ACCOUNTING SOFTWARE

It is a systematic process of identifying, recording, measuring, classifying, verifying,

summarizing, interpreting and communicating financial information. It reveals profit or loss for a
given period, and the value and nature of a firm's assets, liabilities and owners' equity.
Accounting is the systematic and comprehensive recording of financial transactions pertaining to
a business, and it also refers to the process of summarizing, analyzing and reporting these
transactions to oversight agencies and tax collection entities.
Accounting is one of the key functions for almost any business; it may be handled by a
bookkeeper and accountant at small firms or by sizable finance departments with dozens of
employee’s at large companies.

Branches of Accounting
The famous branches or types of accounting include:

1. Financial Accounting

Financial accounting involves recording and classifying business transactions, and preparing and
presenting financial statements to be used by internal and external users.

Financial accounting is primarily concerned in processing historical data.

2. Managerial Accounting

Managerial or management accounting focuses on providing information for use by internal

users, the management. This branch deals with the needs of the management rather than strict
compliance with generally accepted accounting principles.

Managerial accounting involves financial analysis, budgeting and forecasting, cost analysis,
evaluation of business decisions, and similar areas.

3. Cost Accounting

Cost accounting refers to the recording, presentation, and analysis of manufacturing costs. Cost
accounting is very useful in manufacturing businesses since they have the most complicated
costing process.

Cost accountants also analyze actual and standard costs to help managers determine future
courses of action regarding the company's operations.

5. Tax Accounting
Tax accounting helps clients follow rules set by tax authorities. It includes tax planning and
preparation of tax returns. It also involves determination of income tax and other taxes, tax
advisory services such as ways to minimize taxes legally, evaluation of the consequences of tax
decisions, and other tax-related matters.

Functions of accounting
Recording:

This is the basic function of accounting. It is essentially concerned with not only ensuring that all
business transactions of financial character are in fact recorded but also that they are recorded in
an orderly manner. Recording is done in the book “Journal”.

Classifying:

Classification is concerned with the systematic analysis of the recorded data, with a view to
group transactions or entries of one nature at one place. The work of classification is done in the
book termed as “Ledger”.

Summarizing:

This involves presenting the classified data in a manner which is understandable and useful to
the internal as well as external end-users of accounting statements. This process leads to the
preparation of the following statements: (1) Trial Balance, (2) Income statement (3) Balance
sheet.

Analysis and Interprets:

This is the final function of accounting. The recorded financial data is analyzed and interpreted
in a manner that the end-users can make a meaningful judgment about the financial condition
and profitability of the business operations. The data is also used for preparing the future plan
and framing of policies for executing such plans.

Communicate:

The accounting information after being meaningfully analyzed and interpreted has to be
communicated in a proper form and manner to the proper person. This is done through
preparation and distribution of accounting reports, which include besides the usual income
statement and the balance sheet, additional information in the form of accounting ratios, graphs,
diagrams, funds flow statements etc.

OBJECTIVES OF ACCOUNTING

 To keep systematic records:

Accounting is done to keep a systematic record of financial transactions. In the absence of
accounting there would have been terrific burden on human memory which in most cases would
have been impossible to bear.

 To protect business properties:

Accounting provides protection to business properties from unjustified and unwarranted us. This
is possible on account of accounting supplying the information to the manager or the proprietor.

 To ascertain the operational profit or loss:

Accounting helps is ascertaining the net profit earned or loss suffered on account of carrying the
business. This is done by keeping a proper record of revenues and expenses of a particular
period. The profit and loss account is prepared at the end of a period and if the amount of
revenue for the period is more than the expenditure incurred in earning that revenue, there is said
to be a profit. In case the expenditure exceeds the revenue, there is said to be a loss.

 To ascertain the financial position of business:

The profit and loss account gives the amount of profit or loss made by the business during a
particular period. However, it is not enough. The businessman must know about his financial
position i.e., where he stands; what he owes and what he owns? This objective is served by the
balance sheet or position statement.

 To facilitate rational decision making:

Accounting these days has taken upon itself the task of collection, analysis and reporting of
information at the required points of time to the required levels of authority in order to facilitate
rational decision making.

Advantages of Accounting Standard

i. It gives a framework for professional practice on financial accounting and audit practice.

ii. It helps to standardize the practice of accounting.

iii. It provides support for auditor in dispute with client in regard to all audit work.

iv. It assists on public awareness on what accounting and audit entails.

v. It assists the court in interpreting what the duty of necessary professional care meant.

vi. Narrow the areas where different accounting policies can be adopted.

vii. Reduce the area of uncertainty and subjectivity in accounts.

Disadvantages of Accounting

i. They create additional and unnecessary work which may affect fees, particularly in audit of
small companies.

ii.They can create divisions within the profession of those who agreed and those who disagreed
with a particular standard.

iii. They can be onerous for small companies to adopt.

iv. They are considered to be too rigid in some areas and too general in others, making their
application difficult in some circumstances.

