|Are you seeking an accounting package
but are unsure of where to begin? What questions should you ask? What are
more about how to select an accounting software
The purpose of your chart of accounts
Accounts will classify and summarize where money came from and where you
are spending or saving it. An account collects financial information and
groups them together according to purpose.
QuickBooks, each account is
designated with an 'account types' so they appear in an order that will be
understandable to you when reading reports. Accounts are sorted within the
account type either
- numerically (if account numbers are used)
(no account numbers)
- Manually designate the order of the accounts within an account type by moving the
diamonds. If you decide to manually designate the order of the accounts,
you must position all
new accounts that you set up once you have moved one account. This can be
a real nuisance. As an alternative if you want an account to
appear at the top of the account list (within its type)
prefix the account name with a letter 'a' for example: 'aWages'.
Or a 'z' if you prefer to see the account at the bottom. You can
always return to an alphabetically ordering of your accounts within
account types by resorting the list. Select resort from the account menu
in the lower left of the account list window.
Balance Sheet Accounts:
What is a balance sheet?
ASSETS are what the business has or owns.
- Those amounts that will be converted
to cash within the next 12 months. QuickBooks uses the following asset
- Bank -Cash is money the business has on hand and in the bank
Accounts Receivable is the amount of money customers owe the business for
goods or services.
- Current Assets
- Inventory is the cost of goods a business buys to resell.
- Other Current Assets would include :
Prepaid Expenses is a category of accounts that summarize things that the
business pays for in advance, to use in the near future. They are broken
down into individual accounts such as: prepaid Insurance.
- Fixed Assets
-Land, Buildings, and Equipment are purchased to operate the business. They are expected to
last more than one year. Over the life of the asset, the cost to
purchase is deducted as an expense called depreciation. The portion of
the fixed assets that have been expensed in prior periods is called
accumulated depreciation. The difference between the cost of the
fixed assets and the accumulated depreciation is called book value.
Fair market value (what you can sell the asset for is not reported on
Talk to your accountant about what to classify as a fixed asset. A
stapler or hammer, cost $12 will last 15 years but the cost is
immaterial and should be expensed. We suggest to our clients using a
$500 materiality guideline. The cost of the asset is its purchase price
including delivery costs and installation costs.
Other Assets include
Loans Receivable from officers of the corporation, lease deposits on
rented property , and any other asset that does not fit into the above
LIABILITIES are what the business owes. QuickBooks uses the
following liability account types
- Accounts Payable is what is unpaid to vendors for purchased goods or services
sold on open account.
- Current Liabilities represent what can be paid in full within a 12
Payroll Tax Liability
Sales Tax Liability
Credit Card Balances due
Customer Deposits for prepayments of services or goods
Accrued Expenses Payable is a category of accounts that summarize things
the business has used but has not yet been billed for by the suppliers.
Typical would be Salaries Payable for amounts unpaid for the last
few days of the year, Interest Payable, and workers comp insurance
- Current portion of Long Term Debt - an amount that represents all the
principal payments of all company notes payable that will be paid in the
next 12 months. Leave this account empty and let your accountant worry
- Long Term Liabilities represent the portion of the debt that will be
paid off beyond the current portion (next 12 months) Since this is
too cumbersome to handle on a month to month basis within QuickBooks.
Simply set up the following accounts as Long Term Liabilities and let
your accountant reclassify the amount that would be deemed current at
- Notes Payable are liabilities for which the business has issued (signed) a promissory note to pay the lender what they borrowed, plus interest. etc., that has accumulated on the note but has not been paid).
- Officer loans payable for amounts loaned the business by the
officer. Do not forget to pay interest on this debt at least
EQUITY, is what the business owner had originally invested in
the company (Capital) and additional contributions of personal funds into
the company (Additional Paid in Capital) and what the owner has kept in
the company from the prior profits of the business (retained Earnings) and
what the owner has withdrawn from the company:
Dividends (C Corporations)
Distributions (S Corporations)
Draw (Partnerships and sole proprietorships)
Click here for a sample account listing for a balance sheet
Income Statement (Profit and Loss)
REVENUE or INCOME or SALES - different names for the same thing
is what a business is paid for the work it does.
COST OF GOODS SOLD are the directly related to what is being sold.
These expenses would not exist without a goods or service being provided.
Typical expenses would include Labor, Material, Small Tools,
EXPENSES are the overhead costs of doing
business. They include selling expenses and administrative
To see a generic
chart of accounts, Click here
To see a
sample chart of accounts for a contractor, click here
Off topic, but of interest to a bookkeeper and owner of an S
Reasonable compensation salaries vs distributions
(dividends) and at the bottom of the article a discussion for the
bookkeeper to help her/him classify payments to the owners.
Need to make an
entry or an adjustment and not sure how?
Is a journal entry necessary? QuickBooks offers "behind the scenes
double entry accounting features. It makes bookkeeping a possibility
for those who have not taken any classes in accounting. Therefore, a
journal entry is not usually necessary to make an adjustment to your
accounts. The following transactions are
better suited to most corrections than a journal entry because they
contain more fields and are easier to understand than a journal entry.
Customer Credit Memo
Vendor Bill Credit
Deposit into the bank account
Sales tax adjustment
From the Banking Menu
Make journal Entry
If you are not sure what the account type is for a specific account,
from the list menu, select chart of accounts and the account type is
described in the second column.
Journal entries with Accounts Receivable or Accounts
Payable must include a customer or vendor name. If you are trying to
reallocate amounts between customers or between vendors, you will be
required to use 2 journal entries to make the adjustment. Use an
account called "transfer" (type= other asset) to balance each of the 2
journal entries. Transfer account should have a balance of
zero when you have finished the 2 transactions.
When you have completed the journal entry, run a
report to see if you have achieved the desired result. Which report will
depend upon the account balance you are correcting. If you don't know which
report, try running a general ledger for the current period. General
ledgers can be found under the reports for Accountant and Taxes.
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|What is a Balance Sheet?
The balance sheet is a fundamental accounting report and
forms the basis for many other reports. A balance sheet is a financial
"snapshot" of your business at a given date in time. It includes your
assets and liabilities and tells you your business's net worth.
The balance sheet will tell you about the financial
health of the business. It will tell you about the companies
liquidity. Which means how quickly you can turn your assets into
cash to pay bills and other liabilities. The balance sheet will tell you
how much the owners have invested in the company and how much of the
business is funded by creditors. It can tell you if the
company has enough money to continue to fund its own growth or whether it
is going to have to take on more debt. The balance sheet will tell
you if you have too much inventory and if you are collecting money
from customers in a reasonable amount of time.
This information can be found by looking at the financial ratios of the
financial ratios to ratios of other companies in the
will give you benchmarks to strive for when managing your business.
The basic balance sheet formula is Assets=
Liabilities+ Equity This equation must balance. If the equation does
not balance then an error has been made. Assets are what is owned by the
company at the amount paid for the assets (historical cost- not at fair
market value). Assets include cash, inventory, accounts receivable,
equipment, buildings, etc. Liabilities are debts of the company. These
include accounts payable, bank debt, prepayment by customers, taxes and
wages owed. Equity is earnings of the company retained for business growth
plus investment by the owners.
vs Cash Accounting