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AF 223 - Computerized Bookkeeping

The document discusses computerized bookkeeping and accounting applications in QuickBooks. It covers key topics such as [1] recording transactions using accounting software, [2] setting up a chart of accounts to track income, expenses, assets and liabilities, [3] the differences between cash and accrual accounting methods, [4] the main financial reports including the income statement, balance sheet, and statement of cash flows, and [5] important steps for setting up a new company file such as selecting a start date and filling in business details.

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158 views

AF 223 - Computerized Bookkeeping

The document discusses computerized bookkeeping and accounting applications in QuickBooks. It covers key topics such as [1] recording transactions using accounting software, [2] setting up a chart of accounts to track income, expenses, assets and liabilities, [3] the differences between cash and accrual accounting methods, [4] the main financial reports including the income statement, balance sheet, and statement of cash flows, and [5] important steps for setting up a new company file such as selecting a start date and filling in business details.

Uploaded by

dianarosekiwawa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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THE UNIVERSITY OF DODOMA

COLLEGE OF BUSINESS AND ECONOMICS


DEPARTMENT OF ACCOUNTING AND FINANCE

COMPUTERIZED ACCOUNTING APPLICATIONS


AF 223

COMPUTERIZED BOOK-KEEPING

1.0 Computerized Book-keeping


Computerized bookkeeping is the recording and maintenance of transactions in accounts
using the accounting software. The ‘double-entry’ term is used because each transaction
affects two accounts. In each account transactions related to that account are recorded.
The manual book- keeping includes recording transactions in journals, posting entries into
ledgers and balancing of accounts. All the records before the preparation of trail balance are
the whole subject matter of book- keeping.

2.0 Chart of Accounts


In bookkeeping, an account is a place to store money, just like your real-world checking
account is a place to store your ready cash. The difference is that you need an account for
each kind of income, expense, asset, and liability you have.
The chart of accounts is simply a list of all the accounts you use to keep track of your
company’s money.

3.0 Cash vs. accrual accounting


Cash and accrual are the two different ways companies can document how much they make
and spend. Cash accounting is the choice of many small businesses because it’s easy: You
don’t show income until you’ve received a payment (regardless of when that happens), and
you don’t show expenses until you’ve paid your bills.
The accrual method, on the other hand, follows something known as the matching principle,
which matches revenue with the corresponding expenses. This approach keeps income and
expenses linked to the period in which they happened, no matter when cash comes in or goes
out.

4.0 Financial Reports


 The statement of comprehensive income which is sometimes referred to as the Profit &
Loss report, shows how much income you’ve brought in and how much you’ve spent over
a period of time. The accounting system reports the difference between income and
expenses, which results in your profit (or loss) for that period.

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 The statement of financial position which is sometimes referred to as the balance sheet is a
snapshot of how much you own and how much you owe. Assets are things you own that
have value, such as buildings, equipment, and brand names. Liabilities are the money you
owe to others. The difference between your assets and liabilities is the equity in the
company—like the equity you have in your house when the house is worth more than you
owe on the mortgage.
 The statement of cash flows tells you how much hard cash you have. You might think that
a profit and loss report would tell you that, but noncash transactions—such as
depreciation—prevent it from doing so. The statement of cash flows doesn’t include
noncash transactions; it shows only the money generated or spent operating the company,
investing in the company, or financing.

5.0 Elements of Financial Statements


Financial statements portray the financial effects of transactions and other events by grouping
them into broad classes according to their economic characteristics. These broad classes are
termed the elements of financial statements. The framework identifies five major elements of
financial statements.
There are those elements that directly related to the measurement of financial position in the
Statement of Financial Position. These are:
(a) Assets
An asset is a resource controlled by the enterprise as a result of past events and from
which future economic benefits are expected to flow to the enterprise.
(b) Liabilities
A liability is a present obligation of the enterprise arising from past events, the settlement
of which is expected to result in an outflow from the enterprise of resources embodying
economic benefits. A future commitment is not an obligation – liabilities must arise from
past transactions or events.
(c) Equity
Equity is the residual interest in the assets of the enterprise after deducting all its
liabilities.
There are those elements that are directly related to the measurement of performance in the
income statement. These are:
(a) Income
Income are increases in economic benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of liabilities that result in increases in
equity, other than those relating to contributions from equity participants.
(b) Expenses
Expenses are decreases in economic benefits during the accounting period in the form of
outflows or depletions of assets or incurrences of liabilities that result in decreases in
equity, other than those relating to distributions to equity participants.

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6.0 Adding a Business in the System
6.1 Choosing a Date
The start date isn't something that you enter in a field in QuickBooks; it's simply the earliest
transaction date in your company file.
 The day you start your company. If you just started your business, the start-date decision
is easy: it's the day you start your company.
 The last day of the previous fiscal year. If your business has been running for a while,
the best approach is to fill in your records for the entire current fiscal year. To do that, use
the last day of your company's previous fiscal year as the company file's start date.
 The last day of the previous fiscal period. The next best start date is the last day of the
previous fiscal quarter (or fiscal month, at the very least). Because your company file
won't contain a full year's worth of detail if you go this route, you might have to switch
between computerized accounting system and your old filing cabinets to prepare your tax
returns and look up financial information.

6.2 Creating a company file


A company file is where you store your company's financial records in the system. You can
create a company file from scratch or convert records that you previously kept in a different
small-business accounting program.
 Start Setup. This button is in pole position because it's the best option if this is your first
time creating a company file.
 Advanced Setup. If you've been around the software before, click the Other Options
button and then choose this entry to launch the EasyStep Interview window, which asks
for more information on each screen than the Start Setup approach does.
 Other Options. The other entries on this button's drop-down menu cover the rest of the
bases. You can use it to open an existing company file or convert existing records that are
in Quicken or another accounting program.

6.2.1 Important information to be filled in the company file


 Business Name. Type the name you want to appear on invoices, reports, and other forms.
The software also uses the name you type here to name your company file. Later on, you
can specify your company's legal name.
 Industry. The industry can either be the General Product-based Business or General
Service-based Business or depending on the list specified by the system.
 Business Type. The tax form you use depends on the type of business entity you have.
This drop-down list contains the most common types, from sole proprietorships and
partnerships to corporations and nonprofits. When you select a type, the system assigns
the corresponding tax form to your company file.

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 Employer Identification Number (EIN). This box is for the federal tax ID number you
use when you file taxes. You don't have to enter it now, but you'll need it when you will
be required to pay tax. You'll use Tax Identification Number (TIN).

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