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FINANCIAL MANAGEMENT
CHECK POINT 43: BOOKKEEPING

Please Select Any Topic In Check Point 43 Below And Click.

1. How Does Bookkeeping Fit Into An Accounting Software Program?
2. How Does Accounting Software Program Work?
3. Account Centers In The Accounting Software Program
4. General Ledger In The Accounting Software Program
5. Fast And Easy Way To Learn QuickBooks
6. A double-entry bookkeeping system
7. what is an account?
8. Elements of a "t"- account
9. chart of accounts
10. classification of main accounts And Sub-Accounts
11. what are assets?
12. what are liabilities?
13. what is shareholders' equity?
14. what are revenues?
15. what are expenses?
16. Rules for recording transactions in a double-entry accounting system
17. small business example
application of transaction rules in a double-entry accounting system
18. Free Bookkeeping Course Online
19. for serious business owners only
20. the latest information online
 

DO I NEED TO KNOW THIS CHECK POINT?

 

WELCOME TO CHECK POINT 43

TUTORIAL 1 General Management TUTORIAL 2 Human
Resources Management
TUTORIAL 3 Financial Management TUTORIAL 4 Operations Management TUTORIAL 5 Marketing
And Sales Management
1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96
2 7 12 17 22 27 32 37 42 47 52 57 62 67 72 77 82 87 92 97
3 8 13 18 23 28 33 38 43 48 53 58 63 68 73 78 83 88 93 98
4 9 14 19 24 29 34 39 44 49 54 59 64 69 74 79 84 89 94 99
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
 

HOW CAN YOU BENEFIT FROM CHECK POINT 43?

 
The main purpose of this check point is to provide you and your management team with detailed information about Bookkeeping and how to apply this information to maximize your company's performance.
 
In this check point you will learn:
 
• What is bookkeeping?
• How does bookkeeping fit into an accounting system?
• About three most popular accounting softwar programs.
• Main functions of an accounting software program.
• How does accounting software program work?
• About three main components in an accounting software program.
• About account centers in the accounting software program.
• About main accounts and sub-accounts in the general ledger.
• Fast and easy way to learn Quickbooks.
• About a double-entry bookkeeping system... and much more.
 

LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 43

 
You and your management team should become familiar with the basic Lean Management principles, guidelines, and tools provided in this program and apply them appropriately to the content of this check point.
 
You and your team should adhere to basic lean management guidelines on a continuous basis:
 
Treat your customers as the most important part of your business.
Provide your customers with the best possible value of products and services.
Meet your customers' requirements with a positive energy on a timely basis.
Provide your customers with consistent and reliable after-sales service.
Treat your customers, employees, suppliers, and business associates with genuine respect.
Identify your company's operational weaknesses, non-value-added activities, and waste.
Implement the process of continuous improvements on organization-wide basis.
Eliminate or minimize your company's non-value-added activities and waste.
Streamline your company's operational processes and maximize overall flow efficiency.
Reduce your company's operational costs in all areas of business activities.
Maximize the quality at the source of all operational processes and activities.
Ensure regular evaluation of your employees' performance and required level of knowledge.
Implement fair compensation of your employees based on their overall performance.
Motivate your partners and employees to adhere to high ethical standards of behavior.
Maximize safety for your customers, employees, suppliers, and business associates.
Provide opportunities for a continuous professional growth of partners and employees.
Pay attention to "how" positive results are achieved and constantly try to improve them.
Cultivate long-term relationships with your customers, suppliers, employees, and business associates.

1. HOW DOES BOOKKEEPING FIT INTO AN ACCOUNTING SOFTWARE PROGRAM?

A BOOKKEEPING SYSTEM AND ACCOUNTING SOFTWARE PROGRAM

One of the most important management tasks of every business owner and financial manager is the selection, implementation and maintenance of a suitable bookkeeping system.

A Bookkeeping System represents an integral part of Accounting and it is based on specific bookkeeping principles, rules, and procedures explained in this check point. Bookkeeping used to be done manually about twenty five years ago and only during the last decades it became fully computerized. 

