paidDecember 2013 / PhreeBooksR36RC3
Author – Charles

In PhreeBooks, only the accrual method is supported.

This is the sort of decision to be made with your accountant. Local tax and reporting regulations will govern which Accounting Method you decide to use.

Accounting Method :

“One decision the owner must make, is whether to prepare the tax returns on the cash or accrual basis.”

Cash Basis:
Under the cash basis, income is recognized when received (checks, money orders, or currency) and expenses are recognized when paid.

Note, unpaid credit sales and purchases do not show on ledgers, which
can present a misleading picture of sales/income and expenses.

Accrual Basis: (Most companies use this method)
Under the accrual basis, income is recognized when you invoice customers and expenses are recognized when you receive bills from vendors (regardless of when they are paid).

e.g. income booked when delivery is made and Sales Invoice is generated. Expenditure booked on date of incoming goods shipment, Tax Point or date of Supplier Invoice (whichever is relevant).
This presents a more accurate picture of income and expenses.

In some jurisdictions businesses are required to use the Accrual Basis/Method if their income, turnover or inventory exceed certain levels.

Useful Resources
https://www.khanacademy.org/economics-finance-domain/core-finance/accounting-and-financial-stateme

centosHowTo needed

CentOS Project

PhreeBooks on Sourceforge: latest release
GitHub latest: PhreeBooks-master  (development & testing only. Not for production)
NOTE: You may need to ‘Rename’ the GitHub download, adding a ‘.zip’ file-ending before you can unzip and install.

See the Forum for the latest information

February 2014 / PhreeBooksR36RC3
Author – Charles

Definition: CoAabacus2

The chart of accounts is the structured list of the company’s general ledger accounts (GL ‘Analysis’ Accounts). The list is used to track movements and prepare financial reports for authorities and owners.

Different Businesses & Countries and Their CoA’s

Wikipedia:
The charts of accounts can, as in Sweden and Norway, be picked from a standard chart of accounts, a list of predefined accounts, like the BAS in Sweden. In some countries defined by the accountant from a standard charts of accounts general layout, in some regulated by law. But in most countries it is entirely up to each accountant to make and design.

The structure of the chart of accounts is unique for each company. There will be  differences between industries e.g. Hotel, Travel Agent, Wholesaler, and differences between countries.

Often there is not a prescribed set of account codes laid down, resulting in common differences of accountant opinion.

It may seem daunting to start with a blank sheet of paper when setting up your accounting system and devising a chart of accounts – it may be better to adapt a popular CoA used widely in your industry/country (you can find many examples on the internet). On this you should seek advice of your accountant.

Please bear the following points in mind when deciding on your CoA:

  • Your accountant will have to use the information contained in your accounts ‘sorted’  (for want of a better term) into the GL ‘analysis’ accounts that you have set up. From these accounts he/she will have to prepare Statutory Reports and make regulatory tax filings. You need to ensure that your CoA will give him/her the information needed easily. Ask your accountant.
  • At some time in the future you will very likely need to have someone other than yourself do the company bookkeeping. They will need to be familiar with the CoA account structure for smooth data entry. When they go off sick, or resign, you will need the ‘temp’ to get familiar with your CoA quickly – easier if you have chosen a CoA that is similar to (or adapted from) the most popular CoA available elsewhere in your industry/country.

The Basic Accounting Formula:

Assets    Equity  +  Liabilities       …     this is where it all starts

This equation is the basis for the Balance Sheet, in all businesses and in all countries.

Where:
Equity = Contributed Capital + Retained Earnings
Retained Earnings = Net Income − Dividends
Net Income = IncomeExpenses

GL Account Type:  Assets, Liabilities, Income, Expenses, Equity.

