Accounting Essentials E-Book

Nick Robinson

• Herausgeber: BookRix
• Kategorie: Wissenschaft und neue Technologien
• Sprache: Englisch
• Veröffentlichungsjahr: 2016

Beschreibung

This title is one of the "Essentials" IT Books published by TechNet Publications Limited.
This Book is a very helpful practical guide for beginners in the topic , which can be used as a learning material for students pursuing their studies in undergraduate and graduate levels in universities and colleges and those who want to learn the topic via a short and complete resource.
We hope you find this book useful in shaping your future career.

Leseprobe

Nick Robinson

Accounting Essentials

This title is one of the "Essentials" IT Books published by TechNet Publications Limited. This Book is a very helpful practical guide for beginners in the topic , which can be used as a learning material for students pursuing their studies in undergraduate and graduate levels in universities and colleges and those who want to learn the topic via a short and complete resource. We hope you find this book useful in shaping your future career.BookRix GmbH & Co. KG81371 Munich

Table Of Contents

Table of Contents

Chapter 1   Accounting Succinctly

Chapter 2   Revenues and Expenses

Chapter 3   Revenue Recognition

Chapter 4   Organizing the Accounts

Chapter 5   Accounting Principles

Chapter 6   Accounting System Reporting

Chapter 7   Fixed Assets

Chapter 8   Accounts Receivable

Chapter 9   Accounts Payable

Chapter 10   Inventory

Chapter 11   Payroll

Chapter 12   Summary

Appendix

Detailed Table of Contents

Chapter 1 Accounting Succinctly

Chapter 1 Accounting Succinctly

Computer developers are frequently asked to create systems to assist a client in running his or her business. While the developer has the tools (e.g., SQL Server, C#, Visual Studio, etc.) to produce solid applications, the client has the knowledge of the business that needs to be computerized.

Unfortunately, most of the clients are not developers. (If they were, why would they hire programmers in the first place?)

The meeting of these two kinds of expertise is often fraught with miscommunication. The client explains his or her needs to the developer who, in turn, tries to convert those needs into a design and, eventually, into a running application. Often, after the client sees the finished program, he or she then has a clearer picture of what he or she wants the computer to do and, unfortunately, that picture frequently looks nothing like the program the developer wrote.

This disconnect (between the customer’s explanations of his or her needs and how they are seen by all of the other roles in development) has been known for a long time, as shown in Figure 1. The tree swing diagram has been used for years and, although the artwork has improved, the concept remains true to this day:

Figure 1: Tree swing diagram, courtesy of the Monolithic Dome Institute

What I will do in this book is introduce developers to some of the most common business applications he or she may run into. I will also identify some terms that have special meaning so that, when one client explains that the repair parts can be “LIFO” but the new cars better be “specific-id” and another client wants to convert from “weighted average” to “FIFO,” the developer will understand that the clients are actually talking about inventory reporting.

In the first chapter, I would like to explore some fundamental accounting concepts and definitions. While it is not my intent or desire to have developers study for the CPA exam, it is my hope to allow them to understand what the client means when terms such as debit, credit, and out of balance are discussed.

Double Entry Accounting

Double Entry Accounting

Double Entry Accounting is the most common method of accounting for business transactions. To understand how the method works, we need to introduce two new terms that are somewhat hard to define: debit and credit.

Each account in the chart has a balance and this balance is considered to be a debit or a credit. For the asset accounts, the debit represents a positive balance in the chart while the credit represents a negative balance. If the business checking account has $6,000 in it, we would say the account has a $ 6,000 debit balance. If they write a check which reduces the balance, that check will be credited to the account. Credit entries reduce the balance in an asset account.

The liability and equity accounts work in reverse; credits are considered positive balances and the debit represents a negative balance. If the sales tax liability for one state is $ 2,000, we would say we have a $2,000 credit balance in sales tax payable. As they pay the sales tax, that balance will be reduced by debiting the account.

The following chart summarizes debits and credits:

Table 3: Debit/Credit Summary

Description

Debit

Credit

Assets such as cash, inventory, computers, office supplies, etc.

Increase

Decrease

Liabilities such as phone bills, car loan, sales tax collected, etc.

Decrease

Increase

Equity such as owner’s contribution, common stock, etc.

Decrease

Increase

Every transaction that occurs must consist of at least one debit and one credit entry. The total of all debits and credits must equal. As long as this rule is followed, the books will never get out of balance.