There are several Accounting Software Programs, which include a Computerized Bookkeeping System, widely available to small business owners today. The prime purpose of an accounting software program is to enable a company's Bookkeeper to record all financial transactions continuously in a controlled and systematic manner.

An accounting software program entails setting up accounts, recording and processing all financial transactions, and generating a broad range of financial and management accounting reports in a company. This system is driven by an accounting database software program and offers a time-efficient way of accomplishing operational tasks in the Financial Department.

MAIN FUNCTIONS OF AN ACCOUNTING SOFTWARE PROGRAM

1.

Setting up a chart of accounts for assets, liabilities, income, expenses, and shareholders’ equity.

2.

Recording and posting each transaction in an appropriate account.

3.

Recording and tracking all cash and credit sales to customers.

4.

Recording and tracking all cash and credit purchases from suppliers.

5.

Recording and tracking all payments received from customers for cash and credit sales.

6.

Recording and tracking all payments issued to suppliers for cash and credit purchases.

7.

Preparing and printing delivery notes, invoices, and monthly statements to customers.

8.

Preparing debtors and creditors monthly and year-to-date age analysis reports.

9.

Determining and recording sales tax for relevant business transactions.

10.

Recording and tracking checking accounts, banking transactions and balances.

11.

Recording and tracking employee time cards.

12.

Preparing, recording, and tracking employee payroll, payroll deductions and company payroll contributions.

13.

Recording and tracking job costs for various jobs, services and projects.

14.

Preparing financial statements, including balance sheets and income statements.

15.

Preparing cash flow projections and statements of cash flows.

16.

Preparing and printing various charts and graphs related to financial management.

 

POPULAR ACCOUNTING SOFTWARE PROGRAMS

There are several excellent accounting software programs available to small business owners at present. Some of the most popular accounting software packages are presented below:

Sage One
QuickBooks Intuit
FreshBooks
Harvest Software Systems
NetSuite
 

HOW TO SET UP A CHART OF ACCOUNT IN QUICKBOOKS ONLINE

Welcome to the FitSmallBusiness QuickBooks Online Training Course!

In this lesson, you will learn how to add, delete and modify the chart of accounts list.
You can also follow along on your own QuickBooks Online account.
 

Various accounting software programs may include additional functions, depending on each specific package. This is discussed in detail in Integrated Financial Management in Tutorial 3.

Advantages, components, and implementation of a typical accounting software program are discussed next.

 

ADDITIONAL INFORMATION ONLINE

Getting Around Sage 50 Accounting 1 By Sage 50 US.
QuickBooks 2014 Review By Bookkeeping Help Texas.
Top 5 Accounting Software For Small Business By Types And Tips.
Sage Instant Accounts 2014 An Overview By Software Solutions Shop.
Which Accounting Software Is Best For Small Business? By I. Ivankovich, Docstoc.

2. How Does Accounting Software Program Work?

ADVANTAGES OF AN ACCOUNTING SOFTWARE PROGRAM

A suitable Accounting Software Program with a Computerized Bookkeeping System provides business owners with several important advantages and helps to improve overall operational efficiency in the financial department.

The main advantages of an accounting software program include:

• High level of accuracy in processing financial transactions.
• Speed in completing financial transactions.

Financial transactions relate to the company’s customers, suppliers, bank accounts, employee payroll, job costing, inventory, and taxes. The accounting software program also provides business owners and their management teams with important financial statements, management accounting reports, and numerous charts and graphs designed to assist in the business decision-making process.

Each accounting software program has at least three main components outlined below.

THREE MAIN COMPONENTS OF AN ACCOUNTING SOFTWARE PROGRAM

1.

Accounting Data Input.
This includes entering accurate information from source documents into the accounting system. This information relates to cash and credit sales to customers, cash and credit purchases from suppliers, cash, checks and other forms of payment* received from customers, cash, checks and other forms of payment issued to suppliers, cash and checks deposited in the company’s checking account, cash and checks withdrawn from the company’s checking account, time cards received from employees, job cost cards related to a specific job or project, inventory records, and any adjustment amounts related to the company’s operating, financing, and miscellaneous activities.