Every GL account in the CoA MUST have a ‘type’. The type is used to determine where the GL account is applied in the financial calculations.
Cash
Accounts Receivable
Inventory
Other Current Assets
Fixed Assets
Accumulated Depreciation
Other Assets

Accounts Payable
Other Current Liabilities
Long Term Liabilities

Income
Cost of Sales
Expenses

Equity – Doesn’t Close
Equity – Get’s Closed
Equity – Retained Earnings
   …   there is only ever ONE Retained Earnings GL account

Equity GL ‘Analysis’ Accounts:

Equity, also known as capital or net worth, is the amount owners currently have invested in a business. In the equity section of your chart of accounts, you must do three things:
show the initial investment (Paid-in Capital, Owner’s Contributions)
track withdrawals from this investment (Owner’s Draw, Dividend Paid)
show the combined profit or loss of the business since inception (Retained Earnings)

Equity can also be thought of as the owner’s claims against the assets (versus the claims of others, which are liabilities). Equity will always equal what is owned (assets) minus what is owed (liabilities).
EQUITY = ASSETS – LIABILITIES

In PhreeBooks, there are three types of equity:

  • Equity – Doesn’t Close   …   isn’t ‘zeroed’ at year-end
  • Equity – Get’s Closed   …   ‘zeroed’ at year-end. Total ADDED**  to Retained Earnings
  • Equity – Retained Earnings

 **   NOTE: This means that Equity – Get’s Closed type accounts e.g. ‘Owners draw’, or ‘Dividends paid’ would normally operate with a negative balance (and when another dividend is paid, for example, the balance would go more negative etc).

Some equity accounts, like Common Stock, are carried forward from year to year. Thus, they are designated Equity – Doesn’t Close. Other equity accounts, like Dividends Paid, are zeroed at year-end, with their amounts moved to the Equity – Retained Earnings account. These accounts are designated Equity – Get’s Closed.

Equity – Retained Earnings is the key account. There can be only one Retained Earnings account, but you must have one to roll each year’s profit or loss into. Thus, Equity – Retained Earnings, together with any Equity – Doesn’t Close accounts, always shows the net worth of the company prior to the current year. All of the Equity – Get’s Closed accounts track the change to net worth for the current year.

GL ‘Analysis’ Accounts:

These categories, or lines in the CoA, very confusingly have many different names in different parts of the World: GL Account, GL ‘Analysis’ Account, Nominal Code, Analysis Code, CoA Code, CoA Account,  general ledger accounts, Analysis Ledgers   …   etc.

For every GL Account there is normally a GL Account Number (I believe that QB offers an option to operate the CoA without GL Account Numbers), which defines it’s position in the Chart of Accounts, and a ‘Type’ (defined above). Often a GL account will be a sub-account associated with a Primary Account.

Although it is generally advised to have as few GL accounts as possible, there is no limit and some businesses prefer a very detailed CoA with many GL ‘analysis’ accounts. You may add additional GL ‘Analysis’ Accounts as you go.

Adding and Deleting a new GL ‘Analysis’ Account:

Once an entry has been made against a GL account, it can no longer be deleted.

Adding an extra (or a few extra) GL accounts is straight forward:
COMPANY > Module Administration > PhreeBooks Module > Chart of Accounts,
…   click on blank white page icon – top left.

It is generally advised to create new account numbers that leave a ‘gap’ between the previous and next account numbers. This allows for flexibility in the addition of further accounts, if necessary in the future.

PhreeBooks – Building / Amending your CoA:

As you can see from the content of this page, almost any CoA can be constructed with PhreeBooks. There are no ‘Reserved Nominal Codes (GL Accounts)’ in PhreeBooks. For example, as long as a GL Account has the ‘GL Account Type’ = Cash, it will appear in the BANKING > Bank Account Register, ‘Cash Account‘ list and the list for Account Reconciliation.

Copied from Stan Merill’s excellent HowTo

WHAT IS A CHART OF ACCOUNTS?

A Chart of Accounts is list of categories you use to organize your money. For example, some of your money is income from your sales to customers while some of it is income from
interest paid to you by the bank. As a business person, you list the income in two different categories so you can tell what percentage of your income comes from each one. Then you can make better decisions about where to focus your attention.

