Setting up a double-entry bookkeeping system – AccPac Simply Accounting for Macintosh software program – Hassle-Free Bookkeeping – buyers guide – Tutorial
Stephen L. Nelson
Setting up a double-entry bookkeeping system is more work than simply setting up a checkbook program. The basic reason is that double-entry bookkeeping systems do more than checkbook programs. For example, double-entry systems generate more forms and more-complex forms. They track more assets and more liabilities. And they more precisely estimate your profits (or losses) and your financial condition using accrual-based accounting techniques.
However, you may not need all this extra horsepower; for instance, if your business doesn’t have inventory and doesn’t hire employees, you’ll probably be able to get by with a checkbook program. But suppose you own and operate a thriving mail-order business, like our sample one, Krafts For Kids. Further suppose that Krafts For Kids sells high-quality children’s toys and clothing. You need to manage not just the cash in your bank account but also your rather significant investments in customer accounts receivable and toy and clothing inventories. You’ll also need to track the amounts you owe your suppliers (accounts payable), perhaps the wages paid to an employee or two, and maybe even the sales taxes owed the states into which you sell your goods. Finally, because the mail-order business is more complex than a service-based business, you will probably, also want to make more precisely estimates of profits and losses and of your financial condition.
The full-fledged double-entry bookkeeping systems like AccPac Simply Accounting all provide preconstructed charts of accounts, or listings of asset, liability, equity, revenue, and expense accounts.
Step 1–Perform a system test. The first thing you do after installing double-entry bookkeeping software is make sure it will actually do what you need it to do. This isn’t as difficult as it sounds, however. Take half a dozen sample transactions–a customer invoice, an accounts-payable bill, an employee’s payroll check, and so forth–and make sure you can use the installed software to process each sample transaction.
Step 2–Pick an easy conversion date. Once you’re certain that the accounting software you’ve chosen will do the things it needs to do, pick a conversion date–the date you stop using your old system and start using your new system (you might even want to run both systems in parallel for six months or so).
There are several basic issues here. You want to pick a conversion date that makes sense in light of what’s going on elsewhere in the business. For instance, if your busy season at Krafts For Kids is July, then July is probably a bad time to be fooling around with a system conversion. Also, you ought to pick a conversion date that makes it very easy to determine which transactions fall before the date and which fall after the date. If you chose a conversion date arbitrarily like, for example, April 23, you’ll probably need to be especially careful that some transactions don’t get recorded twice–once in the old system and once in the new system–and than others don’t get recorded at all. Finally, you should make it as easy as possible to prepare annual and monthly profit-and-loss statements, which means that you’ll usually want to convert at the end of the year or the end of the month.
Step 3–Load system tables. In most double-entry-based systems, you need to load a series of master files and tables. Usually, the first set of these has to do with systemwide issues. For example, in AccPac Simply Accounting, you need to name the company for which you will perform bookkeeping. You also need to define the fiscal year by telling the software when your accounting year starts and ends (usually January 1 through December 31). And you need to identify the conversion date. (See Figure 5.) You may also need to set up passwords and to define tables of applicable sales-tax rates.
In AccPac Simply Accounting, the commands for executing these tasks appear on the Setup menu. Other programs use similar menus with similarly titled commands.
Step 4–Load master files. Double-entry bookkeeping systems use master files to store information about customers, vendors, inventory items, and, if you’re preparing a payroll, about employees. In essence, these master files do two things. First, they store information that’s used repeatedly when processing transactions related to a customer or vendor, some inventory item, or a particular employee. Second, they summarize the year-to-date transactions related to a customer or vendor. For example, in the case of a customer master file, you’ll enter information about each customer’s name and address, telephone number, and so forth. (See Figure 6.) A vendor master file stores the same kinds of information about a vendor. An inventory master file stores product information about each of the things you buy, make, or sell such as its name, source, unit description, sales price, the cost, minimum inventory level, and the accounts for tracking the item’s transactions. (See Figure 7.) And an employee master file stores each of the bits of information you use to prepare an employee’s payroll check and any payroll tax forms, including the employee’s name, Social Security number, income-tax filing status, and personal exemptions claimed.
