 Zero Accounting Software 2023 Enter Transaction for Owner Deposit or Loan Deposit using Bank Feeds. Get ready to become an Accountant Hero with Zero 2023. First, a word from our sponsor. Well, actually these are just items that we picked from the YouTube Shopping Affiliate Program, but that's actually good for you because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Bayer Dynamic? Not sure if I said that right, but this is the DT770 Pro 250 OHM Studio Reference Closed Back Headphones. I wear headphones basically every day for a large part of the day. They are important to me, therefore I've gone through many different kinds of headphones. I've had these for some time and they've worked quite well. They fit over my ears, but I'm still able to put my glasses on under the headphones. 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You can purchase one at a time or have a subscription model giving you access to all the courses, courses which are well organized, have other resources like Excel files and PDF files to download and no commercials. We are in our Custom Zero homepage going into the company file. We set up in a prior presentation that being the bank feed file. We're going to duplicate some tabs to put reports in like we do every time. Right-click in the tab up top so we can duplicate it. Then we're going to right-click the tab again and duplicate it again. Back to the tab to the middle. Accounting drop-down. We want to go into the balance sheet report. Tabbing to the right. Accounting drop-down and opening up the income statement. Changing the range on the income statement for 2022. The date that we're putting our data input in. So January to December of 2022. Updating the report. Going to the first tab now to open up the bank feeds in the first tab. Accounting drop-down. We're going into the bank accounts. And we're going to go into, this is our account information, manage accounts and account transactions. So then I'm going to go to the first item, the reconcile. So for the most part what we have been trying to do is basically take the information directly from the bank and construct our books from that bank feed information recording transactions as they come through the bank which we can only do in certain types of accounting systems when we're more on a cashed basis and aren't forced to do more accrual type of stuff. So now we want to think about those transactions that we need to be careful about when we're looking at the increases in the bank account, the increases being like deposits which are normally coming from customers but we want to make sure that we differentiate deposits which may not be coming from customers. The major two being a deposit from, for example, a loan or the owner putting money into the business. We don't want to record those as revenue. So let me take a quick look at the flow chart over here. This is from QuickBooks Desktop but we're just looking at it to look at the flow chart because most of the accounting system will be in essence the same. So we're looking at the sales or revenue side of things. We're trying to make it as automated as possible on the revenue side which only works for certain industries where we're going to wait till something clears the bank, the deposits that is and record the deposit with the bank feeds to revenue at that point in time. Now in our system we had something like gig work. It would be pretty easy if you're just getting paid by YouTube or you're getting paid by some other platforms and they're paying directly into your checking account because they are electronic transfers and we would therefore be able to see the data and we wouldn't really be able to mix up where the money is coming from and we can even assign, say, a customer, at least a platform as the customer. So that works out well but we can imagine other systems where we try to basically rely on the bank feeds. For example, if we add a cash register or something like that and we're simply collecting cash and we're going to collect the cash and make the sales but we're actually going to not record the revenue until it clears the bank. So we collect the cash or we get paid. We don't record the revenue at the cash register at that point in time but instead we wait till we make the deposit and then it clears the bank and then we simply record everything, all the deposits as revenue when they clear the bank. Now that's not a full-service system because usually when you have a register you would like to have the register record the sales at the point in time that you're making them so that you can then match the money that you have received to the sales transactions and then you have that issue of depositing the money into the bank making sure that you're matching what goes into the checking account on our books so that we can reconcile using the bank feeds as easily as possible. However, if you're trying to just do the easiest thing possible then you can just basically make sales, deposit the money into the bank in whatever format that be, credit cards or cash or whatever, wait till it clears the bank and then just record all the transactions that come through the bank as revenue when they're deposits, right? So the problem with that though is that you don't have the detail of the bank feed transfers as we do when we're looking at gig work. It's not going to say it came from this person because we just deposited a lump sum of cash. So that might not be an issue because we could just say it's just revenue and we're just trying to get an income statement and I don't need to track all the customers that they came from so we'll just call it revenue no problem. However, if you get other deposits that go into your account that aren't from customers you're more likely to miscategorize those deposits as revenue. So in other words, if we then as the owner put money into our own business and we're accustomed to just recording all deposits as revenue we might accidentally record our investment in the business as revenue which would overstate revenue