Accounting Terms

The Journal

The Journal represents the file containing all detailed in and out entries to the accounting system.  As a result, the Journal file will contain quite a number of records by the end of a fiscal year.  After closing out each fiscal year, the journal should be printed.  When the year-end procedure is done, the journal detail is deleted.

What is the General Ledger?

The General Ledger is the file that maintains each month's summarizing figures.  It includes all General Ledger account codes and specific accounting periods, beginning balances, the total of all debits and credits to that account and period, as well as the ending balance for the account and period.  By restricting the General Ledger file to these summarizing figures, we are able to maintain comparative financial information for a number of years.

The Balance Sheet

A balance sheet lists the assets, liabilities, and owner's equity of a business as of a certain point in time.  It is essentially a picture of the overall worth of the business.  A balance sheet uses the following formula:

Assets = Liabilities + Equity

BALANCE SHEET

A Sample Company

ASSETS:

            Cash    $            40,000.00

            Accounts Receivable    30,000.00

            Inventory         240,000.00

TOTAL ASSETS        $283,000.00

LIABILITIES

            Accounts Payable       $            25,000.00

            Notes Payable            100,000.00

TOTAL LIABILITIES   $125,000.00

EQUITY

            Owner's Equity           $          100,000.00

            Net Profit (Loss)                        58,000.00

                                                            $158,000.00

TOTAL LIABILITIES AND EQUITY   $283,000.00

 

The Profit & Loss Statement

The profit & loss statement or income statement is a summary of the revenues and expenses along with the net profit or loss of a business for a specific period of time.  The net profit or loss is carried over to the equity section of the balance sheet.  A profit & loss statement uses the following formula:

Income - Expenses = Net Profit or Loss

INCOME STATEMENT

A Sample Co.

from 01/01/99 to 06/30/99

INCOME

            Sales   $          500,000.00

TOTAL SALES           $500,000.00

EXPENSES

            Cost of Materials         $          323,000.00

            Cost of Labor              100,000.00

            Rent                    3,000.00

            Insurance                        2,000.00

            Utilities                 2,000.00

            Freight               12,000.00

TOTAL EXPENSES   $442,000.00

Net Profit (Loss)          $  58,000.00

 

The Trial Balance

The trial balance is a summary listing of the balances of accounts within the general ledger.  Also listed are the debit and credit activity for the period for each account.  Normally, a trial balance is used for reconciliation of the general ledger each period.

TRIAL BALANCE

A Sample Co.

June 1999

Acct     Name  Beginning        Debit    Credit  Ending

                        Balance                                   Balance

100      Cash      30000.00       450000.00       440000.00       400000.00

130      A/R        25000.00       100000.00         95000.00         30000.00

140      Inventory         257000.00       306000.00       323000.00       240000.00

….       ….       ….       ….       ….       ….

            TOTALS          312000.00       856000.00       858000.00       310000.00

…All active accounts in the general ledger are listed.

Gross Profit Percent

Gross Profit Percentage is what remains from sales after a company pays out the cost of goods sold. The Gross Profit Percentage in RFMS is calculated by subtracting the Total Costs from a job from the Total Selling Price of the same job divided by the Total Selling Price.  The final amount (which should contain a decimal) should be multiplied by 100 for the percentage amount.   Note that the Gross Profit Percentage is calculated before commissions.  Net Profit includes commissions.

For instance, let’s say the total selling price of a job is $10,000. The Total Cost however, is only $4500.  The difference between the two is $5,500.  $5,500-$10,000 is equivalent to .55.  Multiply .55 by 100 to get the final percentage amount.  In this case, the GPP would be 55%. 

In RFMS, Material Costs, Labor Costs, Misc. Cost, Freight, Overhead Margin, Load, Load % and Tax amounts are all calculated as a portion of the Cost of a particular job.  Material, Freight, Load, and Load % amounts are pulled from the Inventory record.  Labor costs are calculated based on what is in the Provider’s record.  Misc. Cost and Overhead Margin can be changed at the time of job cost.  Tax information is pulled from the Store/City setup information. 

Debits & Credits

Every transaction in accounting has two sides or what accountants call the debit side and the credit side.  For every debit that is posted to the accounting system, there must be an equal credit entry.  The requirement of posting equal debits and credits is called the "Double Entry" principle.

Rules

The rules listed below show that debits can signify either increases or decreases depending on the type of account being affected.  Credits will also signify increases or decreases, depending on the type of account being affected.  This system is sometimes very confusing to many people since common experience generally differs from the accounting concept.  For accounting purposes, having a firm grasp of how debits and credits affect various account types is necessary.

Assets

Assets are the economic tangible and intangible resources of a company.  Assets are most often grouped in the following categories:

Current 

Cash or other property (inventory, etc.) that may reasonably be expected to be converted to cash or sold, usually within a year or less, through the normal operations of a business.

Fixed 

Tangible assets used in a business that are of a permanent nature.  With the exception of land, fixed assets gradually wear out or lose their usefulness and are said to depreciate.

Liabilities

Liabilities are the debt of a company.  Liabilities are most often grouped in the following categories:

Current         

A liability that will be due within a short time (usually one year or less) and that is to be paid out of current assets.

Long Term  

A liability that is not due for a comparatively long time (usually more than one year.)

Equity (Capital)

Equity is what is left over after all the assets were liquidated and the liabilities paid.  Usually, equity is the portion of the business that belongs to the owners.  Stock and other cash investments are located in the equity section along with the profit or loss from previous business years.

Income

Income or revenue is an increase in the resources of the business.  Income can come from many sources, some of which are listed below:

• Sales of Merchandise

• Performance of Services

• Commissions

• Fees

• Interest

• Miscellaneous

Expenses

Expenses or costs represent a consumption of financial resources used in the process of earning revenue