Abc accounting 11. 0 Reference Guide

Entering a Y into this field will cause the cursor to automatically stop at the Remark field when entering amounts into this ledger account, using the Ledger screen. An N will cause the cursor to skip the Remark field. Although not as convenient, it is still possible to enter a Remark by striking Shift+Tab in the field immediately after the cursor skips the Remark field.

The Remark field also affects the way the information posts from the Accounts Payable module. A Y in this field will cause the computer to carry across to the General Ledger any remarks entered in the Accounts Payable Remark field. Controversely, an N in this field will prevent the Accounts Payable remarks from carrying across to the General Ledger. An N in this field will also instruct the computer to combine several similar parts of a transaction into one entry in the General Ledger.

1099 Field (G)

An entry in this field indicates that a Form 1099 is required for payments totaling more than a specified amount ($600 in most cases but $10 for royalties paid and interest paid by a bank or anyone in the business of lending money). At the end of the year, the program has the capability to prepare 1099s for those vendors to whom you are required to furnish Form 1099s. Entering a number in this field specifies the type of 1099 required.

12 Rent Expenses (1099 MISC)

13 Interest Expenses (1099 INT)

14 Royalty Expenses (1099 MISC)

15 Attorney Expene (1099 MISC)

Note that even though several of these types of expenses are reported on Form 1099 MISC, they need to be kept separate because the amounts are reported on different blocks on the form. Page 199 for information on Generating and Printing 1099s. The same information is found by pressing Shift+F1, selecting Questions and then option N.

1099s - Generating (G)

The Internal Revenue Service requires that any tax payer who in the course of trade or business pays another tax payer over a specified amount (usually $10 or $600) for expenses such as rent, interest, and nonemployee compensation must issue the recipient a Form 1099 at the end of the year and submit a copy to the Internal Revenue Service by February 28 of the following year. Payments made to corporations are exempt from this requirement. Following is a list of some common expenses which require Form 1099s if the recipient is not incorporated. This list is not exhaustive, it is merely a list of several common expenses.

Type of Expense 1099 Required if over Type of 1099 Required

--------------- --------------------- ---------------------

Interest

(not in the business of lending money)

$600.00 1099-INT

Interest (in the business of lending money)

$10.00 1099-INT

Nonemployee Compensation $600.00 1099-MISC

EXAMPLES:

- carpentry (building repairs or construction)

- commissions (for nonemployees only)

- vehicle & equipment repairs

Royalties $10.00 1099-MISC

Rents $600.00 1099-MISC

The ABC Accounting General Ledger is capable of taking the information on file and preparing Forms 1099-INT and 1099-MISC when they are required for the expenses listed above. It prepares the Form 1099-INT for payments over $600. It does not print the $10 and up 1099-INT's required to be filed by banks. Continue reading the following information under 1099s - Required Entries.

1099s - Required Entries (G)

ENTRIES REQUIRED ON THE GENERAL LEDGER (G) SCREEN - To accumulate totals for 1099 purposes, those General Ledger expense accounts which are expenses subject to the 1099 requirements need to have a number in the 1099 Field on the G screen. The numbers to set are as follows:

12 Rent Expenses - 1099 MISC

13 Interest Expenses - 1099 INT

For example, if Equipment Rentals is account # 874, entering a 12 in the 1099 field on the General Ledger Accounts screen (G) for account # 874 will cause the computer to accumulate the amounts paid to all vendors who were paid equipment rentals, assuming those expenses were entered into account number 874. The program can then prepare the proper Form 1099s for any vendor who received over $600 in rentals or $600 as a combination of rentals and other expenses subject to the 1099 filing requirements.

ENTRIES REQUIRED ON THE SETUP COMPANY G/L (#) SCREEN - The ABC General Ledger program obtains the business name, address, and employer identification number to prepare 1099s from the Setup Company G/L (#) screen. Be sure that this information is properly entered on this screen.

ENTRIES REQUIRED ON THE VENDOR (V) SCREEN - The ABC General Ledger program obtains the vendor's name, address, and Social Security or Employer Identification number from the Vendor (V) screen. Be sure that this information is properly entered on this screen.

