AccountEdge®

AccountEdge® Plus
AccountEdge® Plus Network Edition

Accounting Basics
Like all small business owners, you went into business with a dream: to sell your
unique product or services and make a good living for you, your family, your
employees and your partners. You also wanted to change the world so you made the
decision to run your small business using AccountEdge. Now reality has kicked in and
you are faced with the challenge of managing your operations and your finances, all
on a Macintosh. In this special edition of “Accounting 101” we’ll explain the basics of
accounting in easy to understand terms with real life examples, showing you the
impact on your financial statements. We’ll also discuss working with your accountant,
no matter what platform they are using.

Let’s review what you’ve probably already done today. When you got to work you
probably checked the fax machine for any incoming orders. Next, you reviewed your
email for any email or web orders. You also check voice mail to see if any previous
quotes have been accepted. You also checked the mail, where you found a stack of
vendor bills and a few customer cheques. Next, you reviewed your online bank
balance and saw that the big deposit you were waiting for finally arrived. Next, you
wrote some cheques and ordered more inventory. Feeling kind of flush, you called the
local Apple Store and placed an order for that new MacBook Pro you wanted, using
your credit card. Since it’s Friday, you also had to run payroll, process paycheques and
make your direct deposits. You also went to the bank and made a HMRC liability
deposit. When you got back to the office you had a stack of phone messages,
including one from your best supplier offering a one-day sale and from your newest
customer who wanted to exchange some parts and place another order, he was also
asking for credit terms, and he had a lead for some new business you had discussed.
Then your cell phone rings, another new client with a huge order asking if you accept
credit cards. Finally, you realize you better pay yourself, if there is money left. Then
you ask yourself: How’s cash flow? Who owes me money? Whom do I owe money to?
Is my business going to succeed? How do I keep it all straight?

Does this sound like a typical day for you? As a Mac small business entrepreneur, it
probably does. Most likely, you deal with all this stuff and more before your first cup of
coffee. Admit it, you probably struggle a little bit to keep it all together. No matter
how you handle all these transactions, the fact is, they are all accounting transactions:
taking orders, buying stock, selling parts, buying computers, making deposits, writing
paycheques, remitting payroll taxes, paying yourself, and more. In the average day,
you probably do more accounting than you ever thought possible. How you track
that data, what reports you have access to and how accurate and up to date they are
play a large part in determining your financial success. How you work with your
bookkeeper (if that’s not you) and your accountant (you should have one you love)
probably determine how successful your business is.

How you keep it all running smoothly probably falls on your shoulders.
Knowing your local, state and federal tax regulations, deadlines and responsibilities
probably keeps you up at night. Understanding what it all means and using that
information to your advantage is what this document is all about.

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When you started your small business you probably did as most small business
entrepreneurs do and tried to use what came with your Mac or PC to run your
business. Maybe you tried some Appleworks or Excel. If you are a creative
professional, you may have used a system that looks like this: Invoices were done in
Quark (because you could put your logo on them in 1200dpi…), chequebook register
in Excel, and everything else done by hand. Your first experience with ‘bookkeeping’
was probably to use a computerized chequebook system since it worked so well for
your home finances. Not a bad place to start. But, as your business grew ‘beyond the
chequebook,’ your record keeping, reporting, and compliance requirements also
grew.

Now you have customers to track, vendors to pay, sales to record, sales taxes and
payroll taxes to track and a full set of accounts to maintain. You probably also have an
accountant who is preparing your state, federal and maybe even your payroll taxes for
you. Maybe you have inventory, or bill your employees time, or hire lots of
subcontractors – all of these things require integrated record keeping, they require…
a-c-c-o-u-n-t-i-n-g!

