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©2012 Pearson Education, Inc. publishing as Prentice Hall 4-1 QUICKBOOKS® 2011: A COMPLETE COURSE CHAPTER 4—LECTURE GENERAL ACCOUNTING AND END-OF-PERIOD.

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Presentation on theme: "©2012 Pearson Education, Inc. publishing as Prentice Hall 4-1 QUICKBOOKS® 2011: A COMPLETE COURSE CHAPTER 4—LECTURE GENERAL ACCOUNTING AND END-OF-PERIOD."— Presentation transcript:

1 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-1 QUICKBOOKS® 2011: A COMPLETE COURSE CHAPTER 4—LECTURE GENERAL ACCOUNTING AND END-OF-PERIOD PROCEDURES: SERVICE BUSINESS

2 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

3 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-3 Chapter Focus: Customize Chart of Accounts, Adjusting Entries, Bank Reconciliation, Closing Entries, and End- of-Period Reports Customize Chart of Accounts:  Change account names  Delete accounts  Make accounts inactive Adjusting Entries for Accrual Basis Accounting:  Depreciation  Prepaid Expenses  Owner Withdrawals and Investments  Transfer of Net Income to Owner’s Capital account

4 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-4 Chapter Focus: Customize Chart of Accounts, Adjusting Entries, Bank Reconciliation, Closing Entries, and End- of-Period Reports Bank Reconciliation:  Add interest earned  Deduct service charges  Change an entry  Record automatic payments Closing Entries:  Assign closing dates  Learn to make corrections to a closed period

5 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-5 Chapter Focus: Customize Chart of Accounts, Adjusting Entries, Bank Reconciliation, Closing Entries, and End- of-Period Reports End of Period Reports include:  Trial Balance—verify that debits equal credits  Cash Flow Forecast—analyze cash requirements  Statement of Cash Flows—analyze cash income and outgo  Profit & Loss—calculate net income  Balance Sheet—verify that assets equal liabilities and owner’s equity

6 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-6 Accrual Basis Accounting Accrual Basis Accounting is used by QuickBooks Payment status does not matter when recording a transaction Income is earned when the service is performed Expenses are incurred at the time the bill is received or a purchase is made Depreciation is used to accurately depict the value of equipment at any time Prepaid expenses such as supplies and insurance are recorded as assets and adjusted as the supplies and insurance are used

7 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-7 Cash Basis Accounting QuickBooks may be customized to use Cash Basis Accounting Income is not recorded until payment is received Expenses are not recorded until payment is made Depreciation is not recorded—when equipment is purchased, it is recorded as an expense Insurance and supplies are not recorded as prepaid. Instead, they are recorded as expenses when the payment is made

8 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-8 Customize Chart of Accounts: Change Account Name Open Chart of Accounts (Ctrl+A) Click Student’s Name Capital to select the account

9 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-9 Customize Chart of Accounts: Change Account Name Ctrl+E to edit the account Drag through Student’s Name to highlight Type Your Name (Your Actual Name) Click Save & Close

10 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-10 Customize Chart of Accounts: Change Account Name Verify the account name

11 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-11 Customize Chart of Accounts: Make Account Inactive Click Property, a subaccount of the expense account Taxes

12 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-12 Customize Chart of Accounts: Make Account Inactive Click Account button Click Make Account Inactive

13 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-13 Customize Chart of Accounts: Verify Inactive Account Click Include inactive to display inactive accounts in the list Notice the X in front of Property Taxes account

14 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-14 Customize Chart of Accounts: Delete an Account Click Cash Discounts to select Use keyboard shortcut Ctrl+D to delete the account Click OK on the Delete Account dialog box

15 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-15 Customize Chart of Accounts: Verify the Deletion of an Account Scroll through the Chart of Accounts Cash Discounts will not be shown

16 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-16 Accrual Basis Accounting As noted earlier, Accrual basis accounting matches the income of the period against the expenses of a period  When a sale is made, it is recorded as income no matter when the payment is received.  When a cost is incurred, it is recorded as an expense no matter when the bill is paid. Adjusting entries need to be made to account for certain expenses that have been paid for in advance.