The Vendor screen also has a field which can be used to bypass the printing of 1099s. This is the N)o 1099, I)nc. field on the Vendor (V) screen. Entering an I for Incorporated or an N for No in the N)o 1099 I)nc. field will bypass the printing of a 1099 for the vendor on whose Vendor screen either of these entries has been made. This option is used if a vendor is incorporated or sells materials rather than services. In these cases, no 1099 is required.

1099s - Preparing and Printing the Forms (G)

Once the necessary data is entered, the program is ready to generate 1099s. The first step is to print out Report # 4-11, VENDOR CHECK DETAIL. When running this report, you will be asked whether you "desire to Generate the 1099 File (Y)." Answer Y for yes and specify 12-31-xx for the date. A full Vendor Check Detail Report will print either on the screen or on the printer, depending on which option you chose. When this report has been completed, the data has been accumulated for the 1099s.

The next report to print is Report # 4-7, VENDOR 1099 LIST. Examine carefully the list of 1099s on the file. If there are any mistakes, correct them by entering the F10 'V screen and typing in the correct information. The information for the various 1099s is accessed by using the F7 and F8 keys.

To print the Form 1099s, use Report # 4-8, VENDOR 1099 FORMS. You will need to experiment a bit to line up the 1099s in the printer to have them print on the correct line. Placing the left edge of the 1099 on the left edge of the printer carriage and the top of the sheet about even with the top of the printer head is a good place to begin with a dot matrix printer. This program prepares both continuous 1099s and single page 1099s.

The ABC Accounting General Ledger is capable of taking the information on file and preparing Forms 1099-INT and 1099-MISC when they are required for the expenses listed above. It prepares the Form 1099-INT for payments over $600. It does not print the $10 and up 1099-INT's required to be filed by banks. Continue reading the following information under 1099s - Required Entries.

1099s - Required Entries (G)

ENTRIES REQUIRED ON THE GENERAL LEDGER (G) SCREEN - To accumulate totals for 1099 purposes, those General Ledger expense accounts which are expenses subject to the 1099 requirements need to have a number in the 1099 Field on the G screen. The numbers to set are as follows:

12 Rent Expenses - 1099 MISC

13 Interest Expenses - 1099 INT

For example, if Equipment Rentals is account # 874, entering a 12 in the 1099 field on the General Ledger Accounts screen (G) for account # 874 will cause the computer to accumulate the amounts paid to all vendors who were paid equipment rentals, assuming those expenses were entered into account number 874. The program can then prepare the proper Form 1099s for any vendor who received over $600 in rentals or $600 as a combination of rentals and other expenses subject to the 1099 filing requirements.

ENTRIES REQUIRED ON THE SETUP COMPANY G/L (#) SCREEN - The ABC General Ledger program obtains the business name, address, and employer identification number to prepare 1099s from the Setup Company G/L (#) screen. Be sure that this information is properly entered on this screen.

ENTRIES REQUIRED ON THE VENDOR (V) SCREEN - The ABC General Ledger program obtains the vendor's name, address, and Social Security or Employer Identification number from the Vendor screen (V). Be sure that this information is properly entered on this screen.

The Vendor screen also has a field which can be used to bypass the printing of 1099s. This is the N)o 1099, I)nc. field on the Vendor (V) screen. Entering an I for Incorporated or an N for No in the N)o 1099 I)nc. field will bypass the printing of a 1099 for the vendor on whose Vendor screen either of these entries has been made. This option is used if a vendor is incorporated or sells materials rather than services. In these cases, no 1099 is required.

Once the necessary data is entered, the program is ready to generate 1099s. The first step is to print out Report # 4-11, VENDOR CHECK DETAIL. When running this report, you will be asked whether you "desire to Generate the 1099 File (Y)." Answer Y for yes and specify 12-31-xx for the date. A full Vendor Check Detail Report will print either on the screen or on the printer, depending on which option you chose. When this report has been completed, the data has been accumulated for the 1099s.

The next report to print is Report # 4-7, VENDOR 1099 LIST. Examine carefully the list of 1099s on the file. If there are any mistakes, correct them by entering the F10 'V screen and typing in the correct information. The information for the various 1099s is accessed by using the F7 and F8 keys.