which means in the United States you might end up paying taxes on it which wouldn't be good or you take out a loan to invest in the business and if you're in the habit of just recording all deposits as revenue you might record the loan as revenue and it's not revenue and if you record it as revenue then you're going to end up overstating your revenue again. Those are the two main ones. So you want to make sure that you can differentiate if you're recording all deposits as revenue between deposits that may not be revenue from the owner or something like that. Alright, so let's look at some deposits. Let's look at this one for example. Now this one's from Skillshare so it probably is from a customer or a platform but let's imagine that this is coming from the owner or loan. So let's imagine this was a loan from the bank. Now if it was a loan from the bank it might be an electronic transfer that goes into your account so you might have some information that would indicate and look different than your normal kind of deposit transactions that will help you to indicate hey look this is something different I shouldn't record it as revenue. Oftentimes also if it were a loan or an owner deposit you're going to have more regular numbers here so it might be like you put in $3,000 or something instead of $12,755 which is something that happens more often if you made a sale and had to deal with sales tax or something like that. So those are some things you can use to make sure that you can differentiate between most of the deposits which hopefully are from customers and those that are not possibly loans or coming from an owner putting money in. So let's add the details here and let's imagine that this is a loan. Skillshare is loaning. I'm not going to make a rule so I'll just say from here and then new contact boom and no item and the point is here that we need to have a loan account so let's see if we have a loan account here it's not going to income it's not going to income that's the point. So we have liabilities no loan account so let's call a loan account a sales tax historical adjustment rounding let's call it 2650 2650 adding a loan account 2650 it's going to be this is not a valid what's wrong with that it's not available 2660 what do you mean it's not available I just looked at it whatever this is going to go to a liability account liability it's going to be a current liability alright and then I'm going to call it loan payable now note when you're thinking about loans the other thing you want to note with loans is that when you take out a loan if you take out a loan often times you're going to have like a long-term loan you might pay it back in installments or you might have other kind of loan structures for a business loan they're not always going to be structured in a similar payment payment structure as an installment loan like a mortgage but often times they may and if they're going to be paid back in something longer than a year's time frame you've got the concept of breaking out short-term and long-term loans so note that I would generally go with the idea of recording the loans in one account usually short-term I'll use current liabilities and then breaking out the short-term and long-term portion if necessary for external reporting purposes or for internal decision making periodically at the end of the month or the year that makes it easier to track your loans and that makes it easier to automate your system the other thing to keep in mind is that if you have multiple loans you might want to label the loan not just loan payable but the name of the bank like Skillshare is the bank or whatever for the institution and then you can group the multiple loans using Xero's great grouping tool on your financial statements to be able to show them as just one lump sum or you can break them out so for internal reporting purposes I would like to use their loan payable for each loan so I can tie up my amortization table to the loan whereas if it were external reporting I would like to be able to group them together so I can just say this is the loan payable just one number ok so let's do that we're going to say save it and I'm not going to make a rule for it because we're just practicing the idea that we were picking this one up and resisted the urge to put it in there as revenue from a customer but rather put it on the books as a loan so let's go ahead and save it and then we can reconcile it I'll do it up here reconcile and then boom let's go to the bank account and update so now the checking account is going to go up positive now that's good news that's good news people we don't have a negative cash liability for the cash account but the other side went to this loan payable right so it went to loan payable now again if we didn't record it as loan payable and we got in the habit of just recording it as revenue it would have been on the income statement and just dumped into one of our revenue accounts if we did that we would be overstating that income and that's not good for reporting purposes also it's going to cause this problem when we have to pay back the loan because we're not tracking the loan properly because it's not on the books as a liability and you're going to have if you're doing taxes in the United States you're going to be paying taxes on a loan which isn't good right because your income is higher also note when you're taking a look at your loans over here as we think about the payments that are going to happen through the bank feeds for the loans we're going to have an issue of breaking out the interest portion and the principal portion of those payments a couple ways we can deal with that we could make an amortization table if they provide us an amortization you know table great if not we can build one either using online tools or Excel and then we can every time we make a payment if it's on a monthly installment loan then we're going to have to break out the interest and principal now the problem with that when you're trying to automate the information recording