2.

Accounting Data Processing.
This includes processing all financial transactions related to the company’s business activities, such as sales and accounts receivable, purchases and accounts payable, cash receipts and disbursements, employee payroll, sales tax, job costing, inventory, and any additional operating, financing and miscellaneous activities. This also includes processing, storing and preparing for distribution all financial transactions, related to the company’s activities, in the general ledger.

3.

Accounting Data Output.
This includes generating financial documentation, graphs and charts, related to the company’s activities such as sales invoices and statements to customers, checks to suppliers, employees, and sub-contractors, monthly and year-to-date creditors and debtors age analysis reports, job cost reports, and payroll reports. This also includes generating financial statements such as a balance sheet, income statement, and statement of cash flows. Finally, depending on the specific accounting package, this may include generating budgets, management accounting reports, and additional reports which may be required by business owners.

 
* Note: This may include money orders, wire transfers, and other non-cash forms of payment.
 
A typical illustration of an Accounting Software Program Workflow is presented below.
 

ACCOUNTING SOFTWARE PROGRAM WORKFLOW

 
 
Each accounting software program has several Account Centers, which are used to enter and process data, related to various financial transactions, from source documents into the accounting system. These account centers are discussed next.
 

3. ACCOUNT CENTERS IN THE ACCOUNTING SOFTWARE PROGRAM

ACCOUNT CENTERS FOR ENTERING AND PROCESSING
FINANCIAL TRANSACTIONS IN AN ACCOUNTING SOFTWARE PROGRAM

1.

Sales And Accounts Receivable.
This includes entry and processing of all financial transactions related to credit sales to customers and generating sales invoices and statements.

2.

Purchases And Accounts Payable.
This includes entry and processing of all financial transactions related to credit purchases from suppliers such as invoices and statements received from suppliers.

3.

Cash Receipts.
This includes entry and processing of all financial transactions related to cash sales to customers and generating sales invoices and statements.

4.

Cash Disbursements.
This includes entry and processing of all financial transactions related to cash payments to suppliers and miscellaneous expenses.

5.

Payroll.
This includes entry and processing of all financial transactions related to employee payroll, payroll deductions and company’s contributions.

6.

Job Order Costing.
This includes entry and processing of all financial transactions related to job costing.

7.

General Journal.
This includes entry and processing of all financial transactions and adjustments related to various balance sheet and income statement items which can’t be allocated to the abovementioned account centers such as gain or loss on the sale of fixed assets, tax payments and refunds, and interest revenues and expenses.

 
Note:
 
Some accounting software programs may have additional account centers for entering and processing financial and operational transactions depending on the specific functions of such programs. This is discussed in detail in Integrated Financial Management in Tutorial 3.
 

4. GENERAL LEDGER IN THE ACCOUNTING SOFTWARE PROGRAM

WHAT IS GENERAL LEDGER?

General Ledger represents the core, or “the central station”, within every computerized accounting program for receiving, processing, storing, and distributing financial information on a continuous basis. This information includes all financial transactions related to one of the Five Main Accounts of the company’s balance sheet and income statement, as illustrated below.

FIVE MAIN ACCOUNTS

       
Assets  

Liabilities

  Shareholders' Equity   Operating
Revenues
  Operating
Expenses
                 

Each main account represents a heading for various Sub-Accounts, which are coded numerically for easier reference and recording of all financial transactions related to the company’s business activities. A list of such accounts is known as a Chart Of Accounts and is discussed later in this check point.

MAIN ACCOUNTS AND SUB-ACCOUNTS IN THE GENERAL LEDGER

1.

Asset Accounts.
This includes cash, accounts receivable, inventory - raw materials, work-in-process and finished goods, supplies, pre-paid expenses, land, buildings, accumulated depreciation for buildings, plant and equipment, accumulated depreciation for plant and equipment, and any additional capital (tangible) and intangible assets.

2.

