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Learn accounting for free

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Re: Learn accounting for free

#111

Post by jacobr1 »

jermaustin1 wrote: post #51
marton_s wrote: post #3

I'm a software engineer who moved into freelance consulting a few years ago (I do back-ends and front-ends for mobile and web, nothing finance specific other than occasional credit card payment integrations). It's been a roller-coaster in many regards and one of the highlights is having learned a lot about bookkeeping, taxes, financial planning and everything that comes with running a small business in general. (Aspe…

> and maybe stop paying an accountant to do my taxes My mother was an accountant for years, I learned a lot of accounting, but there is a MASSIVE difference between knowing how to basically bookkeep and the tax code. I'm in the US - so might be easier in less tax-lobbied countries. When I started my second consulting firm (after closing down my first when I took a "real job"), I initially tried to go at it myself, bu…

Many members of my family run our own small businesses, and have given similar advice. Always either do your own bookkeeping (or heavily review and understand the work you have done) but then pay for the for not only the processing of tax by CPAs, but also their advice. There are plenty of ways to optimize a business to not just be more tax efficient, but also financially structure operations, especially with the way one approaches debt.

Re: Learn accounting for free

#112

Post by wutangson1 »

rchaud wrote: post #44
zerop wrote: post #24

Pardon my ignorance if any, but I find financials and accounting as quite boring things. Most problems in these are about tracing numbers, reconciliation and mismatches. What thril one can face in these areas? Any examples of challenges you see ?

> What thril one can face in these areas? Any examples of challenges you see ? Mission Briefing: Your CEO has blurted out a revenue growth estimate for H2 2022 on an investor conference call, without prior vetting from the CFO. Mission Objective: Put forward a plan for modifying revenue recognition rules on sales so that the CEO's estimate can be met. Your plan must be compliant with GAAP principles and cannot involv…

Could it all be so simple? At the very least, would the Statement of Cash Flows need to be massaged as well?

Re: Learn accounting for free

#113

Post by Naga »

PopAlongKid wrote: post #69
darcys22 wrote: post #58

Earlier quoted context omitted.

I find what you have said harder to follow than just knowing debits are positive and credits are negative. The A=L+OE formula is a poor model for understanding accounting when the accounts dont fall neatly into those 5 high level categories. And unfortunately you almost immediately encounter accounts of that nature (accumulated depreciation and loans are great examples).

>debits are positive and credits are negative That's a drastic oversimplification. Typically, both debits and credits are entered into an accounting program as positive numbers, and it is the nature of the account being debited or credited that determines whether the number is added to or subtracted from the account balance. Or, as the old joke goes, an accountant for years would always start the work day by opening…

> That's a drastic oversimplification. Typically, both debits and credits are entered into an accounting program as positive numbers, and it is the nature of the account being debited or credited that determines whether the number is added to or subtracted from the account balance.

This is both technically correct and incorrect. You're right about the nature of debits and credits, but practically every accounting software I've ever used (I'm a CPA) represents credits as negative numbers. The software just assumes that the user knows that it's actually a credit, not a negative number.

Re: Learn accounting for free

#114

Post by tomcam »

sundarurfriend wrote: post #74
tomcam wrote: post #54

Earlier quoted context omitted.

If you knew me you would understand why these warnings are necessary...

Reminds me of David Mitchell's bit/rant in Would I Lie To You: https://www.youtube.com/watch?v=mKc32jQIY0w (01:28 if you're in a hurry).

That was lovely, thank you. He is an international treasure.

Re: Learn accounting for free

#115

Post by mindslight »

PopAlongKid wrote: post #101
mindslight wrote: post #86

Earlier quoted context omitted.

I was using the offline version obviously, in a VM with no network access. I do recall some wizards for setting up accounts, but they weren't applicable to my business. It also didn't feel like such wizards would have changed the UI into operating at a higher level.

It may not be useful to you, but I will add that Quickbooks desktop has a "Home" window that includes a fairly detailed flow chart of most small business processes (e.g. send an invoice, pay a bill, make a deposit, run payroll, make a refund, and so on and so on), and the nodes of the flow chart are interactive links to various input and reporting windows in the program.

Yes it seemed like it would be valuable if you need to send lots of invoices, pay lots of bills with checks, make many refunds, etc. Quickbooks gives you a formal process for doing so, easy ability to generate documents, etc.