Accountants and governments recognize five major standard categories:

  1. Assets: things that are either money or worth money to your business.
  2. Liabilities: what you owe to others.
  3. Owner Equity: what you actually own.
  4. Income: money that flows into your business.
  5. Expenses: money that you pay in order to run your business.

You can divide each category into sub-categories. For assets, you could have petty cash, a checking account or two, a savings account, the computer and furniture your company owns and the money your customers
owe you but haven’t paid yet. You could divide up Expenses into advertising expense, office expense, salaries and wages and the cost of the goods you purchase to sell to customers.

A chart of accounts is a list of these categories. Each time you enter money into PhreeBooks, you take a moment to tell which categories it belongs to. Traditionally, a chart of accounts uses numbers for each category along with a description. That makes it easier to print reports that are organized in ways that people expect to see them. Again, traditionally, the numbers for asset accounts begin with 1, so you might have an account numbered 10 or 113 or 1045 or whatever. Those for liability accounts begin with 2, etc., following the numbering for the major categories above.

The number of digits is up to you. Some very large companies have account numbers that are ten or twenty digits long and they are organized into hierarchies. The example charts of accounts that PhreeBooks provides use four digits; for most companies that’s enough to create a good chart of accounts without becoming bogged down in long, hard-to-use numbers.

Each business has needs, such as advertising expense and office expense, that are common to all businesses.  Furthermore, some governments require businesses to use certain standard
accounting categories so they know what to tax and can also get a deeper understanding of their economy. Because of these common needs, most charts of accounts share some common categories such as advertising expense and office expense.

But each business also has unique needs. For example, a landscaping company may want to keep track of income from the sale of plants separately from that received from structural items such as rocks and wood. A retail jewelry store, on the other hand, would likely want to track income from sales of jewelry separately from income from sales of services such as cleaning and polishing. It would have no use for the unique categories used by the landscaping firm and vice versa. Because of these unique needs, each chart of accounts needs to be customized to the company that is using it.

WHERE CAN YOU GET A CHART OF ACCOUNTS?

There are several sources for charts of accounts so you don’t have to start from scratch.

  • PhreeBooks comes with four “generic” charts of accounts that may work for your business. You can choose to install one of those and then add a few categories as you go along.
  • If you belong to an industry association for your industry, ask if it has a suggested chart of accounts. You can also search the net; type in the name of your industry followed by “chart of accounts”. For example, if you’re in the bakery business, type in “bakery chart of accounts”.
  • Your accountant may suggest a good system of categories for you. It’s helpful to show him an existing chart so he can modify it.

Ultimately, you have to spend some time thinking about what you want to keep track of in your company because that’s what a chart of accounts is for. You’re going to be busy taking care of day-to-day operations and, if you’re starting a new company, you may not even know what categories you need. But do the best you can; it will pay off in information that will make it easier to improve your bottom line later.

HOW DO YOU CREATE YOUR OWN CHART FOR PHREEBOOKS?

If you want your own custom chart of accounts to import into PhreeBooks, you need to create an XML file. (This is true for version 3.0. Earlier versions used PHP so see the installation documentation if you’re using an earlier version.)

The first line of the XML file starts with a <description> tag and ends with a </description> tag. Between the two tags, you write a name for this chart of accounts. For example,

<description>My Custom Chart of Accounts</description>

After that, you add the following seven lines for each account.

  <account>
    <id>1060</id>
	<description>Checking Account</description>
	<heading>0</heading>
	<primary></primary>
	<type>0</type>
  </account>

Replace the “1060″ inside the <id></id> tags with the ID for the account.

Replace the “Checking Account” inside the <description></description> tags with the name of the account.

