Quickbooks Makes Accounting Unnecessary?

If you have Quickbooks, do you need to know accounting? Well, if you have a car, do you need to know how to drive it?

Quickbooks, like cars, are just empty vessels which depend on human knowledge and judgment to work properly. One part is the essential mechanics – knowing what buttons to press. But the other part involves higher knowledge. Like knowing which way to turn at an intersection or knowing which landmark to look for.

Sure, cars of the future may be able to navigate to destinations without human intervention. Quickbooks may someday be able to operate without human accounting knowledge, too. But neither can do that yet.

Fund Borrowing Is Not Revenue

The fiscal year end financial statements for the United States Chess Federation were released to their Finance Committee today. They will review them over the weekend prior to wider release. Already there is discussion over the meaning of the word "revenue".

A special fund, the Life Members Assets Fund loaned money to the General Fund during the course of the year and somewhere that is showing up as revenue. (So one of the members claim; I have not seen the financials.)

This case has some instructive points. Here's what the accounting rules are.

Within the over-all organization, transfers of money from one department to another are not revenues. Even from just the individual fund's perspective, this kind of transfer is not a revenue to that fund since the General Fund owes the money back to the LMA Fund. If it were not a loan, the transaction would be suspect. Special restricted funds cannot override their restrictions by just transfering their money to the General Fund.

When you read financials, beware of those inter-fund transfers!

About That Deficit

I recall a Kiwanis Club Meeting around 1994 where the local Congressman was talking about cutting the deficit but people were confused as to why the national debt was still going up.

The reason is that a non-profit organization by definition does not report profits or losses. Instead they report surpluses and deficits.

That’s why management may report cutting its deficit while still increasing its debt. Cutting the deficit just means that the organization is loosing less money than before but it is still loosing money. In fact, an organization may actually report a surplus while still increasing its debt. It all depends on whether it uses the surplus to pay down debt or use it for something else.

Cash Equivalents

These are short-term investments that are so liquid that they can be readily cashed in. The downside risk is negligable. These include bonds that are almost at the end of their maturity. Examples include money market funds and treasury bills.

These are included in cash on the Statement of Cash Flows.

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For my accounting reference book, I use
Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles (Wiley Gaap (Book & CD-Rom))

Use of Statistics

Here’s a few examples of using statistics in business:

Quality Control
Say you have to inspect a shipment with a large number of items in it. Instead of inspecting each and every item, you select a few at random. Statistics can help you determine how many to select and how well your sample reflects the whole shipment.

Market Surveys
This is like opinion polling.

Demand for Products
Statistics can help determine what factors make up demand and how important each factor is. Example: selling ice cream. Factors: price point, weather, average income, number of children.

Financial Auditing
CPA’s exam random transactions and use statistics to project these to the whole.

Product Testing
Statistics are used to determine if results are caused by products or by other factors.

I’ve seen statistics over-used, too. Overall, it is a good tool to have.

Accounting for Leases

Is your lease an operating lease or a capital lease? The magic number is 90%.

If the lease payments (less interest) add up to 90% or more of the asset’s value, then you’ve got to put it on the balance sheet as an asset. You still get to depreciate it and expense the interest, too but the lease payments go to pay down the liability. Oh, yes – you’ve got to calculate your lease liability and put that on the balance sheet, too.

If lease term is 90% or more of the asset’s estimated useful life, then same thing: capitalize.

It’s so much simpler to just expense the lease payments as an operating lease.

The rules for leases are much more complex than the above. This gives you an idea of what to look out for.

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For my accounting reference book, I use
Wiley GAAP 2010: Interpretation and Application of Generally Accepted Accounting Principles (Wiley Gaap (Book & CD-Rom))