transactions as they clear the bank so let's say you're just making the loan payments monthly doing an automated transaction to do that meaning you're doing an on like an online electronic transfer and then when it clears the bank you just want to record it properly at that time well you can't make a standard rule for it why because there's three accounts affected that shouldn't be the big issue the big issue is that two of them will change every time you make a payment in other words the dollar amount will be the same but the amount that's broken out between loan reduction and interest will differ so that messes us up when we're trying to automate everything with the bank feeds so one way you can kind of deal with that is this adjusting entry kind of concept you can say hey look I'm going to do everything on a cash basis and then at the end of the year either I or my tax professional will shore up any differences and make it proper for external reporting purposes and tax purposes if necessary so you're going to work with yourself or the accountant and say hey look I'm just going to record all the payments as a decrease to the loan account not breaking out the interest because I don't want to have to break it out every time because it's going to take more work to do that instead I'm just going to record the whole amount as a reduction to the loan so I can do everything with the bank feeds and automate it and at the end of the year I would like you accountant or me myself at one time to take the amortization table and make an adjustment as of the end of the year which will properly record the loan amount properly record interest according to the amortization table and properly record the short term and long term portion of the loan if we need that for external reporting purposes so that way you can do everything automated during the year and then you can just have that one time adjustment that's going to happen so as long as everyone's on the same page and knows the plan that works quite well and might save time alright so now let's do the other one where we might have a deposit which doesn't come from a customer and that's us putting money into the business and just to get an idea for this note that these are transactions that usually happen when you're growing the business or just starting the business so remember when you're just starting the business if we just look at the balance sheet here you've got assets you've got the liabilities and the equity the assets are what we own we have those assets because they're going to help us to generate revenue in the future so when you're starting the business of course we're going to need capital in order to purchase the assets where are we going to get that capital well either we're going to take out a loan which means we have a third party that's going to give us the money the bank for example or it's from us the owner is putting money into the business those are the two major times that money going into the business that aren't from customers what are you going to do with that money you're going to take it out of the checking account and buy equipment you're going to buy machinery because those are the tools you need in order to generate the revenue hopefully once everything is going good from there the money going into the business will be coming from customers however if you're advancing or putting another store together or growing to another shop or something again you might have investments coming in so that you can buy more fixed assets so that's when you're going to see you would think these other types of transactions that are deposits that aren't coming from customers so of course the other way that you can finance the business to grow or start up is you the owner putting money in if it was a sole proprietorship then it would be obviously the owner if it was a partnership it would be the partnerships that are putting money in and if it was a corporation then that's when they sell the stock they issue the stock from the corporation most people buy stock on the secondary market buying from other people that's not going that's not money going to the business but when the business issues the stock that's kind of the same thing as the as a sole proprietor putting money into the business right they're getting capital to buy stuff so if you look at the equity section here notice that we have retained earnings which represents the money that has been accumulating that from the income statement that's flowing into the equity section so that's revenue that has been generated that we have not given to the owners and draws or dividends we've got the draws this is the money that we took out in order to give to the owner so that's what we hope to be happening most of the time going forward the company generates revenue we've got cash and we use some of that cash to reinvest in the business and we take some of it out for the owner in the form of draws if it was a corporation they would be dividends and then you might periodically have money going into the business investments into the business from the owner so hopefully we don't see that as often so a lot of times some businesses don't break out the investments in the same way as they do with draws because they just put it to retained earnings or the capital account or sometimes they net out draws but we'll make another account here which will be the owner investment account and this will be the owner putting money into the business which again we hope only happens when you first start out the business and when you want to really expand the business right that's when that's going to happen and same thing with the draws in that the investments should kind of close out classically if you take an accounting courses temporary accounts closed out to retained earnings but zero doesn't automatically do that if you want to close them out you have to do that with the actual journal entry if you don't close them out not a big deal but you'll just have the investments that have been in there for