Liability Accounts.
This includes accounts payable, notes payable, payroll payable, loans payable, interest payable, unearned revenues, taxes payable, and any additional short-term and long-term liabilities.

3.

Shareholders’ Equity Accounts.
This includes all funds invested by the owner/s in the company, all retained earnings kept by the owner/s in the company, and all withdrawals by the owner/s from the company.

4.

Operating Revenues Accounts.
This includes all operating revenues earned by the company for selling products or providing services to customers on a cash or credit basis.

5.

Operating Expenses Accounts.
This includes all operating expenses incurred by the company for purchasing products or services from suppliers and sub-contractors on a cash or credit basis, advertising expense, salaries expense, wages expense, rent expense, utilities expense,

6.

Revenues And Expenses Adjustment Accounts.
This includes all entries and adjustments related to various miscellaneous revenues and expenses which can’t be allocated to the abovementioned account centers, such as gain or loss on the sale of capital assets, tax refunds, and interest revenues.

 
Note:
 
Some accounting software programs may have additional accounts and sub-accounts for processing, storing and distributing financial and operational data, depending on the specific functions of such programs. This is discussed in detail in Integrated Financial Management in Tutorial 3.

5. FAST AND EASY WAY TO LEARN QUICKBOOKS

QUICKBOOKS SELF-STUDY TUTORIALS

As a new or existing business owner, you probably want to know how to implement a suitable accounting software program, such as QuickBooks, in your business as fast as possible without spending too much time to learn accounting. For this reason, you may consider using QuickBooks Self-Study Tutorials developed by Intuit.

QUICKBOOKS SELF-STUDY VIDEOS

Alternatively, you may consider learning QuickBooks by watching a series of 14 instructional videos offered by QuickBooks University online and developed by Mat Hultquist, CPA. The first three videos are available to you free of charge:

• Video 1 – Introduction And Navigation In QuickBooks.

• Video 2 – Setting Up QuickBooks Correctly.

• Video 3 – Working With Lists In QuickBooks.

• Video 4 – Working With Bank Accounts In QuickBooks.

• Video 5 – Working With Credit Cards, Assets, Liabilities And Equity Accounts.

• Video 6 – Enter Sales Information Into QuickBooks.

• Video 7 – Receive Payments And Make Deposits In QuickBooks.

• Video 8 – Entering And Paying Bills In Quickbooks.

• Video 9 – Analyzing Financial Data In QuickBooks.

• Video 10 – Setting Up Inventory In QuickBooks.

• Video 11 – Tracking And Paying Sales Taxes In QuickBooks.

• Video 12 – Doing Payroll QuickBooks Class.

• Video 13 – Tracking Time In QuickBooks.

• Video 14 – Changing Preferences And Customizing Forms.

© 2011 – 2013 Quickbooks University. All rights reserved. QuickBooks® is a registered trademark of Intuit Inc.

IMPORTANT NOTE

If you are an MBA student or work in the financial department, you are encouraged to study all information contained in this check point.

If you are an entrepreneur or a small business owner, you may study selected information provided below, based on your specific needs, and skip the rest.

 

ADDITIONAL INFORMATION ONLINE

QuickBooks 2014 - What's Niche University.
QuickBooks Online Demo By Intuit QuickBooks Canada.
Quicken 2014 Review - What's New? By Investor Junkie.
Full Quickbooks 2014 Course Pro By Mega Nice University.
Using QuickBooks Online By Reesa McKenzie, Inuit Academy.

6. A DOUBLE-ENTRY BOOKKEEPING SYSTEM

BASIC RULES AND REQUIREMENTS IN A DOUBLE-ENTRY BOOKKEEPING SYSTEM

The basic elements of a Manual Bookkeeping System were first introduced by Fra Luca Pacioli in Italy in 1494. This system was perfected during the last five centuries and widely used all over the world until about twenty five years ago. This system, also known as a Double-Entry Bookkeeping System, consists of Sets Of Records, or Sets Of Accounting Books, and formal instructions for placing information in those books.