By now you find yourself spending more time keeping your books than keeping your
customers happy. You understand the importance of having accurate books, but you
have a lot of demands on your time, so accounting and record keeping never seem to
get the attention they require. You fondly skipped all those high school and college
accounting courses, figuring you weren’t “going to be an accountant anyway.” Well,
surprise! Not only are you an accountant, you are a lawyer, a shipping clerk, a customer
service rep, a lawyer and more – all in the pursuit of your dream.

So what can you do to make this work? The first step is to understand the basics and
how they all fit together. At the end of this booklet is a glossary of all the relevant
accounting terms that will help you understand the science of accounting.
Understanding the terminology will help you understand the concepts and their
relevance to you, and more importantly, they will help you analyze and run your small
business. All the information you need to run a successful small business is contained
in your accounting system – recording your transactions, verifying their accuracy, and
interpreting your financial statements – that’s your goal!

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Before we go any further, keep this in mind: you don’t have to be an accountant to
run AccountEdge. All too often small business owners use this line to shun doing any
type of record keeping (and therefore, business management), to their own detriment.
The reality is, I’m not a mechanic, but I can drive my car. I’m also not a plumber, but I
can fix a running toilet and I’m certainly not a doctor, but I can put a band-aid on my
kids’ knee, even take out a splinter. All it takes is the will to succeed and the desire to
run a successful operation. Will it be easy? I wish I could say yes. Will it be frustrating? I
wish I could say no. Will it be invaluable to your business and your long-term success?
You bet! Will you ever need outside help? You might, so don’t be afraid to call in a
professional – either your accountant or one of our Mamut Partners (local, tech-savvy,
business management experts) in your community.

Our goal is to help you understand the basic concepts of accounting and how they
relate to your business. One of the great things about AccountEdge is that it does all
the debits and credits for you empowering you to manage your business. Smarter.

 Your Daily Life

First, lets start with an overview of how accounting fits into your daily life. Quite
simply, every transaction you make results in an entry into your “books.” Whether it is
a receipt of cash, a sale, a cheque you’ve written or a deposit from a customer – every
transaction gets recorded in your books at some point. The timeliness and accuracy of
when and how you record your transaction directly affects your ability to manage your
business and your cash flow because accurate and timely data entry equal accurate
and timely financial statements. Want to know how you’re doing year to date? As
long as all your transactions are entered correctly, a simple click of the mouse will
produce the information you need.

If you think your business is “chequebook-centric,” remember that there are plenty of
transactions that do not involve cash that should be recorded in your books. Anything
that affects the things you own (assets) like repairs or purchases, all require a
transaction. Anything that affects what you owe (liabilities) like VAT or PAYE taxes
requires a transaction to be recorded. Anything that affects sales (revenue), like
an invoice or a product return needs to be recorded. And, as you no doubt already
know, all your supplier bills (expenses) are recorded when received and again when
they are paid. Just because cash is not exchanged does not mean there are no entries
to record. For example, you might sell items or services on credit. In this simple
example, you record the sales when your invoice is issued, and then subsequently
record the cash receipt when your customer pays you..

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 Cash vs. Accrual Accounting
Cash-based accounting recognizes revenue and expenses ONLY when cash is received
or paid. In our simple example above, your revenue would be recognized when you
receive payment from your customer – not when you invoice them. Conversely,
expenses would be recognized when cash is disbursed – not when the bill is received.

Businesses that start out using a chequebook-centric method of recording cash are
basically using a cash-based system. For companies that use accrual accounting, their
system looks like this: An invoice is generated for goods and services sold,
increasing
sales and creating an amount due (an accounts receivable). When the customer pays
you another transaction is recorded increasing your cash balance and reducing their
receivable to zero. The same idea works when recording expenses: an bill is received
and recorded by tracking what expense was incurred and creating an accounts
payable record. When you pay your supplier another transaction is recorded, a
cheque, which reduces cash and reduces your payable to the supplier.