Users of accounting information

Accounting information is produced in form of financial information which provides information
about financial performance, financial position and changes in financial position. The users of
accounting information are those parties whether individuals or institutions who have an interest
in the existence of a firm and therefore the information contained in the financial statement will
affect their decision making process.

Users of accounting information include:

1. Management- Accounting information is of great assistance to management for planning,

controlling and decision making process. Also, management needs the accounting
information to evaluate the performance of the organization and position, so that the
necessary measures may be taken to bring improvements in terms of business results.
Besides, accounting information is useful to help mangers to do their jobs better.
2. Employees - Employees use the accounting information to find out the financial health,
amount of sales and profitability of business to determine their job security, the possibility of
future remuneration, retirement benefits and employment opportunities.
3. Shareholders/Owners – Owners use the accounting information for analyzing the viability
and profitability of their investments. Accounting information enables the owners to assess
the ability of the business organization to pay dividends. It also leads them to determine any
future course of action.
4. Creditors/Suppliers – Creditors are interested in accounting information, because it enables
them to determine the credit worthiness of the business. The credit terms and standards are
set on the basis of the financial health of a business, so, it helps them to analyze by using the
accurate information accordingly. Creditors include suppliers and lenders of finance, such as
banks. Trade creditors are generally interested in the accounting information for a short
period of time than lenders.
5. Debtors/Customers – Customers have interest in the accounting information for assessing
the financial position of a business, especially, when they have a long term involvement with,
as it enables to maintain a steady source of business.
6. Investors – They need the information, because they are concerned with the risk inherent in
investing and the returns. Since it is important to assess the feasibility of making investments
in the company, they need to analyze before they provide any financial resources to the
company.
7. Regulatory Authorities – The accounting information is needed for them to ensure that it is
in accordance with the rules and regulations and that it protects the interests of the stake
holders who rely on such information.
8. Government and its Agencies – The government as an investor would be interested in the
financial performance of state owned corporation where it is a shareholder. The government
is also interested in the financial performance of organization in order to assess the amount of
tax to be collected from businesses.
9. Lenders and financial institutions – This are organizations that provide loans and other
sources of capital to the business, they include banks and other financial organizations and
they would be interested to know whether the business will be able to pay the loan amount.
10. General Public – The general public comprise of individuals, institutions, welfare
associations, potential customers, potential suppliers etc. the general public would be
interested in the financial performance of the firm so as to assess how socially and
responsible the firm is.

Basic accounting terms

1. Accounts Receivable/Debtors – AR

The amount of money owed by your customers after goods or services have been
delivered and/or used.

2. Accounts Payable/Creditors – AP

The amount of money you owe creditors (suppliers, etc.) in return for good and/or services they
have delivered.

3. Assets (Fixed and Current) – FA and CA

Current assets are those that will be used within one year. Typically this could be cash,
inventory or accounts receivable.

Fixed assets (non-current) are more long-term and will likely provide benefits to a company for
more than one year, such as a building, land or machinery.

4. Balance Sheet – BS

A financial report that summarizes a company's assets (what it owns), liabilities (what it owes)
and owner’s equity at a given time.
5. Capital – CAP

It is a financial asset and its value, such as cash or goods. Working capital is calculated by
taking your current assets subtracted from current liabilities.

6. Cash Flow – CF

The revenue or expense expected to be generated through business activities (sales,

manufacturing, etc.) over a period of time. Having a positive cash flow is essential in order for
businesses to survive in the long run.

7. Credit – CR

It is an accounting entry that may either decrease assets or increase liabilities and equity on the
company's balance sheet, depending on the transaction.

8. Debit – DR

An accounting entry where there is either an increase in assets or a decrease in liabilities on a

company's balance sheet.

9. Expenses (Fixed, Variable, Accrued, Operation) – FE, VE, AE, OE

These are accrued or day-to-day costs that a business may incur through its operations. Examples
of expenses include payments to banks, suppliers, employees or equipment.

10. Liabilities (Current and Long-Term) – CL and LTL

A company's debts or financial obligations it incurred during business operations.

Current liabilities are those debts that are payable within a year, such as a debt to suppliers.
Long-term liabilities are typically payable over a period of time greater than one year. An
example of a long-term liability would be a bank loan.

11. Net Income – NI

A company's total earnings, also called net profit or the “bottom line.” Net income is calculated
by subtracting totally expenses from total revenues.

12. Owner's Equity – OE

An owner’s equity is typically explained in terms of the percentage amount of stock a person has
ownership interest in the company. The owners of the stock are commonly referred to as the
shareholders.
13. Profit and Loss Statement – P&L

A financial statement that is used to summarize a company’s performance and financial position
by reviewing revenues, costs and expenses during a specific period of time; such a quarterly or
annually.