The Basic Rule Of Double-Entry Accounting states that:

"Every transaction affects at least two accounts"

The Basic Requirement Of A Double-Entry Bookkeeping System is:

Total Debits = Total Credits

Thus, according to this requirement:

Equal amounts of debit and credit entries must be recorded for every business transaction.

Rules For Recording Transactions In A Double-Entry Accounting System are discussed at the end of this check point.

DEVELOPMENT OF COMPUTERIZED BOOKKEEPING SYSTEMS

Recent advancement in computer science facilitated major progress in the development of Computerized Bookkeeping Systems. One of the main advantages of a computerized bookkeeping system is that all basic accounts are interlinked through Common Database Software, so that when specific data is entered in one account, the system is pre-programmed to make automatic entries and adjustments in all corresponding accounts. This helps to ensure accurate and time-effective implementation of the bookkeeping function within the financial department.

Although computers really helped to speed-up and automate the bookkeeping process, it is important that financial managers and bookkeepers understand the basic bookkeeping principles, rules, and procedures and know what is really happening “under the hood” in a computerized bookkeeping system. This will enable bookkeepers to provide their company with the most accurate financial reports and information in a timely manner. This will also help to prevent GIGO Results (Garbage In – Garbage Out), which sometimes plague business owners and prevent them of making important business decisions.

Additional information about the Double Entry Bookkeeping System is provided by AccountingCoach online

 

ADDITIONAL INFORMATION ONLINE

Please watch these excellent videos professionally narrated and produced by Susan Crosson and SFCC:

Accounting Basics 1 - Where Did Accounting Come From By Susan Crosson.
Accounting Basics 2 - Accounting Equation By Susan Crosson.
Accounting Basics 3 - Assets By Susan Crosson.
Accounting Basics 4 - Liabilities By Susan Crosson.
Accounting Basics 5 - Stockholders Equity By Susan Crosson.
Accounting Basics 6 - Expanded Accounting Equation By Susan Crosson.
Accounting Basics 7 - Financial Statements By Susan Crosson.
 
© 2008 - 2013 Susan Crosson and CFCC. All rights reserved.

7. WHAT IS AN ACCOUNT?

DEFINITION OF AN ACCOUNT

Each Account represents one item that appears on the financial statements, i.e. an asset, liability or owner's equity.

In its simplest form, an account consists of three parts, as outlined below. This form of the account is termed a "T"- Account because of its similarity to the letter "T". An ordinary "T"-Account is illustrated below.

Additional information about What Is An Account? is provided by AccountingCoach® online.

THREE PARTS OF AN ACCOUNT

1.

A Title that describes the account.

2.

The left side or the Debit side.

3.

The right side or the Credit side.

 

“T” - ACCOUNT

 
Additional information about T-Accounts is provided by AccountingCoach® online.

8. ELEMENTS OF A "T"- ACCOUNT

WHAT ARE THE ELEMENTS OF A “T” – ACCOUNT?

There are several Basic Accounting Terms and Entries in accordance with the accounting terminology illustrated below.

BASIC ACCOUNTING TERMS

 
The term "Debit" means "left", from the Latin word Debere. (abbreviated Dr.)

 

The term "Credit" means "right", from the Latin word Credere. (abbreviated Cr.)

     
Therefore:

BASIC ACCOUNTING ENTRIES

 
Every entry made on the left side of the "T"-Account is called a Debit, or a Debit Entry.

 

Every entry made on the right side of the "T"-Account is called a Credit, or a Credit Entry.

     
The terms "Debit" and "Credit" are also used by accountants as verbs, as illustrated below.

BASIC TYPES OF ACCOUNTING RECORDING

 
The act of recording a "Debit" in a specific account is called debiting the account.

 

The act of recording a "Credit" in a specific account is called crediting the account.

     
Additional information about Debits And Credits is provided by AccountingCoach® online.

9. CHART OF ACCOUNTS

CHART OF ACCOUNTS

All accounts in an ordinary Accounting System are classified under specific headings and coded numerically for easier reference and recording of all transactions in the company's General Ledger. A list of such coded accounts is known as a Chart Of Accounts and it comprises five basic categories illustrated below.