17 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-17 Cash Basis Accounting Cash basis accounting records income and expenses when cash is used or received.  When a sale is made, it is not recorded until the cash payment is received  When an expense is incurred, it is recorded in full when it is paid

18 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-18 Accrual vs. Cash Basis Accounting Accrual basis is a more accurate method for determining income and expenses. Example for income, a sale for $1,000 is made in November and payment is received in March  Accrual shows income in November—when the sale was actually made  Cash shows the income in March—when the cash was received Net income for the year would include the sale in the accrual method not in the cash method

19 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-19 Accrual vs. Cash Basis Accounting Example for expenses, record one year of insurance for $600 in November  Accrual basis would record $600 as a prepaid expense in an asset account—Prepaid Insurance  Month by month, an adjusting entry for $50 would be made to record the amount of insurance used for the month  Cash basis would have $600 worth of insurance recorded as an expense for one month and nothing the rest of the year

20 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-20 Accrual vs. Cash Basis Accounting A Statement of Profit and Loss prepared in November would show: Accrual method—income of $1,000 and insurance expense of $50. Profit of $950 Cash method—no income and insurance expense of $600. Loss of $600 QuickBooks uses the accrual method automatically but may be changed to cash basis accounting

21 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-21 Record Adjusting Entries: Prepaid Expenses A prepaid expense is an item that is paid for in advance. Examples of prepaid expenses:  Insurance: policy is usually for six months or one year  Office Supplies: buy to have on hand and use as needed A prepaid expense is an asset until it is used. At the end of the period, an adjusting entry is made in the General Journal to record the amount of the asset that was used.

22 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-22 Record Adjusting Entry: Prepaid Insurance To record the use of one month’s auto insurance  Click Company on the Menu bar  Click Make General Journal Entries Entries are made to record both the debit and credit portions of the transaction

23 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-23 Record Adjusting Entry: Prepaid Insurance Note the checkbox for Adjusting Entry (not available in Pro) A list of entries made Last Month is shown (not available in Pro) If the date of your computer does not match the text, you may not have anything shown in the List of Entries

24 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-24 Record Adjusting Entry: Prepaid Insurance Enter the date: 01/31/11 The account is Auto Insurance Expense  This account name is different from the text  A subaccount of Insurance Tab to Debit

25 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-25 Record Adjusting Entry: Prepaid Insurance Use QuickMath to calculate one month’s insurance Cursor in the Debit column Enter the amount 2850 (the amount for the year) Press / Key 12

26 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-26 Record Adjusting Entry: Prepaid Insurance Press Enter Amount for one month’s insurance is entered in the debit column Tab to memo and enter: Adjusting Entry, Insurance Prepaid Insurance is the account used for the credit QuickBooks should automatically enter:  the credit amount of automatically  the same memo: Adjusting Entry, Insurance Click the Save icon

27 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-27 Record Adjusting Entry: Prepaid Insurance Click the drop-down list for Selected General Journal Entries Click This Month If your computer date is for January, 2011, you will see the adjusting entry for Insurance

28 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-28 Office Supplies Office Supplies may be purchased to have on hand.  The supplies are considered an asset.  An adjusting entry will need to be recorded for the amount of supplies used in a period. Office Supplies may be purchased to use immediately.  The supplies are recorded as an expense.  No adjusting entry is necessary

29 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-29 Purchase Office Supplies to Have On Hand On 01/31/11, rather than record a bill, make a General Journal entry to record $500 of office supplies to have on hand  This is not an Adjusting Entry so click Adjusting Entry to remove the check  Debit the asset—Office Supplies for $500  Credit Accounts Payable for $500  On the line for Accounts Payable, click the drop-down list for Name, click the Vendor—Supply Station  Click Save & New

30 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-30 Record Adjusting Entry: Office Supplies As of 01/31/11, used $150 of the office supplies on hand Make a Journal Entry:  Debit Office Supplies Expense $150  Credit Office Supplies (the asset) $150  Use the Memo: Adjusting Entry, Office Supplies

31 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-31 Record Purchase of Office Supplies to be Used Immediately 1/31/11, purchased $5 of colored paper to be used immediately to prepare sales flyers This is not an Adjusting Entry so click Adjusting Entry to remove the check Rather than record a bill, make a General Journal entry:  Debit Office Supplies Expense for $5  Credit Accounts Payable and the Vendor—Supply Station, for $5

32 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-32 Depreciation Equipment and other long-term assets lose value over their lifetime. Depreciation records the amount of equipment that has been used up within the period. If more than one asset is depreciated, a compound entry to record all depreciation may be made in the Journal

33 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-33 Compound Adjusting Entry: Depreciation 01/31/11, make a Journal entry to record depreciation: Record credits first and QuickBooks will total the amount for the debit  Credit Office Equipment: Depreciation $142  Credit Company Cars: Depreciation $583  Debit Depreciation Expense

34 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-34 View the List of Selected General Journal Entries Make sure the computer date is January, 2011 The List should be for This Month You will see all the entries you made in the General Journal Note that the adjusting entries have a checkmark in the Adj column

