ACCOUNTS
Bank Accounts
Bank accounts represent cash – real money. Bank accounts are used in transactions where
cash moves; either between your accounts as part of a transfer, or as part of a payment on an
invoice or bill.
“Real” Bank Accounts
Most bank accounts are the kind of account everyone is familiar with – an account you have at
a bank. The balance of your “real” bank account at the bank should, on any given date, match
the balance of that account on your ‘business’ balance sheet.
Bank accounts are tracked in your accounting system for two reasons:
1. you can track all your bank balances all in one place
2. bank statement reconciliation helps to correct bookkeeping errors
Typically only bank accounts which are owned by the business, or at least mostly used by the
business, are recorded separately in the accounting system, because only they can be
reconciled with the bank. Bank reconciliation refers to the process of matching your recorded
transactions from invoices and receipts with the bank statement.
Virtual Bank Accounts
However, in your accounting system there will be some accounts listed as bank accounts which
are not held at the bank. These “virtual bank accounts” are categorized as “bank” accounts to
avoid having too many different types of accounts, and because they are otherwise used
identically to bank accounts in the rules of accounting. Some “virtual” bank accounts may
include: cash accounts and un-deposited funds.
Cash, a.k.a. Petty Cash
The “petty cash” account is the one used to record cash payments, deposits, and withdrawals.
To record a cash deposit, create a transfer from cash to a bank account; a withdrawal is a
transfer from a bank account into cash.
Keep all cash receipts! Although for accounting purposes this account is treated as a bank
account, there is no bank statement allowing you (or an auditor) to double-check your cash
transactions. For this reason, it’s doubly important that you keep receipts for all the cash-based
transactions you record in the books, because only the ones for which you have a receipt will be
accepted by an auditor, whereas with a real bank account there is at least some record of the
transactions.
Cash is also used as a catch-all for expenses which are paid for using a bank or credit card not
registered to the business. As far as the business is concerned, these transactions might as
well be cash, because they use bank or credit card accounts which won’t be compared to the
business’ books.
1
For convenience, you may want to create a few separate cash accounts to distinguish the cash
used by different people in the business. This will help you better keep track of your cash.
Un-deposited Funds
Many businesses collect cash and cheques into an envelope and deposit them all at the bank in
one lump sum. Since this appears on the bank statement as one transaction, and we’d like to
have our bank statement match our own books, we record these as “un-deposited funds” first.
Then, when the money goes to the bank we create a transfer from “un-deposited funds” to the
appropriate bank account. Now when we do the bank reconciliation, the transaction date and
amount will match a line on the bank statement.
Q: Can I create sub-accounts in Core Online Accounting ?
Currently Core Online Accounting does not have any specific support for sub-accounts.
However, our users have had some success with two ways around this:
1. Use a common prefix on the names of grouped accounts; for example “Travel – Meals”
and “Travel – Car Rentals”. This places the accounts close to one another on the reports
2. Use a common prefix on the names of grouped accounts and enable the “accounting
professional” mode in your Settings. Enabling this setting sorts accounts by number
instead of name, and you can then change the numbers of your accounts to similar ones,
such as “4001.01″, “4001.02″ and so on.
Related Question: Why doesn’t Core Online Accounting support sub-
accounts?
We designed Core Online Accounting to be simple to use, with the small business owners in
mind. We believe that for most businesses, sub-accounts are not a very important or useful
feature, and in order to support them we would have to add additional complexity to our user
interface to correctly display and manage sub-accounts. That said, we have some ingenuity
and if this feature becomes hotly requested we can probably find a way to put it into
our business accounting software without compromising the simplicity of the interface. If this
feature is of interest to you, vote for it.
Q: How do I remove an account?
To remove an account, go to the “Accounts” page and click on the account you want to remove.
If there are any transactions lists for that account, click on the link to the transaction (for
example “Bill #00001″) and correct that transaction to use another account. When all the
transactions are gone a ‘Remove’ button will appear, which you can click to remove the
account.
Q: What is the best way to record a loan?
The way a loan is tracked depends on what type of loan you are tracking. One type of loan is a
line of credit bank account which you write checks from, and the other is a fixed loan where the
2
money is deposited into your bank account. In both cases you pay recurring interest payments
from a bank account.
