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Posting Hints and Finding and Avoiding Errors

Computerized Accounting System

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Posting hints

               POSTING HINTS 
                    TYPE                AMOUNT      ACCOUNT     
    Sales posting   cash or rec.           +        sales 
    Rec. on Account cash                   +        accounts receivable 
    Checks written  bank account           -        expense account if expense
                    bank account           -        asset account if equipment etc.
                    bank account           -        liability account if paid on
                                                    debt or payable if paid on
                                                    accounts payable
    Bills received  accts payable          -        inventory asset account 
                                                    or expense account      
    Bank deposits   bank account           +        cash            OR
    Bank deposits   cash                   -        bank account 
    cost of sales   inventory account      -        cost of sales expense account 
    Check # can be used for check number or invoice number.  
    Vendor # is required for accounts payable and accounts receivable but is  
    optional otherwise.            

Errors and Corrections in Accounting

       The most fundamental report in an accounting system is the      
       balance sheet.  The balance sheet reports the financial status  
       of a business at a given point in time.  It lists the value of  
       all assets and of all liabilities.  Assets less liabilities is  
       the owner's equity in the business which is also listed, usually
       in terms of current earnings, previous earnings and capital     
       investment.  Total assets equals total liabilities plus equity. 
       Analysis of a business' financial situation usually begins by   
       comparing balance sheets from two points in time such as the    
       beginning and end of a year or at the end of this month vs. the 
       end of last month.  The next step in such analysis is to        
       determine why the changes in the balance sheet occurred.  This  
       is done by means of a profit and loss statement for the time    
       period between the two balance sheets.  The profit and loss     
       statement shows the totals of revenue accounts and expense      
       accounts for that time period.                                  
       In general asset and expense accounts carry debit balances and  
       liability and revenue accounts carry credit balances.  If the   
       business is making a profit then equity accounts will carry a   
       credit balance.  If the business is losing money then equity    
       accounts will carry a debit balance.  Usually equity accounts
       are of two types,  Current and Previous Earnings which are
       automatically changed by the accounting system and Capital 
       Investments, Owner's Draw, and accounting adjustments which
       must be manually posted by the bookkeeper.
       Errors in accounting can be of two types.  One type is an error 
       affecting asset or liability accounts which makes the subsequent
       balance sheets wrong.  The other type does not involve asset or 
       liability accounts and only makes the P & L statement incorrect.
       An example of the first type of error would be a check from the 
       bank posted twice or posted for the wrong amount.  An example of
       the second type of error would be a payment for telephone       
       charges which was posted as a payment for electric charges.     
       Errors are usually found when it is found that a total in a     
       balance sheet is wrong.  The bank account amount may not agree  
       with the balanced bank statement.  A customer may point out an  
       error in his bill.  A physical inventory may not agree with the 
       totals from the inventory accounts.  This means that errors of  
       the first type above are more likely to be found than errors of 
       the second type.  Fortunately though, errors of the first type  
       are generally much more serious than errors of the second type. 
       If an accounting system is to be valid, errors must be found and
       corrected as soon as possible.  It is also true that errors are 
       more easily found and corrected on a short term basis such as   
       daily than if found after a longer period of time such as a     
       month or a year has elapsed.                                    
       Due to the way the PGAS system works any error in the balance   
       sheet must first manifest itself as an error on the trial       
       balance.  Therefore most, if not all, serious errors in the     
       system can be prevented if the trial balance is carefully       
       analysed and any errors corrected before any transactions are   
       posted to the main accounts.                                    
       If this is not done then it may be very time consuming and,     
       perhaps, impractical to find the source of an error if much time
       has elapsed in which the error could have occurred.  An         
       alternative way to correct such errors is to simply adjust the  
       balance sheet to correct totals by making adjustment            
       transactions of asset or liability accounts offset to a P & L   
       account such as adjustments or miscellaneous revenues or        
       miscellaneous expenses.  A sure sign of poor bookkeeping is the 
       presence of large totals in such catch-all accounts.            