In the end, your accountant will make the necessary adjustments in order to prepare
and file your tax returns. They will take your hybrid system and adjust it to reflect
cash-based or accrual-based numbers. What that means is that they adjust your
‘accrued’ balances back to zero as if the transactions never happened. If you have an
Trade Debtors balance reflecting £2,500 in sales you’ve not been paid for, your
accountant will make an adjustment to reduce Trade Debtors by £2,500 and reduce
Sales by the same amount, as if it never happened. In the world of cash-based
accounting, technically, those sales aren’t recorded until cash changes hands. The
same idea applies to Trade Creditors (by adjusting the amounts posted to each asset
or expense, for example).

For companies that use accrual accounting, their system looks like this: An invoice is
generated for goods and services sold, increasing sales and creating an amount due (a
Trade Debtors). When the customer pays you another transaction is recorded
increasing your cash balance and reducing their receivable to zero. The same idea
works when recording expenses: an bill is received and recorded by tracking what
expense was incurred and creating an Trade Creditors record. When you pay your
vendor another transaction is recorded, a cheque, which reduces cash and reduces
your payable to the vendor.

In AccountEdge terms, the scenario above would look like this: An invoice is generated
for goods and services sold, crediting Sales and debiting Trade Debtors. When the
customer pays you another transaction is recorded increasing your cash balance and
reducing their receivable to zero. The same idea works when recording expenses: A
bill is received and recorded by tracking what expense was incurred and creating a
Trade Creditors record. When you pay your vendor, another transaction is recorded –
a cheque – which reduces cash and reduces your payable.

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 The Golden Rules of Accounting
Lets discuss the Golden Rules of Accounting. They are:

1.) Debits ALWAYS EQUAL Credits

2.) Increases DO NOT NECESSARILY EQUAL Decreases
3.) Assets - Liabilities = Owner’s Equity (The accounting equation!)

Don’t let the words ‘debits’ and ‘credits’ scare you. They simply refer to the ‘left side’
and ‘right side’ of a ‘T Account’, a graphical representation of the amounts recorded
into an account (see the examples below). Every transaction recorded into
AccountEdge is posted to your accounts as a combination of debits and credits; we do
all the work for you, so relax, get more coffee…

 Chart of Accounts
The chart of accounts, or simply ‘accounts’, is a list of categories into which all your
accounting transactions will be recorded. In AccountEdge they are defined by a five-
digit number and account name: A one-digit prefix designates what type of account it
is (asset, liability, expense) and where it will be displayed on your financial statements,
followed by a four-digit main account number. With AccountEdge you have complete
control over your account numbers and their names. You can add your own, delete
ones you don’t use or combine similar accounts. When creating a new company data
file you can select an account template from a list provided by us or create your own.
Either way, this list becomes the basis for your financial statements and can be molded
as your business and your requirements change. You can add, edit, delete, and
combine accounts.

Here is a table that will help you understand what this means and how it applies to
your business.

ACCOUNT ACCOUNT
INCREASE DECREASE
NUMBER TYPE
Balance 1-xxxx Assets DEBIT CREDIT
Sheet 2-xxxx Liabilities CREDIT DEBIT
(As of a ‘point
3-xxxx Owner’s Equity CREDIT DEBIT
of time’)
4-xxxx Revenue CREDIT DEBIT
Profit and Cost of Goods
5-xxxx DEBIT CREDIT
Loss Sold
(For a ‘period 6-xxxx Expenses DEBIT CREDIT
of time’) 8-xxxx Other Income CREDIT DEBIT
9-xxxx Other Expenses DEBIT CREDIT

The exceptions are contra accounts, which are accounts that are offset
against another account. Examples include: Accumulated Depreciation,
Sales Discounts, and Sales Returns and Allowances.

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Let’s drill down on how each account type actually relates to your small business.

 Assets
An asset is anything you own in your business. They are the things in your office, your
laptops and desktops, scanners, hard drives, your vehicles, your receivables owed by
customers and your cash on hand. Everything you own is considered an asset of the
business. Assets are used to generate revenue and purchase other assets. For
example, when you buy a new computer, you use one asset (cash) in exchange for
another asset (computer equipment).