The type is one of the following

0 - Cash
2 - Accounts Receivable
4 - Inventory
6 - Other Current Assets
8 - Fixed Assets
10 - Accumulated Depreciation
12 - Other Assets
20 - Accounts Payable
22 - Other Current Liabilities
24 - Long Term Liabilities
30 - Income
32 - Cost of Sales
34 - Expenses
40 - Equity - Doesn't Close
42 - Equity - Gets Closed
44 - Equity - Retained Earnings

The number inside the <heading></heading> tags is always zero (0).

The <primary></primary> tag is for marking an account as a subaccount of another account. For example, you might have your telephone account as a subaccount of your utilities account.
[Research: How does this work? Do you just put the ID of the primary account here?]

Here’s how your custom XML file would look if you had just three accounts in it.

<description>My Custom Chart of Accounts</description>
<account>
  <id>1050</id>
  <description>Petty Cash</description>
  <heading>0</heading>
  <primary></primary>
  <type>0</type>
</account>
<account>
  <id>1060</id>
  <description>Checking Account</description>
  <heading>0</heading>
  <primary></primary>
  <type>0</type>
</account>
<account>
  <id>1200</id>
  <description>Accounts Receivable</description>
  <heading>0</heading>
  <primary></primary>
  <type>2</type>
</account>

You save it in a text file with the extension .xml. For example, you may want to name it MyCustomChartOfAccounts.xml. In practice, you’d probably want to use your company name in place of “My” in the name since you’ll eventually end up with more than one company if you have don’t already.

HOW DO YOU INSTALL THE CHART OF ACCOUNTS?

To install a chart of accounts, choose

Company > Module Administration

Click the Properties icon for the PhreeBooks Module. Then choose the Chart of Accounts tab.

Select a standard chart of accounts or browse to find the custom XML chart of accounts you prepared. Then click the Import button.

Example CoA’s

PhreeBooks default CoA
PhreeBooks default CoA

FrontAccountingUK

AlternativeUK

Interesting Resources:

http://consultyourcfo.com/designing-a-chart-of-account-coa-structure/
http://wiki.xtronics.com/index.php/Phreebooks_Company_setup
http://www.netmba.com/accounting/fin/accounts/chart/
http://isdcedu.weebly.com/uploads/6/3/6/4/6364966/accounting-notes.pdf
http://www.accountingissue.info/sage-nominal-codes.xls
http://www.dwmbeancounter.com/tutorial/coabal.html
http://underwoodbarron.com/SageTips.php
Sage Nominal

Please post any comments suggestions to the Forum.

cost-codesMarch 2014 / PhreeBooksR36RC3
Author – Charles

This page is not finished

Cost Codes:

‘Cost-Codes’ are a very powerful reporting tool. If you want to track certain types of costs or expenses (e.g. entertainment expenses, by Director) that are necessarily recorded across many GL accounts or Projects or only represent a small subset of entries into a single GL account, you can create any number of Cost Codes (SKU) in Inventory:

Inventory Type = ‘Description’ for Cost Codes that do not require a default GL account.
Inventory Type = ‘Non-Stock Item’ for Cost Codes that require a specific default GL account.

Example ‘Cost-Codes’:
00-CostCode-Entertainment-JFK
00-CostCode-Entertainment-RFK

01-CostCode-Concrete work
01-CostCode-Electrical work
01-CostCode-Plumbing
01-CostCode-Roofing
01-CostCode-Site work

02-CostCode-Recharge-Postage-Mr Jones
02-CostCode-Recharge-Postage-ABC Ltd

A Cost-Code doesn’t need to be associated with a particular Project – it might apply across all Projects, or apply to none. The uses for Cost-Codes are mind boggling  …   there is just no end. You might decide to use Cost-Codes to track some transient expense, where you would rather not amend the CoA – remember that you can also check the ‘inactive’ box in an SKU. Or, don’t use Cost-Codes at all!

Reports detailing Cost-Codes can be created by using PhreeForm.

Useful Resources:

Cost-Codes in QuickBooks
Cost-Codes in Sage
http://www.chsbuildersoftware.com/CHS%202006%20Features/04-2015-costcodessetup.pdf