which it was credited. Use this report to examine the data entered into each account to determine that the data is posted to the correct account. For example, a check to the vendor, Lumber Warehouse, posted to the electricity expense account is almost certainly incorrect.
Report # 4-10, VENDOR CHECK SUMMARY, prints out all the vendors on record and lists all the checks which were written to that vendor in date order. This is a very convenient printout when there is a billing problem.
This report also lists all the deposits in date order.
Report # 4-11, VENDOR CHECK DETAIL, includes all the information included in the Vendor Check Summary. In addition, it lists the account(s) to which the individual transactions were charged and includes the remarks entered for each transaction.
It is also capable of generating Form 1099s at the end of the year.
Report # 4-12, LEDGER SUMMARY, lists all the transactions recorded in numeric order. It also includes a running ledger total giving the total change in cash for the present period. (The present period is the current month if you use 12 periods per year.)
Report # 4-13, LEDGER DETAIL, gives the same information as the Ledger Summary and in addition also lists the amounts as distributed to the various accounts for each individual transaction. Any remarks entered are also printed.
9. Make any noncash adjustments such as entering the depreciation for the period and recording any ending accruals if accounting on an accrual basis.
10. Print out the financial statements.
Chart of Accounts Illustration (G)
|
Acct# |
Name |
Code |
|
100 |
ASSETS |
MA |
|
110 |
Current Assets |
H |
|
303 |
Cash—Commerce Bank |
B |
|
500 |
Accounts Receivable |
|
|
1001 |
Inventory |
|
|
2800 |
Fixed Assets |
H |
|
2810 |
Fixed Assets Before Depreciation |
S |
|
2820 |
Equipment |
|
|
2840 |
Office Equipment and Fixtures |
|
|
2850 |
Buildings and Land |
|
|
2859 |
Total Fixed Assets Before Depreciation |
TS |
|
2860 |
Less Accumulated Depreciation |
S |
|
2870 |
Accumulated Depreciation of Equipment |
|
|
2880 |
Accumulated Depreciation of Office Equipment |
|
|
2890 |
Accumulated Depreciation of Buildings |
|
|
2900 |
Total Accumulated Depreciation |
TS |
|
3000 |
LIABILITIES |
NL |
|
3010 |
Short-term Liabilities |
H |
|
3040 |
Accounts Payable |
|
|
3400 |
Payroll Taxes Payable |
|
|
3500 |
S/T Mortgage Payable—Commerce Bank |
|
|
3599 |
Total S/T Liabilities |
TH |
|
3600 |
Long-term Liabilities |
H |
|
3650 |
Note Payable—Jason Doe |
|
|
3700 |
Mortgage Payable—Commerce Bank |
|
|
3710 |
Total L/T Liabilities |
TH |
|
3720 |
TOTAL LIABILITIES |
TM |
|
4000 |
Owner's Equity |
H |
|
4010 |
Robert Doe, Capital |
|
|
4980 |
Year-to-date Earnings |
TE |
|
4999 |
LIABILITIES AND OWNER'S EQUITY |
TM |
|
5000 |
Revenue |
H |
|
5001 |
Sales |
|
|
6999 |
Cost of Goods Sold |
H |
|
7000 |
Purchases |
|
|
8895 |
Inventory Adjustment |
|
|
8990 |
GROSS PROFIT |
TI |
|
9000 |
Operating Expenses |
H |
|
9100 |
Transportation |
|
|
9230 |
Office Supplies |
|
|
9250 |
Postage and Shipping |
|
|
9400 |
Telephone |
|
|
9460 |
Electricity |
|
|
9490 |
Heating |
|
|
9500 |
Labor |
|
|
9710 |
Supplies |
|
|
9780 |
Depreciation |
|
|
9790 |
NET OPERATING INCOME |
TI |
|
9800 |
Other Income |
HO |
|
9810 |
Interest Income |
|
|
9840 |
Gain on Sale of Assets |
|
|
9900 |
Other Expenses |
S |
|
9920 |
Interest Expense |
|
|
9989 |
Total Other Inco/Expe |
TH |
|
9990 |
NET INCOME |
TI |
You can use this illustration as a guide for setting up your Accounts. Accounts can be added or deleted, but the headings should generally be used as they are listed here.
The headings codes are entered in the statement field.
Main headings should be typed in all capital letters.
Annual Account Closeout
In a manual accounting system, the steps to closing the books for the year involve closing out the temporary accounts (income statement accounts) to the proper equity accounts.
In a sole proprietorship or partnership-type business, the net profit or loss is closed out to the individual capital account(s).
In a corporation, it is closed out to the retained earnings account(s).
In the Chart of Accounts, temporary (Statement of Income) accounts are not closed out at the end of each period. This makes it possible to print out financial statements for prior periods. The profit or loss for the period is therefore recorded by an adjusting entry to the proper capital account(s) and to a closing account which has an account number higher than the highest number on the income statement.
If the business showed a profit, the proper capital account(s) would be credited and the closing account would be debited. If the business experienced a loss, the proper capital account(s) would be debited and the closing account credited. The closing account would accumulate the amount needed to reverse the previous year(s) income statement accounts.
The Chart of Accounts, or General Ledger, is in balance when each period total from all general and consolidated accounts is zero. But what if you get this message:
ERROR G01 General Ledger Account Out of Balance
A. Out-of-balance can be caused by:
· Ledger closeout not equal to checks & deposits monthly total
· The distribution on check/deposit not equal to the amount
· An amount on ledger not posted to the G screen accounts
· A G screen account that was deleted.
· An entry was made to a department account with a zero sub-account.
· An Entry was made to a consolidated account.
· Old ABC Versions that allow more than one user in a ledger.
· Errors, or incorrect shut-off (like disconnecting the power) can cause out-of-balance.
B. Out-of-balance can be fixed by:
· Redoing ledger closeouts and making sure distribution equals check amount.
· Making sure all ledger entries from, as well as all point entries (.x) for, a check are within the same date period.
· Checking for entries to consolidate and zero sub-accounts.
· You can run a repost on the G screen, by going to the G screen and pressing Alt+R. Make a backup first.
· If ledger is still out of balance, run Report # 8-37 to repost ledgers to accounts. (A backup is recommended before doing reposting.)