 Liabilities
Your liabilities are the things you owe, like sales taxes received from sales but not yet
paid to the state, or loans payable to your bank. Another example is your credit cards
– unless you pay your balance off every month, the money you owe to your credit card
company is considered a liability on your books. Liabilities represent claims against
your assets.

 Owner’s Equity
The difference between the value of your assets and the total of your liabilities is the
value of your company. As the Accounting Equation states: Assets - Liabilities =
Owner’s Equity. Depending on the type of taxable entity you created when you first
formed your company, the Owner’s Equity section of your Chart of Accounts and
Balance Sheet may have another name.

 Revenue
The revenue of your company is the total amount of proceeds generated for providing
goods and services to your customers. This is typically the total amount of the
invoices that you generated for your customers.

 Cost of Sales
Cost of Sales (or COGS) refers to the total value of the goods and services that were
sold to your customers. Typically, this refers to items-based businesses that buy
inventory for resale, or a manufacturer who builds items for resale. Total revenue less
cost of goods sold equals your gross profit.

 Expenses
Expenses are the costs you incur to run your business, whether they are fixed costs
(independent of how much business activity you have, like rent) or variable costs
(directly related to how much business activity you have, like shipping).

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 T Accounts and Double-Entry Accounting
T accounts are a graphical representation of debits (left side) and credits (right side) in
a specific General Ledger account. Double-entry accounting means that every
transaction has at least one debit and one corresponding credit.

The total debits always equal the total credits.

Account Name (x-xxxx)

debits credits
debits credits
debits credits
debits credits

 When your bank says that they are crediting

your account, they are referring to an entry on
THEIR books.

Your money in the bank is a liability to the bank;

therefore, when they credit your account, they are
increasing their liability to you on their books.

Below is a series of typical accounting transactions and their affect on the appropriate General Ledger
accounts. The next page shows the financial statements resulting from these entries. This example
assumes cash-based accounting is being used.

 Examples (Part 1):

There is an initial £5,000 cash investment by the owner.
1.) You buy an iMac at the Apple store and pay £1299 cash
2.) You buy two Mini Mac’s for £1,000 with your company credit card*
3.) You buy 10 Widgets for inventory at £150 each and pay on COD
4.) You sell 4 Widgets from inventory for £250 each on Net 30 terms
5.) You pay your monthly rent of £800
6.) You pay your credit card company for your new Mini’s
7.) Your customer pays for the Widgets they purchased
8.) You sell 3 Widgets for £300 each, cash
9.) You buy 10 Widgets for inventory at £150 each and pay on COD
10.) You sell 3 Widgets for £350 each and take a £500 deposit

* Using FirstEdge or BusinessBasics, no transaction is recorded until the bill is paid. (With
AccountEdge a purchase can be recorded showing a £1,000 liability in Trade Creditors.)

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 Cash (1-xxxx) Sales (4-xxxx)
£5,000 1.) £250 4.) £1,000
7.) £1,000 3.) £1,500 8.) £900
8.) £900 5.) £800 10.) £1,050
10.) £500 6.) £1,000
9.) £1,500
COGS (5-xxxx)
4.) £600
8.) £450
Trade Debtors (1-xxx) 10.) £450
4.) £1,000 7.) £1,000
10.) £550
Office Expense (6-xxxx)
1.) £250
Inventory (1-xxxx) 6.) £1,000
3.) £1,500 4.) £600
9.) £1,500 8.) £450
10.) £450 Rent (6-xxxx)
5.) £800

Owner’s Equity (3-xxxx)

£5,000

 Financial Statements
The primary financial statements of any business include the Balance Sheet and the
Profit and Loss. Together, they represent the total financial picture of your business.
They must be reviewed as a set because collectively they tell you about your business,
both in the short term and the long term.