35 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-35 View Depreciation in the Chart of Accounts Click the Chart of Accounts icon Scroll through the Chart of Accounts Note that Company Cars has an original cost of $49,000 Depreciation is -$583 The value of the Company Cars is $48,417 Note the value of Office Equipment

36 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-36 Owner Withdrawals and Investments In a sole proprietorship, owners do not earn a salary Rather than get a pay check, an owner makes a withdrawal An owner may make additional investments in the business Investments may be cash, equipment, or other assets

37 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-37 Owner Withdrawal 01/31/11, prepare a check for an owner withdrawal of $500 Click the Write Checks icon Type “Your Name” on the check, press Tab To add your name to the others list, click Quick Add

38 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-38 Owner Withdrawal All names used by QuickBooks are categorized in lists  Vendor list is for vendors  Customer list is for customers  Employee list if for employees  Other list is for owners, banks, or anyone not on the Vendor, Customer, or Employee lists To add the owner, click Other Click OK

39 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-39 Owner Withdrawal Enter the amount of the withdrawal, $500 Type Withdrawal for the check memo  This may also be entered in the Memo column for the check detail The account is Your Name, Capital: Draws

40 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-40 Owner Investment: Cash On 01/31/11 record $5,000 cash investment by owner in the General Journal Adjusting Entry should not be marked Debit Checking for the amount of the investment Credit Your Name, Capital: Investments Memo: Cash Investment

41 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-41 Owner Investment: Non-Cash On 01/31/11 record investment of a $1,500 computer by owner Adjusting Entry should not be marked Record entry in the General Journal Debit Office Equipment: Original Cost Credit Your Name, Capital: Investments Memo: Owner Investment: Computer

42 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-42 Bank Reconciliation Purpose is to make sure the balance of the checking account matches the balance of the bank statement for the checking account Used to indicate which checks have been paid and which deposits have been recorded Record any bank transactions not in checking account:  Interest  Service charges and other bank charges  Automatic payments If the bank reconciliation is started and not complete, click the Leave button so you can continue with it later When the bank reconciliation is completed, you will click the Reconcile Now button

43 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-43 Begin Bank Reconciliation Click Reconcile icon Account should be Checking Statement Date should be 01/31/11 Enter the bank statement ending balance: $49,318.46

44 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-44 Begin Bank Reconciliation Enter the $8 Service Charge on 01/31/11 Account is Bank Service Charges Enter the $66.43 Interest Earned on 01/31/11 Account is Interest Income Be sure the dates used are 01/31/11 Click Continue

45 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-45 Bank Reconciliation: Mark Deposits Mark two deposits:  Click the check column for $25,000  Click the check column for $13,840  The Void Telephone Bill for the Month should also have a check

46 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-46 Bank Reconciliation: Mark Checks Mark Petty Cash and Checks 1, 2, 3  Click the check column for Cash $100  Click the check column for Checks 1, 2, and 3

47 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-47 Bank Reconciliation: Verify Information Verify information marked:  3 Deposits, Interest, and Other Credits for $38,  4 Checks, Payments, and Service Charges $1,  Ending Balance is $49,  Cleared Balance is $50,  Difference is -$814.97

48 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-48 Bank Reconciliation: Make Corrections Petty Cash should be $110 Click the transaction Click the Go To button

49 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-49 Bank Reconciliation: Make Corrections Change the Transfer Amount to $ Click Save & Close Click Yes on the Recording Transaction dialog box

50 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-50 Bank Reconciliation: Make Corrections If necessary, click the (Petty) Cash transaction of $ to mark with a √ Notice the Difference is -$804.97

51 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-51 Bank Reconciliation: Make Corrections Record an automatic payment on a loan With the Bank Reconciliation on the screen  Click Edit on the Menu bar  Click Use Register  OR use the shortcut Ctrl+R

52 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-52 Bank Reconciliation: Record Automatic Payments Date is 01/31/11 Number is Transfer Payee is Sunshine Bank  Use Quick Add to add Sunshine Bank to Others list Payment is $ To use two accounts, click the Splits button  Interest Expense: Interest on Loans $  Loan Payable: Business Vehicles Loan $ Click Close button in the Splits window

53 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-53 Bank Reconciliation: Record Automatic Payments Add the transaction explanation:  Loan Pmt., Business Vehicles Click the Record button

54 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-54 Bank Reconciliation: Record Automatic Payments Repeat to record the automatic payment for office equipment Change the transaction amount to $82.56 Change transaction memo to Loan Pmt., Office Equipment Loan Click Splits to use two accounts  Interest Expense: Loan Interest $53.39  Loan Payable: Office Equipment Loan $29.17  Click Close and then click Record  Close the Register to return to the Reconciliation