To print the Form 1099s, use Report # 4-8, VENDOR 1099 FORMS. You will need to experiment a bit to line up the 1099s in the printer to have them print on the correct line. Placing the left edge of the 1099 on the left edge of the printer carriage and the top of the sheet about even with the top of the printer head is a good place to begin with a dot matrix printer. This program prepares both continuous 1099s and single page 1099s.

Type M/S/A (G)

ABC JOB COSTING MODULE - If you are not using the Job Costing module, leave this field blank.

If you are using Job Costing, enter M for Material, S for Subcontract, or A for all.

An S in the M)aterial,D)irect,S)ubcontract field on a Purchase Order or Accounts Payable Bill that has a Job number will require a General Ledger account with an S or an A entry.

An M in the M)aterial,D)irect,S)ubcontract field of a Purchase Order or Accounts Payable bill that has a Job # requires a General Ledger account with an M or A type.

If the Purchase Order or Accounts Payable Bill does not have a Job number, you may use General Ledger accounts with an A type or with no type specified.

Alternate General Ledger # (G)

You can use this to give another number to this Account. This gives you flexibility when running Report # 4-18, FINANCIAL STATEMENTS.

When you run Report # 4-18, FINANCIAL STATEMENTS, and you choose S for Sort, the Accounts WITH Alternate General Ledger #s will be listed after the Accounts which do not.

Note (G)

This field is provided for your use as an information field. It places a code at the far left on the report which is displayed with Alt+A on the Customer screen or the Report # 3-22, CUSTOMER ACTIVITY WITH BALANCE.

Statement # 2 (G)

This field allows you to print out your financial statement in a different form than Statement # 1 or # 3. The same codes are used to identify Headings, Subheadings, Totals, etc. When Report # 4-18, FINANCIAL STATEMENTS, is run you are asked which Statement, 1, 2, or 3, is desired. The code A is one which is often used in this type of Statement. It accumulates totals from various accounts and prints them all labeled with one account name. This is explained on the Help Screens (press F1) with Statement # 1.

Statement # 3 (G)

This field allows you to print out your financial statement in a different form than Statement # 1 or # 2. The same codes are used to identify Headings, Subheadings, Totals, etc. When Report # 4-18, FINANCIAL STATEMENTS, is run you are asked which Statement, 1, 2, or 3, is desired. The code A is one which is often used in this type of Statement. It accumulates totals from various accounts and prints them all labeled with one account name. This is explained on the Help Screens with the Statement 1 field.

Periods Per Year (G)

Enter 12 if using monthly periods, 13 if using 4 week periods, 4 if using quarterly periods, etc. This field must be entered before beginning to enter data into the Next Period Ending field.

Next Period Ending Field (G)

This field allows you to define the ending date for General Ledger periods.

However, the number of periods in a year must be entered in its proper field, the # Periods/Year field, at the bottom right of the General Ledger Accounts (G) screen before beginning this procedure.

These periods must be set up at least one period ahead of the current period when posting open accounts payable and inventory value to the general ledger.

We recommend entering as a part of the initial set-up the ending dates for each of the periods in the current year up to the present date. The first entry to be made is the previous year end date. For example, if setting up

accounts on a monthly basis, first enter the ending date of the last year and then set up the monthly periods by entering the last day of each month.

If your accounting year is the calendar year and the current year is 1996, the first entry into this field would be 12-31-95, the end of the previous year. Upon pressing Enter, the program will request that you verify the date, and then will enter it onto the lower half of the screen.

The next entry will be the end of the first period in the current year, in this case 1-31-96. Repeat the process for 2-29-96 (1996 is a leap year) and so on up to the end of the current month.

Once you have completed these entries for the first account, the remaining accounts which you set up in the G/L Accounts (G) screen will automatically contain the same dates.

It is possible to clear these dates from the screen by entering Alt+D. HOWEVER, ONLY DO THIS BEFORE ANY AMOUNTS ARE ENTERED INTO THE G/L ACCOUNTS. IT IS VERY DANGEROUS TO DO THIS IF DATA HAS BEEN ENTERED INTO THE G/L ACCOUNTS BECAUSE THE DATA ALREADY ENTERED WILL NOT NECESSARILY BE IN THE CORRECT PERIOD IF NEW PERIODS ARE THEN SET UP.