 The Balance Sheet

The Balance Sheet, one of the primary financial statements, is a reflection of your total
assets, less total liabilities and the difference, or owner’s equity. The balance sheet
reflects a ‘point in time’ in the life of the business; for example, you could produce a
Balance Sheet as of December 31, 2010 that would reflect all the account balances “as
of” that date - a point in time. For example, you would see the balance of your assets,
liabilities and owner’s equity accounts on December 31st.

 The Profit and Loss Statement (or Income Statement)

The Profit and Loss, also one of the primary financial statements, is a reflection of your
total revenue generated, less the cost of items sold (which equals your Gross Profit),
less your operating expenses (which equals your Net Income or Loss). The profit and
loss reflects results for a ‘period of time’: the net income or loss for a specific period of
time, for example, January 1, 2010 through December 31, 2010.

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 ABC Inc.
Balance Sheet
June 30, 2008

Assets
Cash £2,350
Accounts Receivable £550
Inventory £1,500
Total Assets £4,400

Liabilities £ 0

Equity
Owners Investment £5,000
Current Year Earnings (£600)
Total Equity £4,400

Total Liabilities and Equity £4,400

ABC Inc.
Profit and Loss Statement
January 1, 2008 to June 30, 2008

Revenue
Sales £2,950
COGS (£1,500)
Gross Profit £1,450

Expenses
Office Expense £1,250
Rent £800
Total Expenses £2,050

Net Income/(Loss) (£600)

The Equity section of your Balance Sheet includes an account called “Current Year
Earnings” which represents the year to date net income or loss of your business. The
life to date history of profit and losses for your business is recorded into the Retained
Earnings account. At the close of every year, the Current Year Earnings accounting is
rolled into (closed) the Retained Earnings account. In our example above, our business
is brand new, so the loss for the year is presented on the Balance Sheet as a reduction
of Equity in the Current Year Earnings account. If the next fiscal year produces a £2000
profit, the Retained Earnings account will reflect the balance of £1,400 (a £600 loss
plus a £2,000 profit), the cumulative balance. Each year, your Profit and Loss

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information is closed into your Retained Earnings account, which is how the Balance
Sheet and the Profit and Loss report are tied together.

Again, it is important to remember, that a Balance Sheet represents a point in time (as
of June 30), while a Profit and Loss represents a period of time (January 1 through June
30).

Now lets add some additional entries to the mix that include more ‘advanced’ issues,
like Trade Debtors and payable, depreciation, inventory and payroll.

 Examples (Part 2):

Remember, there is a £5,000 initial investment by the owner.
11.) You buy office furniture and receive Net 30 Day terms for £1,900
12.) You buy a new X Serve and 3 workstations, receive Net 60 Day terms, total
investment - £7,500
13.) You record your first month’s depreciation on your new hardware*
14.) You buy 1000 Widgets for inventory at £150 each and receive 2% 10, Net 30 terms
15.) You ship an order for 400 Widgets at £300 each and get a 50% deposit, plus you
collect 6% sales tax
16.) You pay your monthly rent of £800
17.) You pay your employee (salary of £1,000, less; £150 in Federal taxes, £77 in FICA
and Medicare, £70 in State and Local taxes)
18.) You make your 941 deposit (Federal and FICA/Medicare) at your bank
19.) You sell 500 widgets for £325 on COD
20.) You pay for the 1,000 Widgets and take the 2% discount

* Just for the purpose of this example, we are going to depreciate our new hardware
over 3 years, using straight-line depreciation (divided evenly over 36 months). The
provisions of Internal Revenue Code Section 179 allow a sole proprietor, partnership or
corporation to fully expense tangible property in the year it is purchased, in 2010 the
limit is up to £108,000. Tangible eligible property includes;
• Machinery and equipment
• Furniture and fixtures
• Most storage facilities
• Single-purpose agricultural or horticultural structures

The definition of eligible section 179 property was expanded by the 2003 legislative
changes to include off-the-shelf computer software. Previously, it had to be written off
over three years.