55 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-55 Bank Reconciliation Click the each of the two transfers to mark with a √ Make sure Difference is $0.00 Click Reconcile Now  If there is any discrepancy, it must be corrected before clicking Reconcile Now

56 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-56 Print Reconciliation Reports There are three choices on the Select Reconciliation Report screen:  Summary: lists totals only  Detail: lists all transactions and totals  Both prints the summary and the detail reports Click Detail

57 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-57 Print Reconciliation Report

58 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-58 End of Period Reports: Trial Balance Trial Balance— Proves debits equal credits Use Accountant & Taxes category in the Report Center to generate a Trial Balance

59 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-59 End of Period Reports: Cash Flow Forecast Cash Flow Forecast—Projects:  The amount you will be receiving if all those who owe you money pay on time  The amounts you will be spending to pay your accounts payable on time Use Company & Financial section of the Report Center

60 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-60 End of Period Reports: Profit & Loss Profit & Loss (Income) Statement— Shows income and expenses for the period and net income or net loss for the period Use Company & Financial in the Report Center Notice the Net Income of $4,135.53

61 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-61 End of Period Reports: Balance Sheet Balance Sheet— Proves the fundamental accounting equation: Assets = Liabilities + Owner’s Equity Use Company & Financial section in the Report Center

62 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-62 End of Period Reports: Balance Sheet Assets of $130, are equal to Liabilities & Equity Net Income of $4, will be transferred to Retained Earnings at the end of the year In a sole proprietorship profits should be in Capital not Retained Earnings

63 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-63 Transfer Net Income into Capital Prepare a General Journal entry to close Retained Earnings and transfer Net Income into the Capital account Debit Retained Earnings $4, Credit Your Name, Capital $4,135.53

64 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-64 Balance Sheet After Transfer of Net Income to Capital For January, 2011 Retained Earnings shows -$4, Before the adjustment, Your Name, Capital – Other was $53, Add the $4, to Your Name, Capital – Other to get the new amount of $57,270.53

65 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-65 Balance Sheet After Transfer of Net Income to Capital Change date to January 31, 2012 Retained Earnings does not show because it was in a prior year Your Name, Capital – Other still shows $57,270.53

66 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-66 Closing a Period QuickBooks does not require closing entries when closing a period To close a period, a Closing Date is provided

67 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-67 Set Closing Date and Password To enter a Closing Date, click Edit on the Menu Bar Click Preferences Click Accounting Click Company Preferences tab Click the Set Date/Password button

68 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-68 Set Closing Date and Password Enter the Closing Date 01/31/11 Do not enter any passwords  Passwords can limit access to company data Click OK

69 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-69 Set Closing Date and Password Since no password was entered, you get a No Password Entered screen Click No.

70 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-70 Edit a Transaction in a Closed Period Access the Chart of Accounts Click the account where the transaction will be changed— Office Supplies Use CTRL+R to access the register

71 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-71 Edit a Transaction in a Closed Period Change the amount in the Decrease column from 350 to 325 Click Record

72 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-72 Edit a Transaction in a Closed Period Click Yes on the Recording Transaction dialog box Since the transaction is in a period that was closed, you get a QuickBooks dialog box Click Yes to make the change

73 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-73 Edit a Transaction in a Closed Period View the change in the Register for Office Supplies Note that the Ending balance is now $ rather than $  This means you have more supplies on hand

74 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-74 Analyze the Effect of Changing a Transaction in a Closed Period The amount of the office supplies used was $350 before changing the transaction Changing the adjusting entry for Office Supplies to $325 reduces the expense by $25 The $25 decrease in the expense will result in a $25 increase in net income

75 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-75 View Change in Profit & Loss Reducing the amount of supplies used, changes Office Supplies Expense and increases Net Income by $25— to $4,160.53

76 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-76 Change General Journal Entry Since Net Income is $25 more, the Journal entry transferring the Retained Earnings (Net Income) to Capital needs to be changed Open the General Journal, click Previous until you get to the transaction

77 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-77 Change General Journal Entry The original amount of Retained Earnings was $4, Add $25 to this The new amount is $4, Debit Retained Earnings and credit Your Name Capital $4, Click Save & Close Click Yes on all dialog boxes

78 ©2012 Pearson Education, Inc. publishing as Prentice Hall 4-78 Balance Sheet After Change in Journal Entry The Retained Earnings shows -$4, Your Name, Capital – Other shows $57, This reflects the $25 increase in net income


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