This procedure represents a foundation in every bookkeeping system and it serves to ensure the accuracy of financial results.

FIVE BASIC CATEGORIES OF A CHART OF ACCOUNT

       
Assets  

Liabilities

  Shareholders' Equity   Revenues   Expenses
                 
Additional information about Chart Of Accounts and examples below are provided by AccountingCoach® online:
Sample Chart Of Accounts For A Small Corporation.
Sample Chart Of Accounts Form A Large Corporation.

10. CLASSIFICATION OF MAIN ACCOUNTS

MAIN ACCOUNTS

Based on the Chart Of Accounts classification in the general ledger described above, Main Accounts include the following:

• Assets.
• Liabilities.
• Shareholders’ Equity
or Stockholders’ Equity.
• Revenues.
• Expenses.

All assets, liabilities, revenues, and expenses are further sub-divided into various groups to enable the bookkeeper to generate accurate and timely financial information and reports related to the company’s operational activities. This procedure applies to every bookkeeping system and it represents a very important step in ensuring the accuracy of financial results.

The Sub-Division Of Main Accounts into Sub-Accounts is summarized below.

ASSETS

     
Current
Assets
  Capital
Assets
  Long-Term
Investments
  Intangible
Assets
 

LIABILITIES

 

Current Liabilities

  Long-Term Liabilities
 

REVENUES

   
Revenues
From Services
  Gross
Sales
  Net
Sales
 

EXPENSES

     
Cost
Of Goods
Manufactured
  Cost
Of Goods
Available
For Sale
  Cost
Of Goods
Sold
  Operating
Expenses

11. WHAT ARE ASSETS?

DEFINITION OF ASSETS

Assets represent the total resources owned and controlled by a business organization and utilized for the purpose of obtaining future benefits. Assets also include costs pre-paid by a company in advance for various services, which have not been received yet, such as pre-paid rent, pre-paid legal fees, pre-paid insurance costs. 

Classification of assets is summarized below.

CLASSIFICATION OF ASSETS

1.

Liquid Assets.
Liquid assets are short-term assets of a business which are expected to be turned into cash within three months. These assets include cash and cash equivalents, such as checking and savings accounts, checks received and not yet deposited, money market accounts, short-term certificates of deposit (CD’s) and all other financial investments with maturity of up to three months. Liquid assets are a part of current assets described below.

2.

Current Assets.
Current assets are short-term assets of a business which are expected to be turned into cash within one fiscal year. These assets include all liquid assets described above, accounts receivable, inventory (merchandise, direct materials, work-in-process, and finished goods), prepaid expenses, refundable deposits, and short-term investments with maturity up to one year.

3.

Capital Assets, or Fixed Assets, are long-term assets of a business, also known as Property, Plant, And Equipment (PP&E) which cannot easily be converted into cash during one fiscal period. These assets include land and buildings, motor vehicles, furniture, office equipment, computers, fixtures and fittings, and plant and machinery purchased for business operational use. Capital assets, except land, receive more favourable tax treatment, i.e. depreciation allowance, over short-term assets.

4.

Long-Term Investments.
Long-term investments include land, buildings, equipment, and various financial investments purchased for capital appreciation purposes.

5.

Intangible Assets.
Intangible assets include patents, copyrights, trademarks, and goodwill.

 
Assets are provided to the organization by two primary sources illustrated below.
 

TWO PRIME SOURCES OF ASSETS

 
Owners Or Shareholders  

Outside Investors

 
Total Company Assets
 

As a result of their investment, Shareholders and Creditors acquire a special interest in the organization, which is respectively termed, as illustrated below.

SHAREHOLDERS' AND CREDITORS' INTEREST IN A COMPANY

 
Shareholders' Equity  

Creditors' Claims

 
 

THE BASIC ACCOUNTING EQUATION

According to the Basic Accounting Equation:

Assets = Creditors’ Claims + Shareholders’ Equity

Additional information about Assets and Accounting Equation is provided by AccountingCoach® online.