Departmentalized Financial Statements

Departmental Financial Statements are financial statements which disclose the financial information for both the enterprise as a whole and the individual departments of the business. For example, a retail firm which markets both hardware and dry goods could, with proper accounting procedures and arrangement of accounts, generate financial statements which disclose both the financial statements for the individual divisions as well as an overall financial statement. This firm would then receive three financial statements, one for the hardware section, the second one for the dry goods division and a third one for the complete business. It is also possible to create financial statements in which only the Statement of Income is departmentalized. BE AWARE that useful departmentalized financial statements require more detailed record keeping and data entry than does a standard financial statement.

ABC's General Ledger departmentalized financial statements are designed by structuring a chart of accounts in which the accounts to be combined are either 100, 1,000, 10,000, or 100,000 numbers apart. For example, if the combined Income Statement account number for Sales is 501, the account number for Sales - Hardware would be 1501 (501 + 1000) or 10501 (501 + 10000) and the account number for Sales - Dry Goods would be 2501 or 20501. You are allowed a total of nearly 1,000,000 accounts. Therefore, if the corresponding account numbers are 1,000 apart, 999 departments with 999 accounts are possible. (You would use three digit account numbers and three digit department numbers). If they are 10,000 apart, 99 departments with 9,999 different accounts are possible! (You would use two digit department numbers and 4 digit account numbers).

To activate the departmentalized function, two fields need to be accessed on the # Setup Screen. To go to that screen, press F10 and then #. These fields are the Department Start number and the Mult or multiplier number.

Department Start #

This is the account number where the departmentalization is to begin. For example, to have a combined Balance Sheet and a departmentalization of the Income Statement, enter the first sales number in this field. No entry is needed if the entire statement is to be departmentalized.
Multiplier

Enter here the number of available accounts intervening between corresponding account numbers. For example, if combined sales is 501 and Sales - Hardware is 1501 and Sales - Dry Goods is 2501, etc., the multiplier is 1000.

Overview of Financial Statements (G)

In order to organize your financial records in a way that will produce accurate, intelligible financial statements, a rudimentary knowledge of accounting fundamentals is necessary. An overview of financial statements follows.

The two principal financial statements are the Balance Sheet and the Income Statement (also called the Profit and Loss Sheet). The Balance Sheet shows the net worth of a business as of the last day of the accounting period. This includes the assets which a business owns, the debts (liabilities) which they owe, and the equity or the net worth of the business. The net worth of a business equals the assets of the enterprise minus its liabilities.

The Income Statement shows the profit or the loss of a business during the accounting period ending on the Balance Sheet date. The profit (or loss) is calculated by subtracting expenses for the period from the corresponding revenues. The Income Statement has a basic format, but the details vary somewhat according to the type of business being reported. A service business (like tax preparation services) usually has the simplest Statement of Income because it simply lists the revenues and then the various categories of expenses and subtracts the total expenses from the total revenues. A retail organization first of all subtracts the cost of goods sold from the sales to arrive at the Gross Profit. Then the overhead expenses are listed and totaled and subtracted from the Gross Profit to arrive at the Net Profit. The Income Statement of a manufacturing concern is much like that of a retail business except that the cost of goods sold section is much more involved.

These descriptions of the financial statements are generalizations. Actual statements can be much more complex.

See the illustrations of the Balance Sheet and the Income Statement on the following pages. A more detailed description of both financial statements follows.