       Analyzing the Balance Sheet:

       The bookkeeper's responsibility is to be sure reports produced
       by the accounting system are accurate.  A fundamental step in
       ensuring this is analysis of the Balance Sheet.

       First check the current earnings figure.  Is it correct as to 
       showing profit (credit or negative balance) or loss (debit or
       positive balance)?  Does the amount of the profit or loss seem
       reasonable for this business?

       Next look at cash accounts and bank accounts.  Check their 
       accuracy against bank statements and a cash count.

       The Cash on Hand account is increased (debited) when cash
       is received usually by sales of goods which is offset to
       a sales revenue account or by payments on accounts receivable
       which is offset against accounts receivable balances for that 
       customer.  The Cash on Hand account is decreased (credited)
       when cash is deposited to a Bank Account.  At that point
       check Cash on Hand balances against a cash count.

       Bank Accounts are increased (debited) by deposits from Cash 
       on Hand or by automatic payments received.  Bank Accounts are
       decreased by checks written to credit an Expense Account or 
       to credit a Liability Account such as Accounts Payable.

       Check accounts receivable and accounts payable against the 
       aged accounts report and against bills received from creditors
       and bills sent to debtors and their responses if any.
       Prepays and gift certificates should be entered into the system
       as a credit (minus) to Accounts Receivable and a debit to
       Advertising Expenses or to cash in the case of prepays.

       Inventory values must be checked against an actual inventory
       count and evaluation as must values of all other physical 
       Inventory received must be added to each computer inventory
       item record and then the invoice received for that inventory
       item must be posted as a debit to Inventory Value asset
       accounts and a credit to Accounts Payable.  When the check 
       is issued to pay inventory suppliers it must be a credit to
       the Bank Account and a debit to the proper Accounts Payable

       Inventory Asset Accounts are increased (debited) only when
       new inventory is received.  Inventory Asset Accounts are
       decreased (credited) when goods are sold or when inventory
       is adjusted due to a physical inventory count to account for
       decreases due to breakage, theft, etc.  Postings decreasing
       inventory accounts are offset to Cost of Sales expense 
       accounts.  If a physical inventory count is done during a
       period in which sales are occurring errors will result if
       those sales made during the inventory period are not taken
       into account.

       The only postings to Cost of Sales expense accounts must come
       from actual sales postings or from corrections to inventory 
       due to a physical inventory count.

       Liability Accounts tend to become zero.  They are increased
       (credited) when a liability is incurred usually by loans
       received or by invoices for inventory or goods or services
       received or by payroll withholdings.  They are decreased
       (debited) when a payment is made usually by a check from a
       Bank Account.  If a payment is made for something that has
       never been posted to a Liability Account then that payment
       must be posted to an Expense Account, not to a Liability
       Account.  This is a common accounting error that results
       in errors in Liability Account balances.

       Increases (credits) to Liability Accounts are increases 
       (debits) to Expense Accounts or increases (debits) to 
       Asset Accounts.
       Decreases (debits) to Liability Accounts are decreases
       (debits) to Asset Accounts.
       Increases (credits) to Revenue Accounts are increases 
       (debits) to Asset Accounts.
       Increases (debits) to Expense Accounts are increases (credits)
       to Liability Accounts or decreases (credits) to Asset 
       Try to think of an example of each of the above and then try
       to think of a transaction that would not be posted by the
       above general rules. (hint: barter?)

       Check notes payable against statements received from creditors.
       Be sure that payments on notes are broken down and posted to
       note liability accounts and interest expense accounts properly.

       Check payroll taxes payable against payroll reports.
       Be sure that when payroll taxes are paid amounts are broken
       down and posted to the proper liability accounts.

       Be sure that any money distributed to owners of the business
       is posted as either a payroll check, a loan, or a draw.

       Depreciation of Assets must be posted periodically as a 
       credit to the proper asset account and as a debit to the
       proper Depreciation Expense account.

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Last revised May 2, 2008.

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