12. WHAT ARE LIABILITIES?

DEFINITION OF LIABILITIES

Liabilities represent the total creditors' claims against assets utilized by the organization.

In other words, liabilities represent the total debt of the organization. Such a debt may include money owed by the organization to its employees, suppliers, banks, tax authorities, and various creditors.

Thus, according to the Basic Accounting Equation:

Liabilities = Creditors’ Claims = Assets - Shareholders’ Equity

Additional information about Liabilities is provided by AccountingCoach® online.

13. WHAT IS SHAREHOLDERS’ EQUITY

DEFINITION OF SHAREHOLDERS' EQUITY

Shareholders' Equity, also known as Stockholders’ Equity, represents the owners' interest in the organization and is equal to the net worth of the company.

The total value of the shareholders' equity represents the excess of total company assets over total company liabilities. 

Thus, according to the Basic Accounting Equation:

Shareholders’ Equity = Net Worth = Assets - Liabilities

Additional information about Shareholders' Equity is provided by AccountingCoach® online.

14. WHAT ARE REVENUES?

DEFINITION OF REVENUES

Revenues represent the total value earned (not necessarily collected) by an organization during a specified accounting period. 

Service organizations, for example, earn revenue by rendering service to customers. The revenue earned may be in either the form of cash or as a receivable. Merchandising and manufacturing organizations, on the other hand, earn revenues as a result of delivering goods to customers. Thus:

Revenues = Total Fees Earned By An Organization

Total Gross Revenue generated by the business includes Total Operating Revenue generated from sales to customers plus Total Miscellaneous Revenue generated by the business from all non-operational business activities, such as tax refund, refunds from suppliers, interest earned on investment, bad debt recovered, and sub-lease income.

Total Gross Revenue = Total Operating Revenue + Total Miscellaneous Revenue

Total Operating Revenue, or Total Gross Sales, must be reduced by the total value of refunds and discounts to customers to determine the value of Net Operating Revenue, or Net Sales, generated by the business during a specific accounting period. This means that:

Net Operating Revenue = Net Sales = Gross Sales – Total Refunds – Total Discounts

Additional information about Revenues is provided by AccountingCoach® online.

15. WHAT ARE EXPENSES?

DEFINITION OF EXPENSES

Expenses represent the total cost incurred (not necessarily paid) for services rendered or goods sold by an organization during a specified accounting period. 

Thus:

Expenses = Total Cost Of Sales Incurred By An Organization

Typical examples of expenses in a business include: 

• Material cost.
• Labor cost.
• Rent.
• Utilities.
• Maintenance cost.
• Advertising cost.
• Insurance cost.
• Consulting fees.
• Phone, fax and internet costs.
• Salaries, administration.
• Salaries, officers.
• Sales commissions.
• Interest expenses.
• Audit and secretarial fees.
• Travelling expenses.
• Transportation and freight costs.
• Office supplies expenses.
• Legal fees.
• Bad debt.

Expenses also include non-cash expense items, such depreciation of plant, machinery, vehicles, and inventory.

Additional information about Expenses is provided by AccountingCoach® online.

16. RULES FOR RECORDING TRANSACTIONS IN A DOUBLE-ENTRY ACCOUNTING SYSTEM

ACCOUNTING SOFTWARE PROGRAM COMPLIES WITH ALL RULES
FOR RECORDING TRANSACTIONS IN A DOUBLE-ENTRY ACCOUNTING SYSTEM

Each accounting software program is designed to comply with all Rules For Recording Transactions In A Double-Entry Bookkeeping System. However, it is also important that bookkeepers understand these rules, summarized below, to ensure the accuracy of financial results.

RULES FOR RECORDING TRANSACTIONS
IN A DOUBLE-ENTRY ACCOUNTING SYSTEM

Type 
Of Account

Accounting Rule

Assets


  • Increases in assets are debited to asset accounts.
  • Decreases in assets are credited to assets accounts.