A simple way to track a line of credit is to create a new Bank account in the accounts section
and use that account as the Payment Account when recording expenses paid using the line of
credit. When you pay interest on the line of credit, record it as an expense with the account
Bank and Interest Charges and the Payment Account as the line of credit account you created.
When you make a payment against the line of credit, use the Transfers section and use the line
of credit account as the “Deposit Into” account.
To track fixed loans in the system follow these steps:
1. Create a Liability account in the Accounts section for the loan
2. Go to the Transfers section
3. Enter the amount of the loan as the amount of the transfer
4. In the “Withdraw From” area, select “Show All Accounts ” to reveal your loan account,
and then choose that account. As a shortcut, you can also type part of the name of the
loan account and the select it.
5. In the “Deposit To” area, select the bank account you deposited the money into
6. You can now use this Bank account as the “Payment Account” when recording payments
for expenses
7. When you are billed for interest, enter the charges normally as an expense with the
payment account set to the account you pay the interest from (i.e. your normal bank
account).
8.
When you pay back a loan, use the Transfers section as shown above except reverse the
“Withdraw From” and “Deposit To” accounts.
Set up Accounts
Setting up all of your accounts is the first step to a smooth and efficient experience on Core
Online Accounting.
Did you know that an account is more than a bank account, or a client account? Read more
about what we mean by the word “account” in what are Accounts?
One important part of bookkeeping is keeping track of your earnings and spending. Most
countries in the world require business owners to report business expenses in different
categories such as “office supplies” or “meals and entertainment”. Different types of revenue
may be taxed differently than others; for example, interest income may be taxed differently than
capital gains. You will also want to categorize your income and expenses to help optimize your
business and increase your profit margins. In the accounting system, each income and
expense category will be called an “account” – either an “income account” or an “expense
account”.
Another important part of accounting is keeping track of your assets; Cash is the simplest type
of asset, but anything your business owns that has a sale value is also considered an asset.
3
Like income and expenses, assets are tracked using accounts; an “asset account” represents
the total value of a particular type of asset. For actual cash in the bank or your pocket, this will
be the actual cash value; for equipment and goods, the balance of the account is total resale
value.
The third kind of account it is important to mention is “liability accounts”. These represent things
which are the opposite of an asset – instead of a sale value they actually cost you money to get
rid of! The most common type of liability is credit issued from a vendor or a bank. Lines of
credit, business loans, credit card debt, and accounts payable are all classified as liabilities.
We recommend that you discuss with an accountant how you should best categorize your
income, expenses, assets, and liabilities into accounts, so that you can set up the correct
accounts right from the beginning.
Account Set Up in Core Online Accounting
To set up and organize your accounts, follow the following instructions:
1. Log in to Core Online Accounting
2. Go to the Dashboard (unless you have yet to verify your email or create a business
profile)
3. Go under the “Setup” section and click on “Accounts”
4. Set up your Bank and Cash accounts: enter the name of the bank account and a
description of what you use this account for. For example, if you have a business cheque
account at Royal Bank, you would put: Name: Royal Bank Business Cheque
Description: Deposit consulting income checks, pay business related bills.
5. Click the “Add Account” link beside the “type” or “description” box to add the new
account.
6. Repeat the previous two steps for any other bank accounts your business uses
7. Go down the page and apply a similar process for credit card, income, and expense
accounts
8. To edit any accounts that have been included in your list of accounts, you can simply
click on the account and change anything you wish to change to suit your needs.
There are many types of “Accounts” and this can get confusing for many people (including
myself). Here is a breakdown of the different types of Account Categories.
Payment Accounts
Cash Accounts
The “Cash” account is used to record cash payments, deposits, and withdrawals. In Core
Online Accounting, this would be applicable when entering income and expenses under the
“Terms or Payment Accounts” section. This just showed that you were paid by cash or you
have paid for something with cash. One example of selecting the payment terms to be paid by
cash is when a business owner accidentally paid for an expense from his/her personal credit
card. In this case, many business owners might choose to say that they have paid for this
expense with cash since the personal credit card is not tracked for business purposes.
4
Bank Accounts
This refers to the bank accounts that are used for the purpose of running your business. For
example, a small business often has a “checking account” where the money can be deposited
and used for bill payments. A business may also put aside some the taxes they might owe the
government at the end of the year in a “Savings Account”.