Accounting Equation
It is the equation that is the foundation of double entry accounting. The accounting equation
displays that all assets are either financed by borrowing money or paying with the money of the
company's shareholders. Thus, the accounting equation is:

Assets = Liabilities + Equity.

The balance sheet is a complex display of this equation, showing that the total assets of a
company are equal to the total of liabilities and shareholder equity.

Any purchase or sale by an accounting equity has an equal effect on both sides of the equation, or
offsetting effects on the same side of the equation. The accounting equation could also be written as:

Liabilities = Assets – Equity

Equity = Assets – Liabilities.

Double Entry

Double entry is the fundamental concept underlying present-day bookkeeping and accounting.
Double-entry accounting is based on the fact that every financial transaction has equal and
opposite effects in at least two different accounts. It is used to satisfy the accounting equation
which each entry is recorded to maintain the relationship.

In the double-entry system, transactions are recorded in terms of debits and credits. Since a debit in one
account will be offset by a credit in another account, the sum of all debits must therefore be exactly equal
to the sum of all credits. The double-entry system of bookkeeping or accounting makes it easier to prepare
accurate financial statements directly from the books of account and detect errors.

Debit and Credit

The terms "debit" and "credit" in bookkeeping and accounting simply denote an increase or
decrease to the balance of a referenced business account. Using "debit" and "credit" to record
increases or decreases of account balances conforms with the underlying occurrence in business
transactions. The exchange of financial interests involving two or more business accounts
inevitably leads to increases and/or decreases among those accounts. Rules in bookkeeping and
accounting dictate that a debit to the accounts of assets, expenses or losses and a credit to the
accounts of liabilities, equities, revenue or gains both increase the balance of each of those
accounts. A debit decreases the account balance for liabilities, equities, revenue or gains, and a
credit decreases the asset, expense or loss account balances.

Rules of Double Entry

 All assets are debited when they increase and credited when they decrease.
 All liabilities are credited when they increase and debited when they decrease.
 Capital is credited when they increase and debited when it decrease.
 All expenses are debited when they increase and credited when they decrease.
 All incomes/revenues are credited when they increase and debited when they decrease.
Accounting software
It is an application software that records and processes accounting transactions within
functional modules such as accounts payable, accounts receivable, payroll, and trial
balance. It functions as an accounting information system. It may be developed in-
house by the organization using it, may be purchased from a third party, or may be a
combination of a third-party application software package with local modifications.
Accounting software may be on-line based, accessed anywhere at any time with any
device which is Internet enabled, or may be desktop based.

TYPES OF ACCOUNTING SOFTWARES

 Quickbooks
 Sage
 Pastel
 AccountEdge
 Xero
 FreshBooks

QuickBooks
QuickBooks is an industry-leading accounting software package designed to help businesses
keep track of its financial data. The primary features of QuickBooks are designed to help manage
customers, vendors, expenses, inventory, and revenue.

Definition of a QuickBooks company

It is the data file that stores all the information about your company and its finances. Creating the
company file is the first thing you do when you set up your financial records in QuickBooks. All
company files for QuickBooks have the extension .QBW.

Creating a Company File using the Easy Step Interview:

a. Once you have opened QuickBooks®, select the “Create a new company” option. (This option can
also be found in the File menu on the toolbar). Click “Start Interview” and begin answering the
interview questions.

b. Enter your company information: You are only required to enter a company name, but entering all
pertinent company information now will save time and make things easier later.

c. Select your Industry: Based on your selection, QuickBooks® will customize its settings to better
accommodate your business. For most farming and ranching operations, you will want to select
“Agriculture, Ranching, or Farming.”
d. How is your company organized? Select your company organization type. If you don’t know what
you company organization type is you are most likely a sole proprietorship. Selecting the correct
business type will simplify tax preparation later on. (The rest of the interview questions in this
example are based on a sole proprietorship).

e. Select the first month of your fiscal year: Select January, unless you prefer to define a different
fiscal year.

f. Set up your administrator password: If others will have access to your computer or company file, it
is a good idea to set up an administrator password so only you will have full access to your
QuickBooks® company file.

g. Create you company file: Click “Next” and specify where you would like QuickBooks® to save
your company file.