To load each of the necessary master files, you simply access the appropriate menu command for adding records to a specific file. Then you fill in the blanks that appear on the displayed window, screen, or dialog box. Figure 6 shows the Receivables Ledger dialog box used by AccPac Simply Accounting. Figure 7 shows the program’s Inventory Ledger dialog box.
Step 5–Detail your accounts-receivable and accounts-payable balances. After you load the master files, you’re ready to describe in detail your accounts-receivable and accounts-payable balances. Here’s the way this works in AccPac Simply Accounting. Once you’ve added at least one customer, the software modifies the Receivable Ledger dialog box so it includes two command buttons, Invoices and Payments (see Figure 6). To identify a customer’s current accounts-receivable balance invoice by invoice, select the Invoice command button. AccPac Simply Accounting then displays the dialog box shown in Figure 8. To record an invoice, enter the number, date, and invoice amount. Repeat this same process for each customer’s invoices. Using similar dialog boxes, you can also detail each vendor’s accounts-payable balances. (In AccPac Simply Accounting, you detail the inventory balances as part of loading the inventory master file which I described in step 4. Many other accounting systems–such as DacEasy and pacioli 2000–require you to separately detail the inventory balances just as you separately detail the accounts-receivable and accounts-payable balances.)
Step 6–Enter the conversion-date trial balance. After loading the necessary master files, you’re ready to enter the conversion-date trial balance. As part of completing steps 4 and 5, you enter your accounts-receivable, inventory, and accounts-payable balances in those respective, subsidiary ledgers. However, you also need to enter your asset, liability, and equity-account balances into the general ledger. What’s more, if you’re converting to the new system at some time other than at the beginning of the year–the usual case–you need to enter all your year-to-date-revenue and year-to-date-expense numbers. The one thing you need to be particularly careful of is that your general and subsidiary ledger balances agree. To enter the conversion-date trial balance, you construct a large, general-ledger journal entry that records each of the necessary account balances using the General Journal dialog box (see Figure 9). (Ledgers, for the record, are simply records of your accounts and their balances. Traditionally, accounts use subsidiary ledgers–such as accounts payable, accounts receivable, and inventory–to further document that details of important assets and liabilities.)
Step 7–Start using the system’s modules. Once you’ve completed step 6, you’re ready to begin using the system. This is simply a matter of recording accounting transactions and, if necessary, printing any associated forms such as invoices, statements, vendor checks, and payroll checks. Then periodically–usually at the end of the month and again at the end of the year–you’ll use the system’s reporting features to summarize your business’s financial condition.
POINTING OUT THE PITFALLS
By carefully following the preceding step-by-step guide, you should have minimal problems setting up your own bookkeeping system. However, there are two common pitfalls to be aware of. The first one is choosing a system that does more than you want it to do. If there’s one curious characteristic of accounting packages, it is that you can acquire a tremendous amount of horsepower for very few dollars. For example, you can buy software for only $50 that’s perfectly adequate to run a $10 million business. Unfortunately, the end result of this bargain pricing is that many people purchase much more accounting power than they even need.
A second problem relates to the fact that for full-featured, double-entry bookkeeping systems, you really do need to know double-entry bookkeeping. For example, you need to know what a debit is. You need to know what a credit is. And you need to know what journal entires, trial balances, and general and subsidiary ledgers are. I’m not saying that you must become a nuclear physicist. But either you need to be an accountant or hire someone who is. If you want to become your own accountant but don’t currently possess the skills, simply take an introductory course in accounting. In addition, some packages include tutorials for budding bookkeepers.
Whichever way you go, running a bookkeeping system that’s set up correctly can make the difference between a business that thrives and one that barely survives.
COPYRIGHT 1992 Freedom Technology Media Group
COPYRIGHT 2004 Gale Group