Let's Review a Few Examples

Business is started by the owner who contributed $10,000 into the business checking account.Business buys a computer system to do consulting work on. The system costs $6,000, which is paid for by a $1,000 check and a loan for $5,000.The owner buys three necessary items: a copy of Visual Studio, the Syncfusion library, and a subscription to a Web development magazine. Owner pays by check.The first installment of $1,000 is paid on the computer system.

To properly record the above events, the following items are entered in the chart of accounts:

Table 4: Chart of Accounts

Account #

Description

Type

Debit

Credit

1000

Cash-Checking Account

Asset

1100

Software

Asset

1200

Subscriptions

Asset

1600

Computer System

Asset

2000

Loan for Computer

Liability

3000

Owner’s Equity

Equity

In addition, the following journal entries are written into the general journal:

Table 5: General Journal

Account #

Description

Debit

Credit

A

1000

Cash-Checking Account

$10,000

3000

Owner’s Equity

$10,000

B

1600

Computer System

$6,000

1000

Cash-Checking Account

$1,000

2000

Loan for Computer

$5,000

C

1100

Software

$794

1200

Subscriptions

$99

1000

Cash-Checking

$893

D

1000

Cash-Checking

$1,000

2000

Loan for Computer

$1,000

Notice that, for each transaction, the total debits and credits are equal. If not, the transaction would be considered out of balance and could not be applied to the master file.

When the transactions are posted, the chart of accounts will appear as illustrated below:

Table 6: Detailed Chart of Accounts

Acc

Description

Type

Debit

Credit

1000

Cash-Checking Account

Asset

Beginning Balance

0

A

Owner Investment

$10,000

B

Computer System Purchase

$1,000

C

Software/Subscription purchase

$893

D

Loan Repayment

$1,000

Ending Balance

$7,107

1100

SOFTWARE

Asset

Beginning Balance

0

C

Software Purchase

$794

Ending Balance

$794

1200

SUBSCRIPTIONS

Asset

Beginning Balance

0

C

Subscription Purchase

$99

Ending Balance

$99

1600

COMPUTER SYSTEM

Asset

Beginning Balance

0

B

Computer Purchase

$6,000

Ending Balance

$6,000

2000

LOAN FOR COMPUTER

Liability

Beginning Balance

0

B

Computer Purchase

$5,000

D

Loan Repayment

$1,000

Ending Balance

$4,000

3000

OWNER’S EQUITY

Equity

Beginning Balance

0

0

A

Owner Investment

$10,000

Ending Balance

$10,000

To test that the equation is still in balance, add up all of the ending balances for the assets accounts. Now add up all of the ending balances for the liabilities and the equity account.

Assets: ($14,000)

1000—Cash ($7,107) + 1100—Software ($794) + 1200—Magazine ($99) + 1600—Computer ($6,000)

Liabilities + Equity ($14,000)

2000—Computer Loan ($4,000) + 3000—Owner’s Equity ($10,000)

The total ending balances above should each be $14,000.

An accounting system's objective is to keep the primary equation true at all times. As long as the double-entry procedure (i.e., debits and credits equal at all times) is followed, the chart of accounts will stay in balance. This allows the owner of the business at any time to see the source of funds that were used to acquire the business's assets.

Note: In this chapter, I painted the definitions of Assets, Liabilities, etc. with a broad brush. In most accounting systems, the accounts are further categorized as Current Assets (Assets likely to turn to Cash within the year), Fixed Assets (assets that will be part of the company for a long time such as cars, computers, etc.). Similiarly, liabilties might be broken down as well, further categorized as Current Liabilities (due this year) or Long-Term liabilites that are not due for several years (mortgages., etc). A good accounting system offers the flexibility to categorize assets into any grouping that works for the business.

Now, let’s quickly define some of the accounting terms I used in this chapter:

Assets—All items of value within the business such as cash, vehicles, computers, inventory, etc.Equity—The owner’s portion of the business. How much of the assets are funded by the company owner(s) or stockholders.Liabilities—The creditor’s claims against the business assets. How much of the assets must be used to pay off debt.Chart of Accounts—Itemized list of every asset, liability, and equity account in the business. It is used as a repository for the current value of each item. It is sometimes called the General Ledger.Journals—Transaction files recording events that happen to the various assets and liabilities in the business.In Balance—The condition where the total value of Assets equals the total value of liabilities and owner’s equity.