Continue answering the Easy Step Interview questions to customize QuickBooks® for your business:
a. What do you sell? If your business consists entirely of producing and selling agricultural
commodities, you should choose “Products only.” However, if you also provide any services, such as
custom work, you should select “Both services and products.”

b. Do you sell products online? Indicate whether or not you sell products online.

c. Do you charge sales tax? In most cases, agricultural producers do not have to worry about sales tax
unless production is sold at the retail level. Unless you sell at the retail level, select “No.”

d. Do you want to create estimates in QuickBooks®? If you provide custom work or other services
for which you may want to create estimates, select “Yes.” If you do not need to create estimates,
choose “No.”

e. Tracking customer orders in QuickBooks®: If you take customer orders and would like to track
them in QuickBooks®, select “Yes.”

f. Using sales receipts in QuickBooks®: If you would like to use sales receipts, choose “Yes.”

g. Using statements in QuickBooks®: If you would like to be able to create and send billing
statements, select “Yes.”

h. Using progress invoicing: Select “Yes” to use progress invoicing. For example, a custom farmer
may bill for partial payment before providing any work, once planting is completed, and after
harvest.

i. Managing bills you owe: Select “Yes” if you would like to keep track of bills you owe and receive
reminders when bills are due.

j. Do you print checks? Select the appropriate response.

k. Tracking inventory in QuickBooks®: Tracking inventory in agricultural operations is difficult and

often not necessary. If you would like to track inventory, select “Yes.”
l. Do you accept credit cards? Select the appropriate response.

m. Tracking time in QuickBooks®: If you would like to track time spent on various projects by you
or your employees, select “Yes.”

n. Do you have employees? Select the appropriate response.

o. Tracking multiple currencies in QuickBooks®: If your business involves multiple currencies,

select “Yes.”

p. Using accounts in QuickBooks®: To set up your accounts you need to know the date you would
like to start from and how you would like to organize you income and expenses.

q. Select a date to start tracking your finances: Whatever date you choose, you must enter all the
business activity that has occurred since that date. For this reason, it is generally much simpler to
choose a more recent date from which to begin tracking your finances in QuickBooks®.

r. Add your bank account/Enter your bank account information: Enter the appropriate information for
each farm bank account, including your last bank statement ending date and balance.

s. Review income and expense accounts: QuickBooks® recommends a set of income and expense
accounts based on the industry selection you made in Step 1 part b. You may review these account
suggestions and select or deselect any accounts to better reflect your business. Modifications and
additions to your chart of accounts can also be made anytime hereafter.

t. Finish

Chart of accounts
A chart of accounts is a listing of the names of the accounts that a company has identified and made
available for recording transactions in its general ledger. A company has the flexibility to tailor its chart
of accounts to best suit its needs, including adding accounts as needed.

Types of QuickBooks accounts

There are two main types of accounts in the QuickBooks chart of accounts:

i. Balance sheet accounts

ii. Income and expense accounts

Balance sheet accounts

QuickBooks provides ten types of balance sheet accounts to choose from as you create and add to your
chart of accounts. The following table describes each type of balance sheet account and the transactions
you can use it for.

1. Bank account - Current, savings, and term deposits. Add one bank account for every account your
company has at a bank or other financial institution. (You can also use this type for petty cash.)
2. Accounts receivable (A/R) - Transactions related to the customers that owe you money, including
invoices, payments, deposits of payments, refunds, and credit memos. Most companies have only one
A/R account.
3. Other current asset - Assets that are likely to be converted to cash or used up within one year, such as
petty cash, notes receivable due within a year, prepaid expenses, and security deposits.
4. Fixed asset - Depreciable assets your company owns that aren't likely to be converted into cash within
a year, such as equipment or furniture.
5. Other asset - Any asset that is neither a current asset nor a fixed asset, such as long-term notes
receivable.
6. Accounts payable (A/P) - Transactions related to money you owe, including bills, bill payments, and
any credit you have with vendors. See also current and long-term liability accounts.
7. Credit card - Credit card purchases, bills, and payments.
8. Current liability - Liabilities that are scheduled to be paid within one year, such as VAT, payroll
taxes, accrued or deferred salaries, and short-term loans.
9. Long-term liability - Liabilities such as loans or mortgages scheduled to be paid over periods longer
than one year.
10. Equity - Owner's equity, including capital investment, drawings, and retained earnings.

Income and expense accounts

Income and expense accounts track the sources of your income and the purpose of each expense. When
you record transactions in one of your balance sheet accounts, you usually assign the amount of the
transaction to one or more income or expense accounts. For example, not only do you record that you
took money out of your current account, but you keep track of what you spent the money on: utilities,
perhaps, or office supplies.

QuickBooks does not display a balance for income and expense accounts in the chart of accounts. To see
income and expense account balances, choose Profit and Loss from the Reports menu, or select the
income or expense account in the chart of accounts and click QuickReport.

Income account
An account that tracks the source of your company's income. (You can think of income as money that
comes into the company.)
Unlike balance sheet accounts, income accounts do not have a register of their own. You can get a list of
the transactions posted to an income account by selecting the account in the chart of accounts and clicking
QuickReport.

Expense account
An account that tracks what your company is spending. (You can think of expenses as money that leaves
the company.)

Unlike balance sheet accounts, expense accounts do not have a register of their own. You can get a list of
the transactions posted to an expense account by selecting the account in the chart of accounts and
clicking QuickReport.