Automating transaction mechanics can certainly facilitate doing accounting later, but it doesn't seem like what I expected from "accounting" as in the stuff you would normally have an "accountant" do. Rather it seemed that you had to set up most of your own accounting (eg defining the data model of all the accounts), and Quickbooks would help you by entering in data for the transactions types it knows about (and you use it for).

Re: Learn accounting for free

#116

Post by mindslight »

PopAlongKid wrote: post #100
mindslight wrote: post #85

Earlier quoted context omitted.

So these "T accounts" are exactly the kind of thing I'm talking about. Reading that page they just seem to be a visual method to represent negative numbers, explained very verbosely? This seems like it might have been a really valuable invention for someone in 1494 or even 1894. But in 2021 when we're comfortable with defining rich semantic models, it just seems quaint and limiting. Like for instance as shown it leav…

>whether the transaction has tax relevance, It is almost always a matter of the account having tax relevance, not each individual transaction that involves that account. > the only way to represent that expense in strict double book is to have 2 accounts for (Repairs_Tax, Repairs_Notax) There are very few accounts that need to be split like that for tax purposes. Meals & entertainment are one such (although the tax l…

> There are very few accounts that need to be split like that for tax purposes

I disagree. Take repairs - according to tax law, some can be deducted and some need to be capitalized.

What I would expect from "accounting" software is to ask you questions about the type of expense, and decide what category (account) it needed to be placed in. And then for depreciated expenses, let you pick a depreciation method and track that year to year.

> it is quite common for a business to have at minimum two sets of books, one for tax and one for book

That contradicts your claim that it's not necessary to split most accounts, since at least all accounts are being doubled! From a programming perspective, why would you want to copy the entire data model and then make some modifications to one copy, rather than having a single data model that models everything?

> (the company's own internal representation of its financial position).

I'll admit that for my own purposes I'm discounting this, as it seems less applicable to small businesses. The real reason I need to track "depreciation" is because tax law makes me do so. From my perspective, a large expense is still money out the door on day 1. Sure I've done basic profitability projections using capital costs amortized over a number of years, but I don't see how I'll gain by committing to those and then later having to further model deviations from the expectation.

> T-accounts are an instructional tool, they are not used for actual production accounting purposes

I don't understand why teaching accounting seems to revolve around teaching its basic operations of adding and subtracting, which should have been covered in grade school. There's obviously some common data models that professional accountants use, but it seems like they're implicit knowledge rather than ever being directly described.

Re: Learn accounting for free

#117

Post by PopAlongKid »

mindslight wrote: post #116
PopAlongKid wrote: post #100

Earlier quoted context omitted.

>whether the transaction has tax relevance, It is almost always a matter of the account having tax relevance, not each individual transaction that involves that account. > the only way to represent that expense in strict double book is to have 2 accounts for (Repairs_Tax, Repairs_Notax) There are very few accounts that need to be split like that for tax purposes. Meals & entertainment are one such (although the tax l…

> There are very few accounts that need to be split like that for tax purposes I disagree. Take repairs - according to tax law, some can be deducted and some need to be capitalized. What I would expect from "accounting" software is to ask you questions about the type of expense, and decide what category (account) it needed to be placed in. And then for depreciated expenses, let you pick a depreciation method and trac…

>Take repairs - according to tax law, some can be deducted and some need to be capitalized.

The ones that need to be capitalized are not repairs (they are betterments, adaptations, or restorations, per IRS regulations), so they wouldn't go against the repair expense account. Instead, they would go into an asset account.

>That contradicts your claim that it's not necessary to split most accounts, since at least all accounts are being doubled!

In practice, no one actually keeps two complete sets of books. Instead, the tax return starts with the company balance sheet and income statement per books, and then makes book-to-tax adjustments only for those categories that require it, like meals and entertainment. The tax return in this sense serves as a specialized accounting system.

>why would you want to copy the entire data model and then make some modifications to one copy, rather than having a single data model that models everything?

The tax version of the company accounts is typically only updated once per year, and usually requires specialized knowledge of the tax laws, which change year to year. It isn't really designed for day to day management like the regular company books are, and as I have observed with the tax returns I prepare for small business, most owners don't really spend any time looking at the tax return.

>From my perspective, a large expense is still money out the door on day 1.