XYZ Distributors

Periods As Indicated

Balance Sheet

ASSETS

2/31/96 11/30/96 CHANGE

Cash - Commerce Bank 119.73 129.38 -9.65

Accounts Receivable 4123.43 3978.40 145.03

Inventory 12483.54 11659.32 824.22

-------- -------- ------

TOTAL Current Assets 16726.70 15767.10 959.60

Fixed Assets

Fixed Assets Before Depreciation

Equipment 21347.83 21178.65 169.18

Office Equipment and Fixtures 4138.87 4182.45 231.42

Buildings and Land 102456.92 102456.92 0.00

--------- --------- ------

TOTAL Fixed Assets Before Dep. 128218.62 127818.02 400.60

Less Accumulated Depreciation

Acc. Dep. -Equipment 2395.00 3129.00 -734.00

Acc. Dep. -Off.Equip/Fixtures 1159.00 1084.00 75.00

Acc. Dep. -Buildings 7084.00 6884.00 200.00

-------- --------- -------

TOTAL Accumulated Depreciation 10638.00 11097.00 -459.00

--------- --------- -------

TOTAL Fixed Assets 117580.62 116721.02 859.60

--------- --------- -------

TOTAL ASSETS 134307.32 132488.12 1819.20

========= ========= =======

LIABILITIES

Short-term Liabilities

Accounts Payable 2385.69 2673.94 -288.65

Payroll Taxes Payable 537.94 45.21 492.73

Mortgage Payable - Commerce Bank

Short Term Portion 3730.52 3648.89 81.63

-------- -------- -------

TOTAL Short-term Liabilities 6653.75 6368.04 285.71

-------- --------- -------

Long-term Liabilities

Note Payable - Jason Doe 9000.00 9000.00 0.00

Mortgage Payable-Commerce Bank 53492.74 53792.74 -300.00

-------- --------- -------

TOTAL Long-Term Liabilities 62492.74 62792.74 -300.00

-------- --------- -------

TOTAL LIABILITIES 69146.49 69160.78 -14.29

OWNER'S EQUITY

Robert Doe, Capital 52168.32 52168.32 0.00

Year-to-date Earnings 12992.51 11159.02 1833.49

--------- --------- -------

TOTAL OWNER'S EQUITY 65160.83 63327.34 1833.49

--------- --------- -------

LIABILITIES & OWNER'S EQUITY 134307.32 132488.12 1819.20

========= ========= =======

The Balance Sheet is comprised of three parts:
1. The Asset section

2. The Liability section

3. The Owner(s)' Equity section

Each of these is discussed below.

The ASSET Section - The Asset section shows the value of all assets of monetary value which the business possesses. Asset accounts are categorized into the following three classifications.

1. CURRENT ASSETS - Current assets include cash and other assets which are likely to be converted into cash during the next financial year. Examples of current assets include petty cash, cash in bank, accounts receivable,

inventory and notes receivable which are receivable in the next year. The current assets are generally listed in the order in which they will be converted into cash.

2. FIXED ASSETS - Fixed assets are those assets which will be used in the business over a period of several years or longer. These are not written off as expenses in the year purchased, but are rather depreciated over the life of the asset (the most notable exception being that land is not depreciable). Examples of fixed assets are land, buildings, vehicles and equipment. The value of fixed assets shown on the Balance Sheet is usually their cost (known as book value) minus the depreciation already claimed.

3. OTHER ASSETS - Those assets other than fixed assets which will not be converted into cash during the next year are referred to as other assets. An example of other assets would be the long-term portion of notes and bonds

The LIABILITY Section - The Liability section of the balance sheet lists all debts owed by the company. The liability section is usually divided into two classes as follows:

1. CURRENT LIABILITIES - Liabilities which are due to be paid in the next year are current liabilities. Examples of current liabilities are accounts payable, taxes payable and the portion of notes payable within one year.

2. LONG-TERM LIABILITIES - Liabilities which are not due within the next year are long-term liabilities. Examples of long-term liabilities include the long-term portions of notes payable, bonds payable and mortgages payable.

The OWNER'S EQUITY Section - The Owner's Equity part of the balance sheet shows the book value of the enterprise and is equal to the assets minus the liabilities. It has different names depending on the form of the business. This section is usually named Owner's Equity for a sole proprietorship (one person ownership of a nonincorporated business). Partnership Equity is used for a partnership and Stockholders' Equity for a corporation. The accounts included in this section are called capital accounts. If the enterprise is a sole proprietorship, the capital account will usually show the name of the owner (for example, John Doe, Capital). A partnership will list the capital accounts of each partner in the same way. A corporation will show the value of the stock or of the various classes of stock.

The profits and losses accumulate in the Retained Earnings account(s) for a Corporation. For sole proprietorships and partnerships, the earnings accumulate in the owner(s)' capital accounts. However, a Year-to-date earnings account is often used until the end of the year and then the total earnings or losses for the year are adjusted into the capital accounts.