Tracking Asset accounts

Fixed assets You can use this account to track the depreciation of your company's fixed assets.
QuickBooks automatically sets up this account if you select a preset chart of accounts when you create
your QuickBooks company. The account includes a subaccount named "Accumulated Depreciation."

Other current asset Use this type of account to track current assets that are not receivables or bank
accounts, but which you plan to convert into cash or use up within one year. Examples of what you can
track with another current asset account include stock, treasury bills, certificates of deposit, prepaid
expenses, prepaid deposits, reimbursable expenses, and notes receivable (if due within one year).This
account is automatically created when stock is turned on

Setting up asset accounts to track

depreciation
The monetary value of an asset decreases over time due to use, wear and tear. This decrease is
measured as depreciation.

1 Create a fixed asset account for each asset (or group of assets) you want to depreciate.
2 Add two subaccounts to each asset account you created. One subaccount tracks the cost of the
asset, the other tracks accumulated depreciation.
3 Finally, create an expense account to track depreciation expense. Give the account a name
like "Depreciation Expense."

Entering a depreciation transaction

Determining the amount of depreciation to deduct, or capital cost allowance (CCA) can be a complex
process, and Inland Revenue’s rules on the subject change often. Ask an accountant for help in figuring
actual CCA amounts.

1 Display the Chart of Accounts.

2 Double-click the subaccount that tracks accumulated depreciation for the asset you're
depreciating.
3 Enter the transaction in the bottom of the register:
1 Enter the depreciation amount as a decrease in the register.
2 In the Account field, enter the expense account you set up to track depreciation.
3 Click Record.

WORKING WITH PRODUCTS AND

SERVICES
Items represent services and products you provide, things you buy, and discounts you offer. You use them
when you create invoices, fill out cheques, and create purchase orders, among others.

While providing a quick means of data entry, items, more importantly, handle the behind-the-scenes
accounting. When you create an item you link it to an account; when the item is used on a form it posts an
entry to that account and another to the appropriate accounts receivable, accounts payable, current, or
other account.

While items are easy to set up, you’ll want to spend some time deciding how they can best work for you
before you start setting them up and using them. Use your current list of services and products as a
starting point. Consider how much detail you prefer to have on your invoices. For example, you can set
up "parent" items and after that, subitems (down to 5 levels) to provide greater detail on invoices and
reports.

QuickBooks provides eight different types of items to help you fill out sales and purchase forms
quickly.

Service Services you either charge for or purchase. Examples include specialised
labour, consulting hours, and professional fees.

Stock part/inventory Merchandise or parts you purchase, track as stock, and then resell.

Non-stock part/Non-inventory Materials or parts you buy but don't keep on hand as stock. These items
can be either part of your overhead (for example, office supplies), or they
can be materials you buy to finish a specific job and charge back to your
customer.

Other charge Miscellaneous charges that are not services, labour, materials, or parts.
Examples include delivery charges, setup fees, and service charges.
Subtotal Calculating a subtotal.

Group Fast entry of a group of individual items already on the Items list.

Discount An amount to be subtracted from a total or subtotal.

Payment Payment you receive at the time you write an invoice. A payment item
reduces the amount owed on an invoice.

WORKING WITH SUPPLIERS/VENDORS

Adding a vendor

You can add new vendors to the list at any time. QuickBooks uses the Vendor list to hold information
about the people and companies you do business with. For example, this list could include the phone
company, and your office supplies vendor.

1 From the Lists menu, choose Vendor.

2 Choose New from the Vendor menu button.

3 In the Vendor field, enter the name of the vendor as you'd like it to appear on your Vendor list.
For example, if the vendor is an individual and you list individuals last name first, that's how you should
enter the name.

4 Enter the information requested on the Address Info tab and Additional Info tab.

5 Record the vendor.

Entering opening balances for A/R and A/P accounts

Financial information that is part of this financial year, but before your QuickBooks start date

As you enter your customers and vendors in QuickBooks, enter an opening balance with an as of date
equal to your start date. To view this information for existing customers, use the customer’s register.

When you enter the opening balance for your customers, you’re building the accounts receivable opening
balance. When you enter the opening balance for your vendors, you’re building the accounts payable
opening balance.

WORKING WITH EMPLOYEES

Adding an employee

1 Display the Employee list.

2 Choose New from the Employee menu button.

3 Complete the Address Info tab.

4 On the Additional Info tab, enter any information you want to store for this employee.

5 If you are using QuickBooks payroll, complete the Payroll Info tab.

6 Record the information you entered by doing one of the following:

Click Next to add another employee to the list.

Click OK to close the window.