But lenders and the IRS don't see it that way. Maybe what you need is the third basic type of accounting report, the cash flow statement. Many if not most companies that go bankrupt have net positive equity, but negative cash flow. The cash flow statement, like the tax return, is also created on an "adjustment" basis, starting with net profit and then backing out the income and expense items that are not current inflows or outflows of cash, such as depreciation.

Re: Learn accounting for free

#118

Post by PopAlongKid »

Naga wrote: post #113
PopAlongKid wrote: post #69

Earlier quoted context omitted.

>debits are positive and credits are negative That's a drastic oversimplification. Typically, both debits and credits are entered into an accounting program as positive numbers, and it is the nature of the account being debited or credited that determines whether the number is added to or subtracted from the account balance. Or, as the old joke goes, an accountant for years would always start the work day by opening…

> That's a drastic oversimplification. Typically, both debits and credits are entered into an accounting program as positive numbers, and it is the nature of the account being debited or credited that determines whether the number is added to or subtracted from the account balance. This is both technically correct and incorrect. You're right about the nature of debits and credits, but practically every accounting sof…

"A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry."[1]

So if you always represent your credits as negative numbers, then you have to (counter-intuitively) subtract it from Liab/Eq/Inc accounts that you are increasing, or add it to Asset/Exp accounts that you are decreasing.

I wrote my own double entry accounting program back in the 1980s using a DOS relational database program and used it successfully for the next twenty years (before I switched to using Quickbooks) for both personal and business purposes. Both programs (mine and QB) represent credits as positive numbers.

[1]https://www.accountingtools.com/articles/2017/5/17/debits-an...

Re: Learn accounting for free

#119

Post by darcys22 »

PopAlongKid wrote: post #118
Naga wrote: post #113

Earlier quoted context omitted.

> That's a drastic oversimplification. Typically, both debits and credits are entered into an accounting program as positive numbers, and it is the nature of the account being debited or credited that determines whether the number is added to or subtracted from the account balance. This is both technically correct and incorrect. You're right about the nature of debits and credits, but practically every accounting sof…

"A credit is an accounting entry that either increases a liability or equity account, or decreases an asset or expense account. It is positioned to the right in an accounting entry."[1] So if you always represent your credits as negative numbers, then you have to (counter-intuitively) subtract it from Liab/Eq/Inc accounts that you are increasing , or add it to Asset/Exp accounts that you are decreasing . I wrote my o…

This highlights the stumbling block that programmers have when trying to understand debits and credits. You should not at all be trying to classify your accounts as Liab/Eq/Inc, its simply an account with a debit or credit balance.

Its why i dislike the accounting equation. Its leads people to really overvalue how important account types are.

On the database level you dont care at all about it. The accounts are simply another text column and the bare minimum has no further information.

Only when trying to present the accounts in a P&L or something do you try to ascertain what the type is. Even then the only essential information is whether the account is debit or credit positive, and maybe whether it is a P&L or balance sheet account.

Its at this point here that you could optionally classify the account as Liab/Eq/Inc to give you some nice headers for the financial reports but to be honest you could just throw that back on the user and let them classify their own headers. Accountants are normally better at knowing what their financials should look like and forcing them to comply with your account types is probably a limiting and frustrating anti feature.

Re: Learn accounting for free

#120

Post by darcys22 »

onphonenow wrote: post #65
darcys22 wrote: post #58

Earlier quoted context omitted.

I find what you have said harder to follow than just knowing debits are positive and credits are negative. The A=L+OE formula is a poor model for understanding accounting when the accounts dont fall neatly into those 5 high level categories. And unfortunately you almost immediately encounter accounts of that nature (accumulated depreciation and loans are great examples).

What happens if I debit a loan account? Debits are not positive, a debit to a loan account is a negative that reduces it. If I issue a refund that might be a debit to an income account (that is a negative to the account total).

There are both debit and credit loans depending on who is loaning who. The two parties are the person recording the transaction and an external third party.\\

A debit to a loan account only reduces it if it is a credit loan. A debit to a debit loan account actually increases it (Think a bank giving further money to their customers).

If you are debiting a loan account it means the external third party is giving cash to the person recording the transaction.

If you issue a refund then you are giving cash to the external third party so its a negative (credit). Then the positive side of the journal is against your income account (reducing your income).

Debits and Credits are not positive and negative, but they are a concept that was invented before negative numbers existed and are perfectly represented by positive and negative numbers.

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