Liabilities


  • Increases in liabilities are credited to liability accounts.
  • Decreases in liabilities are debited to liability accounts.

Shareholders' Equity



  • Increases in shareholders' equity are credited to the shareholders' equity account.
  • Decreases in shareholders' equity are debited to the shareholders' equity account.

Revenues



  • Increases in revenues by credits increase  the shareholders' equity account.
  • Decreases in revenues by debits decrease  the shareholders' equity account.

Expenses And Withdrawals



  • Increases in expenses and withdrawals by debits decrease the shareholders' equity account.
  • Decreases in expenses and withdrawals by credits increase the shareholders' equity account.
 
Additional information about Debits And Credits is provided by AccountingCoach® online

 

ADDITIONAL INFORMATION ONLINE

Please watch these excellent videos professionally narrated and produced by Susan Crosson and SFCC:

Accounting Transactions 1 - Resources, Events And Agents By Susan Crosson.
Accounting Transactions 2 - Accounting Cycle By Susan Crosson.
Accounting Transactions 3 - Asset And SHE Dr & Cr By Susan Crosson.
Accounting Transactions 4 - Liabilities By Susan Crosson.
Accounting Transactions 5 - Revenue Dr & Cr By Susan Crosson.
Accounting Transactions 6 - Expenses By Susan Crosson.
Accounting Transactions 7 - Journal Entries 1 By Susan Crosson.
Accounting Transactions 8 - Journal Entries 2 By Susan Crosson.
Accounting Transactions 9 - Asset Anatomy By Susan Crosson.
Accounting Transactions 10 - Account Anatomy By Susan Crosson.
 
© 2008 - 2013 Susan Crosson and CFCC. All rights reserved.

17. SMALL BUSINESS EXAMPLE
APPLICATION OF TRANSACTION RULES
IN A DOUBLE-ENTRY ACCOUNTING SYSTEM

APPLICATION OF TRANSACTION RULES IN A DOUBLE-ENTRY ACCOUNTING SYSTEM

 

ADDITIONAL INFORMATION ONLINE

Please watch these excellent videos professionally narrated and produced by Susan Crosson and SFCC:

Measuring Business Income 1 - Accounting Cycle By Susan Crosson.
Measuring Business Income 2 - Adjusting JE Assets & Expenses By Susan Crosson.
Measuring Business Income 3 - Adjusting JE Liabilities & Revenue By Susan Crosson.
Measuring Business Income 4 - Adjusting JE Accruals By Susan Crosson.
Measuring Business Income 5 - Adjusting TB & FS By Susan Crosson.
Measuring Business Income 6 - Adjusted TB & CJE By Susan Crosson.
Measuring Business Income 7 - Closing Journal Entries By Susan Crosson.
Measuring Business Income 8 - T Anatomy And Cash By Susan Crosson.
 
© 2008 - 2013 Susan Crosson and CFCC. All rights reserved.

18. FREE BOOKKEEPING COURSE ONLINE

FREE ONLINE BOOKKEEPING COURSE

If you would like to learn more about bookkeeping and accounting, you may consider using Free Online Bookkeeping Course, presented by AccountingCoach® and developed by Harold Averkamp, CPA. This excellent course includes the following:

1. Accounting Basics.

2. Debits And Credits.

3. Chart Of Accounts.

4. Bookkeeping.

5. Accounting Equation.

6. Accounting Principles.

7. Financial Accounting.

8. Adjusting Entries.

9. Balance Sheet.

10. Income Statement.

11. Bank Reconciliation.

12. Accounts Receivable And Bad Debt Expense.

13. Accounts Payable.

14. Inventory And Cost Of Goods Sold.

15. Depreciation.

16. Payroll Accounting.

17. Stockholders' Equity.

18. Non-Profit Accounting.

In addition, AccountingCoach®/Pro offers a broad range of Self-Study Materials and 13 Seminar Videos covering various aspects of Bookkeeping and Financial Statements.

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LESSON FOR TODAY:
Fra Luca Pacioli Deserves Credit For Inventing
The Double-Entry Bookkeeping System In 1494!