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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.
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 assets. 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 account. 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 Accounts. 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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