If you have any further questions about Bank / Cash Accounts, please view related discussions
under:
Bank Accounts.
Credit Cards
If you do not know what a credit card is, stop reading right here. Ignorance is bliss
For the 99.99% of the businesses around the world, credit cards have become an indispensable
tool for running a small business. In fact, it is quite normal for a small business owner to own
multiple credit cards.
Credit cards are great for keeping tracking of expenses because many credit card companies
will send you a statement at the end of the month with details of your business expenses. This
provides an excellent opportunity for you to check to see if the expenses you have entered into
your online accounting software can match up with the credit card statement.
Un-deposited Funds
Many businesses collect cash and cheques into an envelope and deposit them all at the bank in
one lump sum. Since this appears on the bank statement as one transaction, we record these
as “un-deposited funds” first. When the money goes to the bank we create a transfer from “un-
deposited funds” to the appropriate bank account. When we do a Bank Statement
Reconciliation, the transaction date and amount will match a line on the bank or credit card
statement.
Income Accounts
Income accounts are often used to categorize the source of income so that you can track where
your money is coming from. For example, Habitsoft, Inc. began as a custom software
development company that also provided consulting services. Therefore, when setting up the
income accounts for Habitsoft, Inc, there were 3 different income accounts that were set up:
(1) Custom Software Development Income,
(2) Consulting Income,
(3) Interest Income (for any interests paid by the bank on the positive balance of the bank
account). You may also use the “Other Income” category for things you are not sure about that
you might want to consult with your accountant later.
It is also important to note that different types of income can be taxed differently depending on
the tax rules of your country / region.
5
Expense Accounts
Each expense account represents a category of expenses for the business. Any type of
product or service paid for is an expense, as long as it has no re-sale value. Items which
can be sold must be recorded as Assets. Your local tax laws may have categories which
the expense accounts must fit into. For example: office supplies, meals and
entertainment, telecommunications expenses etc. When you sign up for Core Online
Accounting , a list of expense accounts are automatically included, please review the list
to see if it is aligned with your local tax laws and add any expense categories you feel are
necessary.
Assets
Each asset account represents the value of assets owned by the business which could be sold.
Each year, asset values are adjusted to account for depreciation or appreciation. Your local tax
laws will provide standard asset categories with rates and limits for depreciation. Examples:
‘Furniture’, ‘Computers’, ‘Real Estate’, ‘Inventory’, ‘Precious Metals’.
Liabilities
Each liability account is a type of debt or upcoming cost; the type of liability determines the
duration of the debt. Examples: ‘Business Loan’, ‘Mortgage’, ‘Income Tax Payable’.
Equity
Equity accounts show the net worth and ownership of the business. Examples: ‘Owner
Investments’ ‘Retained Earnings’, ‘Common Stock’.
Special Purpose Accounts
One-of-a-kind accounts used as part of the accounting methodology.
Examples include:
• Accounts Payable: Money the business owes. This can come in the form of bills or
invoices from others.
• Accounts Receivable: Money owe to the business. This occurs when there are
outstanding invoices not yet paid.
• Cost of Goods Sold: The costs that go into creating the products that a company sells;
therefore, the only costs included in the measure are those that are directly tied to the
production of the products. For example, the COGS for an automaker would include the
material costs for the parts that go into making the car along with the labour costs used
to put the car together. The cost of sending the cars to dealerships and the cost of the
labour used to sell the car would be excluded.
• Gain or Loss on Foreign Exchange: Gains/losses caused by a change in value of foreign
currencies between the time of an invoice and the time it is paid.
6
Need more help?
This document is designed as a crash course for the purpose of using a small business
accounting software. It is not meant to replace the advice of your accounting professionals
such as your accountant and your bookkeepers. Please consult with your accounting
professionals if you have any questions related to the accounting or tax rules of your country or
region.
You may also invite your accounting professionals to log into Core Online Accounting at no
extra charge. Please refer to the “Adding Multiple Users to Your Business” document for
instructions on how to invite your accountant and bookkeeper to collaborate on the accounts set
up process with you.
If you have any further questions regarding the use of your online accounting software, please
do not hesitate to contact us at Core Online Accounting.
7