If depreciation scares you, just ask your accountant how it should appear on your
monthly financial statements and what monthly General Journal Entries you should be
recording. Then, set them up as Recurring Journal Entry’s in your Accounts Command
Centre in AccountEdge.

7.) £1,000 1.) £250

8.) £900 3.) £1,500
Cash (1-xxxx) 10.) £500 5.) £800
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15.) £67,200 6.) £1,000
19.) £162,500 9.) £1,500
16.) £800 Accts Payable (2-xxxx)
17.) £703 20.) £150,000 11.) £1,900
18.) £304 12.) £7,500
20.) £147,000 14.) £150,000

Accts Receivable (1-xxxx) Sales Tax Payable (2-xxxx)

4.) £1,000 7.) £1,000 15.) £7,200
10.) £550
15.) £60,000
Federal Income Taxes Payable (2-
xxxx)
Inventory (1-xxxx) 18.) £150 17.) £150
3.) £1,500 4.) £600
9.) £1,500 8.) £450
14.) £150,000 10.) £450 FICA & Medicare Taxes Payable (2-
15.) £60,000 xxxx)
19.) £75,000 18.) £154 17.) £77
17.) ** £77

Office Furniture (1-xxxx)

11.) £1,900 State and Local Taxes Payable (2-
xxxx)
17.) £70
Office Equipment (1-xxxx)
12.) £7,500

Accumulated Depreciation - ** This additional entry for £77 represents

Office Furn & Equip (1-xxxx) the employers’ matching of the
13.) £208 FICA/Medicare liability that is withheld
from an employees paycheque. This
expense is paid as part of your ‘941’
deposit.

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 Sales (4-xxxx) Salary (6-xxxx)
4.) £1,000 17.) £1,000
8.) £900
10.) £1,050
15.) £120,000 Office Exp (6-xxxx)
19.) £162,500 1.) £250
6.) £1,000

COGS (5-xxxx) Rent Exp (6-xxxx)

4.) £600 5.) £800
8.) £450 16.) £800
10.) £450
15.) £60,000
19.) £75,000 Employer Payroll Tax
Exp (6-xxxx)
17.) £77

Purchase Discounts
(5-xxxx) Depreciation Exp (6-xxxx)
20.) £3,000 13.) £208

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 ABC Inc.
Balance Sheet
June 30, 2010
Assets
Cash £83,243
Accounts Receivable £60,550
Inventory £16,500
Office Furniture £1,900
Office Equipment £7,500
Accum. Depr – Off Equip (£208)

Total Assets £169,485

Liabilities
Accounts Payable £9,400
Sales Tax Payable £7,200
Federal Inc Taxes Payable 0
FICA & Medicare Taxes Payable 0
State and Local Taxes Payable £70

Total Liabilities £16,670

Equity
Owners Investment £5,000
Current Year Earnings £147,815
Total Equity £152,815

Total Liabilities and Equity £169,485

ABC Inc.
Profit and Loss Statement
January 1, 2010 to June 30, 2010

Revenue
Sales £285,450
COGS £136,500
Less: Purch Disc £3,000 (£133,500)

Gross Profit £151,950

Expenses
Salary £1,000
Office Expense £1,250
Rent £1,600
Employer PR Tax Expense £77
Depreciation Expense £208
Total Expenses £4,135

Net Income/(Loss) £147,815

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 Working with your Accountant
From an accounting perspective, your accountant has several ways to work with your
AccountEdge data.

• They can receive all the reports available in AccountEdge as PDF files, so they can
review your operation and make adjustments that you’ll record into your General
Ledger as Journal Entries.

• They can receive those same reports as Excel files so they can be manipulated for
enhanced data analysis and auditing.

• They can use a copy of your AccountEdge company file to run their own reports.