Editing an employee

1 Display the Employee list.

2 Select the employee that you want to edit.

3 From the Employee button, choose Edit.

4 Edit the employee.

5 Click OK.

PURCHASE ORDERS
A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller,
indicating types, quantities, and agreed prices for products or services. It is used to control the purchasing
of products and services from external suppliers.[1] Acceptance of a purchase order by a seller forms a
contract between the buyer and seller, and no contract exists until the purchase order is accepted.

INVOICE
An invoice, bill or tab is a commercial document issued by a seller to a buyer, relating to a sale
transaction and indicating the products, quantities, and agreed prices for products or services the
seller had provided the buyer.

Payment terms are usually stated on the invoice. These may specify that the buyer has a
maximum number of days in which to pay and is sometimes offered a discount if paid before the
due date. The buyer could have already paid for the products or services listed on the invoice.

In the rental industry, an invoice must include a specific reference to the duration of the time
being billed. So in addition to quantity, price, and discount, the invoice amount is also based on
duration. Generally, each line of a rental invoice will refer to the actual hours, days, weeks,
months, etc., being billed.

From the point of view of a seller, an invoice is a sales invoice. From the point of view of a
buyer, an invoice is a purchase invoice. The document indicates the buyer and seller, but the
term invoice indicates money is owed or owing.

Bank Reconciliation
The purpose of the bank reconciliation is to be certain that the financial statements are reporting
the correct amount of cash and the proper amounts for any related accounts (since every
transaction affects a minimum of two accounts).

The bank reconciliation process involves:

1. Comparing the following amounts

o The balance on the bank statement
o The balance in the company's general ledger account. (The account title might be Cash -
checking.)
2. Determining the reasons for the difference in the amounts shown in 1.

The common reasons for a difference between the bank balance and the the general ledger book
balance are:

 Outstanding checks (checks written but not yet clearing the bank)
 Deposits in transit (company receipts that are not yet deposited in the bank)
 Bank service charges and other bank fees
 Check printing charges
 Errors in entering amounts in the company's general ledger

The outstanding checks and deposits in transit do not involve errors by either the company or the
bank. Since these items are already recorded in the company's accounts, no additional entries to
the company's general ledger accounts will be needed.

Bank charges, check printing fees and errors in the company's accounts do require the company
to make accounting entries. The company should make the entries before the financial statements
are prepared since a minimum of two accounts have the incorrect balances (due to double-entry
accounting). Here is an entry for a bank service charge that was listed on the bank statement:

If the reconciliation reveals that an incorrect amount has been recorded in the company's Cash
account, perhaps the easiest way to correct the error is to remove the incorrect amount and then
enter the correct amount.
FINANCIAL STATEMENTS
A financial statement (or financial report) is a formal record of the financial activities and
position of a business, person, or other entity.

Relevant financial information is presented in a structured manner and in a form easy to

understand. They typically include basic financial statements, accompanied by a management
discussion and analysis:[1]

1. A balance sheet, also referred to as a statement of financial position, reports on a

company's assets, liabilities, and owners equity at a given point in time.

It is a summary of the financial balances of an individual or organisation, whether it be a sole

proprietorship, a business partnership, a corporation, Private limited company or other
organization such as Government or not-for-profit entity. Assets, liabilities and ownership
equity are listed as of a specific date, such as the end of its financial year. A balance sheet is
often described as a "snapshot of a company's financial condition".

A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
The main categories of assets are usually listed first, and typically in order of liquidity.
liquidity is a measure of the ability of a debtor to pay their debts as and when they fall due. It
is usually expressed as a ratio or a percentage of current liabilities. Liquidity is the ability to
pay short-term obligations.

Assets are followed by the liabilities. The difference between the assets and the liabilities is
known as equity or the net assets or capital of the company and according to the accounting
equation, capital must equal assets minus liabilities.

Sample Balance Sheet

Assets (current) Liabilities and Owners' Equity
Cash $6,600 Liabilities
Accounts Receivable $6,200 Notes Payable $5,000
Assets (non-current) Accounts Payable $25,000
Tools and equipment $25,000 Total liabilities $30,000
Owners' equity
Capital Stock $7,000
Retained
$800
Earnings
Total owners' equity $7,800
Total $37,800 Total $37,800
2. An income statement, also known as a statement of comprehensive income, statement of
revenue & expense, profit and loss report, reports on a company's income, expenses, and
profits over a period of time. A profit and loss statement provides information on the
operation of the enterprise. These include sales and the various expenses incurred during the
stated period.

Income statements should help investors and creditors determine the past financial performance
of the enterprise, predict future performance, and assess the capability of generating future cash
flows through report of the income and expenses.

However, information of an income statement has several limitations:

 Items that might be relevant but cannot be reliably measured are not reported (e.g., brand
recognition and loyalty).
 Some numbers depend on accounting methods used (e.g., using FIFO or LIFO
accounting to measure inventory level).
 Some numbers depend on judgments and estimates (e.g., depreciation expense depends
on estimated useful life and salvage value).