the lifetime of the business right alright so let's go back to the first tab let's first take a look at our chart of accounts accounting drop down and let's take a look at our chart of accounts and see if we have an investment account down here just to note where it would be so here's retained earnings and draws let's add an investment account let's just call it 3750 let's say I'm going to add an account and call it did I add a bank account again I don't want a bank account just a normal one now I forgot the number 3750 and so I'm going to hit the drop down and this is going to be an equity type of account and I'm going to call it owner owner and investment now if this was a corporation this would be the capital stock issuance the issuance of the capital stock is what they do and to get investments from owners which are the stockholders if it was a partnership you would have to track the partnership investments from the multiple partners so that you can track the correct partnership balances so partnerships again are often actually more complex than even corporations because of that unevenness of the breakout of the equity section which was the genius of the invention of the corporation in part at least alright let's go to the account drop down we're going to go into the bank accounts and manage account account transactions and let's find another deposit and imagine that it's coming from the owner so we're just going to take this other skillshare one here and imagine that it's coming from the owner so in order to differentiate from other deposits if we did an electronic transfer we might have some bank feed information to tell us like where it came from but if we just deposited like cash or something we might not have a whole lot other information but we would have the dollar amount which usually would be an even amount it would be like $3,000 $10,000 or whatever it wouldn't be $1,206.79 generally so usually when you see a rounded number and all your other deposits are not rounded because of sales tax or something then that would be an indication that the deposit's not from a customer for example so I'm going to add the deposit and we're going to imagine this came from the owner so I'm just going to put owner we already have one and then I'm going to say the account down here is going to go into our owner investment account the owner investment account and there it is so there we have it so we're not recording it as revenue owner investment let's save the transaction by May and then reconcile you better recognize and reconcile you see that green box you better recognize it and reconcile so anyways the cash accounts going up we're in the green and then the other side didn't go to revenue but it went down here to the owner investment so if we look at our equity section the section most confusing to most people we've got the current earnings which is really part of the retained earnings the current earnings representing what's on the income statement nothing has changed on the income statement from this transaction yet currently at the six nine four nine five four that's what's over here and it's going to roll in to retained earnings retained earnings represents the earnings that we have had prior to the current year that have rolled in to the retained earnings which have not yet been distributed to the owners in the form of our case draws or if it was a corporation dividends now the retained earnings might more properly be called in a sole proprietorship just owners equity right the owners equity and then we've got the draws which represents the money that has been taken out and it would be equivalent to dividends for a corporation and given to the owner and then we've got the owner investments which is the owner putting money into the business which is equivalent to the issuance of stock capital stock for a corporation now if you as a partnership you would have to track all of the stuff right here kind of all relates to one owner right you can think of owners equity as one as if it's just owned by one person no matter what kind of entity this is what is allocated to the owners it's a corporation owned by a bunch of owners or a partnership and then you have to break out the owner's equity per owner if it's just one person then all of this is applied to one person if it's a partnership you have to track it separately per partner which is a pain if it's a corporation then you could just really track this kind of as a lump sum still you're just gonna and then you're gonna break out who it's allocated to through the shares of a corporation that's what the genius of the shares of corporations kind of idea is alright so that's the general idea let's take a look at our trial balance tab into the right right click let's duplicate a tab let's get to the trial balance drop it down to the accounting go into the reports and we want to go into a trial balance up top and just see how that is being constructed as we go and so this is just the balance sheet on top of the income statement without any of the subtotals so we have our balance sheet is now ending down here under retained earnings so we have our new account of the owner investment and then we've got the income statement down below so if we compare this debits equal to credits it's the same thing from a double entry accounting system as saying the balance sheet is in balance, assets liabilities and equity the income statement fits in there because on the balance sheet we've got the whole income statement squished into this number current year in earnings which is here on the income statement that we just crunched together in the equity section on the balance sheet on the trial balance we just break it out all in one area using debits and credits right so now we've got the retained earnings we don't have like on the balance sheet the net income squished in there in one number the retained earnings represents the retained earnings before we closed out the income statement and then you've got all your income statement accounts under it