• Your accountant can join our Partner Programs and build a successful consulting
practice working with AccountEdge customers. As a member, they’ll receive a
complete suite of products, services and support. Have them cheque it out online
at www.accountedge.com.

 Did You Know…

• Your accountant can receive a FREE copy of AccountEdge (Mac or PC)?
Cheque your box of AccountEdge for a free coupon or visit our website.

• AccountEdge company files are cross platform. This means your accountant
using a PC can open your Mac company file, be sure that the file name has .myo
as the file extension.

• Have you accountant export the Journal Entries they want your ‘book’ and have
them email you that text file, then you can import them directly into your
AccountEdge company file.

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 Perform an “AccountEdge Self Check”
A list of 5 things you can do to perform a “self check”
1. Cheque AR and AP vs. the details – Run an Trade Debtors (and Trade Creditors)
Reconciliation Report, which will compare your outstanding Trade Debtors and
Trade Creditors, detailed by customer and vendor, to the balance in your Trade
Debtors account (1-xxxx) and your Trade Creditors account (2-xxxx).

2. Is cash reconciled – AccountEdge makes reconciling your cash and chequeing

accounts really easy and you should be doing this monthly. If not, take some time
to get this together, with the help of your bookkeeper, accountant or an
AccountEdge Certified Consultant (see below).

3. Is your BS complete and accurate – Print a Balance Sheet as of right now. Look at
each account and ask yourself three simple questions:
1. Do I have all my assets listed here?
2. Do I have backup for each of these accounts?
3. Is the ownership section of the report correct?

4. Have you closed your books – Have you gone through the process to Start a New
Fiscal Year? AccountEdge allows you to have 26 open periods, by the end of the
26th period, you’ll have to close a year, by selecting SANFY under the File menu in
AccountEdge.

5. Are you keeping current and backing up – This is the single most valuable piece
of advice in this entire document. It is imperative that you keep your records up
to date by entering all the relevant transactions when they happen. And, of
course, you want to backup daily, weekly, monthly, quarterly, annually.

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 Other Sources of Information
• Speak to your Accountant
Ask them what they need from you in order to complete work on your accounts
on a quarterly and annual basis - from financial reports to your tax return. Ask
them specifically what reports they want, what backup data they want, in what
format, and how often.

• Work with an AccountEdge Certified Consultant

If you need on-site assistance with all issues related to AccountEdge consider
working with an AccountEdge Certified Consultant. These are small business
experts that can provide services and support beyond what AccountEdge can
offer over the phone or online. See the Directory in your box of software, under
the Help menu in AccountEdge or on our web site.

• Access our Software Support tools

As a user of AccountEdge you are entitled to Introductory Support to help you
get started. In addition, we have a Complete Support Plan which covers you
bumper to bumper, including telephone, email and web support, as well as tax
tables and product updates and upgrades – simply put – the best investment you
can make.

• What Software Support can and can’t help you with

There will be issues that our Software Support reps won’t be able to help you
with. They include tax issues, networking issues and accounting help. While we
will do our best to help you get the most out of AccountEdge, these topics are
better handled by your other outside advisors.

• Work with Apple

Apple’s website has lots of small business information, find it at
http://www.apple.com/business. They also have a legion of consultants called
ACN’s, or visit an Apple Dealer, or an Apple retail store, locate all of them near you
at http://www.apple.com/buy.
 Accounting Terminology
The key to understanding the concepts of accounting is understanding the
terminology used. Much like you learned the lexicon of using a Mac (Command key,
control-shift, drop downs, cheque boxes, double click, etc.), common phrases used in
accounting will help you understand the language of business.

Trade Creditors: Money or other obligations owed to creditors for services and
materials, a Liability on the Balance Sheet.

Trade Debtors: Money or other obligations due for services rendered or items sold on
terms, an Asset on the Balance Sheet.

Accrual Based Accounting: Represents a method of recording accounting

transactions when they occur, whether or not cash has changed hands.