- INCOME STATEMENT -
For the year ended DECEMBER 31 2010

€ €
Debit Credit
Revenues
GROSS REVENUES
(cost of sales) 296,397
--------
Expenses:
ADVERTISING 6,300
BANK & CREDIT CARD FEES 144
BOOKKEEPING 2,350
SUBCONTRACTORS 88,000
ENTERTAINMENT 5,550
INSURANCE 750
LEGAL & PROFESSIONAL SERVICES 1,575
LICENSES 632
PRINTING, POSTAGE & STATIONERY 320
RENT 13,000
MATERIALS 74,400
TELEPHONE 1,000
UTILITIES 1,491
--------
TOTAL EXPENSES (195,512)
--------
NET INCOME 100,885

3. A Statement of changes in equity, also known as equity statement or statement of

retained earnings, reports on the changes in equity of the company during the stated period.
The statement explains the changes in a company's Share Capital, accumulated reserves and
retained earnings over the reporting period. It breaks down changes in the owners' interest in the
organization, and in the application of retained profit or surplus from one accounting period to
the next. Line items typically include profits or losses from operations, dividends paid, issue or
redemption of shares, revaluation reserve and any other items charged or credited to accumulated
other comprehensive income.

The statement is expected under the generally accepted accounting principles and explain the
owners' equity shown on the balance sheet, where:

Owners' equity = assets − liabilities

4. A cash flow statement reports on a company's cash flow activities, particularly its operating,
investing and financing activities.

is a financial statement that shows how changes in balance sheet accounts and income affect cash
and cash equivalents, and breaks the analysis down to operating, investing and financing
activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of
the business. The statement captures both the current operating results and the accompanying
changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in
determining the short-term viability of a company, particularly its ability to pay bills.
International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals
with cash flow statements.

People and groups interested in cash flow statements include:

 Accounting personnel, who need to know whether the organization will be able to cover payroll
and other immediate expenses
 Potential lenders or creditors, who want a clear picture of a company's ability to repay
 Potential investors, who need to judge whether the company is financially sound
 Potential employees or contractors, who need to know whether the company will be able to afford
compensation
 Shareholders of the business.

Sample cash flow statement

Cash flows from (used in) operating activities

Cash receipts from customers 9,500

Cash paid to suppliers and employees (2,000)

Cash generated from operations (sum) 7,500

 Interest paid (2,000)

Income taxes paid (3,000)

Net cash flows from operating activities 2,500

Cash flows from (used in) investing activities

Proceeds from the sale of equipment 7,500

Dividends received 3,000

Net cash flows from investing activities 10,500

Cash flows from (used in) financing activities

Dividends paid (2,500)

Net cash flows used in financing activities (2,500)

Net increase in cash and cash equivalents 10,500

Cash and cash equivalents, beginning of year 1,000

Cash and cash equivalents, end of year $11,500

For large corporations, these statements may be complex and may include an extensive set of
footnotes to the financial statements and management discussion and analysis. The notes
typically describe each item on the balance sheet, income statement and cash flow statement in
further detail. Notes to financial statements are considered an integral part of the financial
statements.

Purpose of financial statements by business entities

"The objective of financial statements is to provide information about the financial position,
performance and changes in financial position of an enterprise that is useful to a wide range of
users in making economic decisions."[2] Financial statements should be understandable, relevant,
reliable and comparable.Reported assets, liabilities, equity, income and expenses are directly
related to an organization's financial position.

Financial statements are intended to be understandable by readers who have "a reasonable
knowledge of business and economic activities and accounting and who are willing to study the
information diligently."[2] Financial statements may be used by users for different purposes:
  Owners and managers require financial statements to make important business decisions
that affect its continued operations. Financial analysis is then performed on these
statements to provide management with a more detailed understanding of the figures.
These statements are also used as part of management's annual report to the stockholders.
 Employees also need these reports in making collective bargaining agreements (CBA)
with the management, in the case of labor unions or for individuals in discussing their
compensation, promotion and rankings.
 Prospective investors make use of financial statements to assess the viability of investing
in a business. Financial analyses are often used by investors and are prepared by
professionals (financial analysts), thus providing them with the basis for making
investment decisions.
 Financial institutions (banks and other lending companies) use them to decide whether to
grant a company with fresh working capital or extend debt securities (such as a long-term
bank loan or debentures) to finance expansion and other significant expenditures.

Moving to electronic financial statements

 Financial statements have been created on paper for hundreds of years. The growth of the
Web has seen more and more financial statements created in an electronic form which is
exchangeable over the Web. Common forms of electronic financial statements are PDF
and HTML. These types of electronic financial statements have their drawbacks in that it
still takes a human to read the information in order to reuse the information contained in a
financial statement.
 More recently a market driven global standard, XBRL (Extensible Business Reporting
Language), which can be used for creating financial statements in a structured and
computer readable format, has become more popular as a format for creating financial
statements. Many regulators around the world such as the U.S. Securities and Exchange
Commission have mandated XBRL for the submission of financial information.