On a Balance Sheet, the debits must equal the credits. Therefore, the Assets equal the sum of the total liabilities and the owner(s)' equity.

The Income Statement is a statement of the profit or the loss of a business for the current accounting period. This period is normally a year, but often the income statement is printed on a quarterly or a monthly basis with a column for the current period and another for the current

Year-to-date. The Income Statement accounts are known as temporary accounts because they are closed out to zero at the end of each accounting period.

The format of the Income Statement varies according to the type of business, whether a service, a retail, or a manufacturing concern. See the following illustration of the Income Statement. A more detailed description of an Income Statement follows the illustration.

Periods as Indicated

Statement of Income

12/1/96 - 12/31/96 1/1/96 - 12/31/96

Revenue

Sales 26017.31 100.00 272178.54 100.00

Cost of Goods Sold

Purchases 16122.79 61.97 168750.69 62.00

Inventory Adjustment -824.22 -3.17 -3333.95 -1.22

-------- ------- --------- -----

Total Cost of Goods Sold 15298.57 58.80 165416.74 60.78

-------- ------- --------- -----

Gross Profit 10718.74 41.20 106761.80 39.22

Operating Expenses

Depreciation 541.00 2.08 6415.00 2.36

Electricity 705.22 2.71 8235.78 3.02

Heating 305.23 1.17 1823.45 .67

Labor 5899.36 22.68 63146.89 23.20

Office Supplies 112.89 .43 1232.89 .45

Postage & Shipping 199.95 .77 2089.34 .77

Supplies 452.23 1.74 4562.84 1.68

Telephone 232.72 .89 2635.45 .97

Transportation 102.99 .40 1171.22 .43

-------- ------ --------- -----

TOTAL Operating Expenses 8551.59 32.87 91312.86 33.55

------- ------- -------- -----

Net Operating Income 2167.15 83.33 15448.94 5.67

Other Income and Expenses

Other Income

Interest Income 26.21 .10 349.25 .13

Gain on Sale of Assets 338.65 1.30 5846.14 2.15

------- ------ -------- -----

TOTAL Other Income 364.86 1.40 6195.39 2.28

Other Expenses

Interest Expense 698.52 2.68 8651.82 3.18

------- ----- -------- -----

TOTAL Other -333.66 -1.28 -2456.43 -.90

Income & Expense ------- ----- -------- -----

Net Income 1833.49 7.05 12992.51 4.77

======= ====== ======== =====

Revenue is listed in the first portion of the income statement. Where there are several classes of revenues, they are totaled.

The second section of an income statement is the Cost of Goods Sold section which shows what the retailer paid for the goods which were sold. The Cost of Goods Sold is calculated by first adding the beginning inventory to the merchandise purchased for resale. The sum of these two items equals the cost of goods available for sale. The ending inventory is then subtracted to arrive at the Cost of Goods Sold. ABC's General Ledger makes this adjustment by calculating the inventory change for the period and adjusting the purchases by that amount. An increase in inventory decreases purchases expense but a decrease in inventory increases purchases expense. Subtracting the Cost of Goods Sold from the Total Revenue yields the Gross Profit. These calculations are similar

but somewhat more complex when doing cost accounting for a manufacturing concern. A service business does not have a cost of goods sold or a gross profit.

The third section of the Income Statement is the Operating Expenses section. This section contains the overhead expenses for a business and includes such expenses as office expense, transportation expense, office heating expense, etc. The total operating expenses are then subtracted from the Gross Profit to arrive at the Net Operating Income. If there is no Other Income or Expenses section on the Income Statement, the Net Operating Income is called the Net Income.

Sometimes the Statement of Income includes a section titled Other Income And Expenses. This section relates to income and expenses not related to normal operations. Examples include Gain Or Loss From Sale Of Assets and Interest Income And Expenses. The income/gains and the expenses/losses are first subtotaled individually. These subtotals are combined to arrive at Total Operating Income And Expenses. This figure is then combined with the Net Operating Income (Loss) to arrive at the Net Income (Loss).

This is a brief overview of the concepts involved in the financial statements. Any questions relating to preparing a statement according to Generally Accepted Accounting Principals (GAAP) should be addressed to your public accountant.