Accrued Liabilities: Represents expenses that are incurred prior to being paid. For
example, salaries earned by your employees and paid in a subsequent month are
accrued as a liability until they are paid.

Accrued Revenue: Represents revenue that is earned and recorded but not yet
received in the form of cash.

Asset: The things a company owns, seen on the Balance Sheet and represented as 1-
xxxx accounts in your Chart of Accounts.

Balance Sheet: The primary financial statement that shows detailed assets, liabilities
and equity at a point in time.

Cash Based Accounting: Represents a method of recording accounting transactions

most easily described as accounting for cash transactions. Entries do not affect your
financial statements until cash changes hands. In this environment, you do not track
receivables and payables. Cash received is recorded as income when received and
expenses are recorded when paid.

Chart of Accounts: A list of categories or accounts where transactions are recorded.

Cost of Goods Sold (COGS): Represents the cost of items or services sold to
customers. These costs are kept in the Inventory asset account (1-xxxx) until they are
sold. Then they are passed over to the COGS (5-xxxx) account. Seen on the Profit and
Loss and represented as 3-xxxx accounts in your Chart of Accounts.

Credit: A credit is the right hand side of an account, represented in T-Account format
on the previous page.

Current Year Earnings: This account represents year to date earnings, not yet
recorded into the Retained Earnings account.

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Debit: A debit is the left hand side of an account, represented in T-Account format on
the previous page.

Deferred Revenue: Represents income received, but not yet earned. This is typically
a liability account.

Double Entry Accounting: AccountEdge follows the convention of Double Entry

Accounting. Every accounting transaction is comprised of debits that equal credits.

Equity (Capital): The owner’s interest in the business, which is the total assets minus
the total liabilities of a company, seen on the balance sheet and represented as 3-xxxx
accounts in your Chart of Accounts.

Expenses: Costs incurred in the business used to generate revenue, seen on the Profit
and Loss report and represented in your Chart of Accounts as 6-xxxx accounts.

General Ledger: An accounting record where all of your accounts are maintained. In
AccountEdge, when you enter any transaction, the General Ledger accounts are
automatically updated.

Gross Profit: Represents your revenue from sales of inventory or services, less Cost of
Goods Sold, before overhead expenses.

Journals: Account ledgers where entries are recorded. AccountEdge has General,
Disbursements, Receipts, Sales, Purchases, and Purchases journals. Every transaction
creates a corresponding set of debit and credit entries in a specific journal.

Liability: The things a company owes in cash or other resources, represented as 2-xxxx
in your Chart of Accounts. These are claims against assets.

Net Profit/Loss: Total Income minus Total Expenses.

Operating Profit: Profit before Other Income is added and Other Expenses are
subtracted.

Overhead Expenses: Represents the expenses of a business independent of how

much revenue is generated. Can also be considered Fixed Costs, things like rent,
salaries, and utilities.

Profit and Loss Statement (or Income Statement): The primary financial statement
that shows detailed revenues and expenses for a period of time.

Prepaid Expenses: Represents expenses that are paid in advance of incurring them.
For example, you might pay a year’s worth of insurance and accrue 1/12 of it each
month. This is typically an asset account.

Retained Earnings: Represents the cumulative net income or loss of a business since
its inception. When you Start a New Year in AccountEdge, the program automatically

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transfers your year-end income or (Current Year’s Earnings) loss to this account. This is
called the closing entry.

Start a New Year: The process in AccountEdge that closes a fiscal year, transfers your
Current Years Earnings to Retained Earnings and prepares the accounts for a new fiscal
year. All Income and Expense accounts are ‘zeroed out’ to start the new year.

Subsidiary Ledgers: Customer and vendor balances that equal the amount of the
Trade Debtors and Trade Creditors General Ledger accounts.

Trial Balance: A list of all your General Ledger accounts and their current balances.

Written by:
Todd Salkovitz
Product Evangelist
© 2010 Acclivity LLC.

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