Advantages of using computerized accounting software

· Automation: Since all the calculations are handled by the software, computerized accounting
eliminates many of the mundane and time-consuming processes associated with manual
accounting. For example, once issued, invoices are processed automatically making accounting
less time-consuming.

· Accuracy: This accounting system is designed to be accurate to the minutest detail. Once the
data is entered into the system, all the calculations, including additions and subtractions, are done
automatically by software.

· Data Access: Using accounting software it becomes much easier for different individuals to
access accounting data outside of the office, securely. This is particularly true if an online
accounting solution is being used.

· Reliability: Because the calculations are so accurate, the financial statements prepared by
computers are highly reliable.
· Scalable: When your company grows, the amount of accounting necessary not only increases
but becomes more complex. With computerized accounting, everything is kept straightforward
because sifting through data using software is easier than sifting through a bunch of papers.

· Speed: Using accounting software, the entire process of preparing accounts becomes faster.
Furthermore, statements and reports can be generated instantly at the click of a button. Managers
do not have to wait for hours, even days, to lay their hands on an important report.

· Security: The latest data can be saved and stored in offsite locations so it is safe from natural
and man-made disasters like earthquakes, fires, floods, arson and terrorist attacks. In case of a
disasters, the system can be quickly restored on other computers. This level of precaution is
taken by Clever Accounting.

· Cost-effective: Since using computerized accounting is more efficient than paper-based

accounting, than naturally, work will be done faster and time will be saved. When one considers
that Clever Accounting, one of the latest online accounting solutions, starts at a low monthly
subscription (check out pricing here), then computerized accounting really becomes a no-brainer.

· Visuals: Viewing your accounts using a computer allows you to take advantage of the option to
view your data in different formats. You can view data in tables and using different types of
charts.

Advantages of using accounting software

Accounting software can help you save time and money, and offer you valuable insight into
your business. It can do so by:

 simplifying data entry – inputting data is fast, straightforward and only needs to be carried out
once
 speeding up processes – eg reducing delays between making a sale and generating an invoice
 automating reports and analysis - on profit and loss, debtors and creditors, customer accounts,
inventory counts, sales, forecasting, etc
 automating tasks – such as calculating pay, producing payslips, automatically calculating VAT,
etc
 reducing errors – by computerising calculations that would have historically been done
manually
 supporting other functions, such as online banking and e-filing

Disadvantages of accounting software

Not all businesses will benefit equally from using accounting software. If you’re thinking of
switching from manual to computerised accounting, you should consider these possible
drawbacks:

 Price - the package cost, although small in relation to your other costs, is higher than a paper-
based system.
  Implementation - you will probably need some initial help setting up an accounts package. This
will usually be a chargeable service, perhaps obtained from your accountant or the system
provider.
 Support - you may need to purchase yearly maintenance and support for your package.
 Specialised needs - an accounts package is designed to suit most types of business. However, if
your business is very unusual you may find that you need to change the way you operate to suit
the package, or pay to have the package adapted to suit your needs.

E-accounting
E-accounting or online accounting, is the application of online and Internet technologies to the
business accounting function. Similar to e-mail being an electronic version of traditional mail, e-
accounting is "electronic enablement" of lawful accounting and traceable accounting processes
which were traditionally manual and paper-based.

E-accounting involves performing regular accounting functions, accounting research and the
accounting training and education through various computer based /internet based accounting
tools such as digital tool kits, various internet resources, international web-based materials,
institute and company databases which are internet based, web links, internet based accounting
software and electronic financial spreadsheet tools to provide efficient decision making.

Online accounting through a web application is typically based on a simple monthly charge and
zero-administration approach to help businesses concentrate on core activities and avoid the
hidden costs associated with traditional accounting software such as installation, upgrades,
exchanging data files, backup and disaster recovery.

E-accounting does not have a standard definition but merely refers to the changes in accounting
due to computing and networking technologies.[1] Most e-accounting services are offered as SaaS
(Software-as-a-service).

Uses

 Accounts payable
 Accounts receivable
 Payroll
 Job costing
 Financial write-up and reporting
 Bank and account reconciliations
 Quarterly tax reporting
 Compliance reporting
 Tax return preparation
 Internal financial consultant
 Establish the control system
 Inform those concerned of financial condition
 Supply the business with adequate information
 Maintain contact with government agencies, bankers, etc.
 Provide insight, courses of action
  Facilitate future planning and growth

References

 http://www.freequickbookslessons.com/free-quickbooks-tutorials/free-quickbooks-tutorials/
 http://quickbooks.intuit.com/tutorials/all-quickbooks-tutorials/