 Zero Accounting Software 2023 Enter Transaction for Owner Withdrawal or Personal Payment Using Bank Feeds. Get ready to become an Accountant Hero with Zero 2023. Here we are in our Custom Zero Homepage going into the company file we set up in a prior presentation. The Bank Feed 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 we're 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. The headphones not pinching too tight on the glasses to give me a headache which is nice. The quality of the patting is good and it has lasted for some time. I've had these for some time now and they haven't gotten all torn up on me or anything like that. I also like that I have a cord when I'm doing my recordings as opposed to a USB centered headphone because that frees up a USB port and I find the USB headphones to be less reliable. They come with an audio jack that looks like this which is useful for me because that plugs into my audio interface. However if you want to use the headphones for some other purpose I believe it's fairly easy to get a converter to other types of audio jacks. If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com where we have many different courses. 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. Duplicating some tabs to put reports in like we do every time right-clicking the tab up top so we can duplicate it. Then we're going to right-click the tab again and duplicate it again. Let's go back to the tab to the middle. Accounting drop-down we want to open up the balance sheet report. Then I'm going to tab to the right. Accounting drop-down again this time opening the income statement or profit and loss report. See the date range on the income statement to bring it back to 2022 because that's the period that we have our bank feeds in. So January and December of 2022. Alright running that let's go back to the first tab now open up our bank feeds which is under the accounting drop-down. We're in the bank accounts we've connected or uploaded information for our checking account manage the account. We're going to go into the transactions and then I'm going to go into the reconcile. We have been constructing our books as much as we can directly from the bank feeds. That means for the most part when we have decreases to the checking account then the other side we're going to record as they come through our bank feeds. Imagining we have an electronic transfer kind of system so that we have the information we need to automate our accounting system. And the other side usually is going to go to an expense the most common reoccurring transactions being like the telephone bill the utility bill the gas bill which we can easily automate. However there are some situations where if you have a decrease to the checking account you need to be careful to make sure that you properly categorize it instead of just having it lumped in to an expense. So some common examples of that would be you're pulling money out for example for a draw. So if you pull money out for a draw meaning you're taking it out for personal use we want to make sure that we don't record that as an expense because if we do we will be overstating these expenses. We will be understating the net income. Now if you're doing taxes in the United States you might say well that's good for taxes because my net income is going down which means I pay less tax. But obviously it's not you can't legally do that. So you'd be miscategorizing your draws as expenses and if you get audited and whatnot you're going to be in trouble for doing that. So what do we want to do on a proper method when we take money out for a draw that should go on the balance sheet. So what should happen we're going to see something come out of the checking account which is a draw the checking account is going to go down. And the other side which is a liability right now because we don't have any we haven't put any deposits in. And the other side is going to go to equity. Now notice it's the equity accounts often confusing to people partially because the equity account has different names when you're talking about different types of organizations. But the total equity is basically the same in concept. So in other words if you're a sole proprietor one owner of the corporation when you pull money out of the business you want you're going to call it a draw normally. Now you could just record it to the to the retained earnings or the capital account. But oftentimes people like to break out in their own account the draws the money that we are taking out of the business. If it was a corporation we would record it it's the same kind of concept but we would record it as dividends. And the major difference between those two things is of course if you're a sole proprietor what's going to happen you're going to generate revenue as you generate revenue. Your assets are going to go up hopefully your cash goes up and you can either invest that back in the business buying more equipment or you can take it out of the business for personal use in the form of a draw. And you can decide when you want to take money out of course because it's your business if it's a sole proprietor. If it's a corporation however it's a separate legal entity which has its own like corporate structure which is similar to like a government structure. So now you've got to have votes to determine you know who who's going to get to be able to take a draw out and the draws are going to be allocated not to an individual but per share. So that means you have to come up with how much is going to go to the owners the shareholders on a per share basis which means you got to do some bureaucratic kind of calculations there typically to figure out what what draws are going to be taken out and then all the draws are going to be taken out and allocated based on the number of shares. If you have a partnership then you might have multiple partners who are similar to a sole proprietor and they have more leeway to take out whatever draws they want and you have to actually track those separate partnership equity accounts. To manage their equity balances and possibly have a separate draws account for each partnership. So partnerships in some ways are actually more complex than a corporation because the goal of a corporation is to be able to scale without being complex because because of that you know deviation or or breaking out of the of the corporate stocks. All right now from a bookkeeping standpoint then anytime something is spent for the personal use you would like to take it out as a draw would be the best way to do it and then and then record it possibly as a personal expense possibly in another zero accounting software if you want to track your personal expenses in zero as well because we would like to have a separation between the business and the personal. But sometimes that doesn't happen sometimes people just spend money for personal stuff out of the business account. If someone spent money for personal stuff out of the business account then you could just pick that up and say OK if you spent money on Disneyland or something. I'm not going to record it as Disneyland expense but instead I'm going to record it as a draw. So it's not the end of the world if that happens it's not like you can't you can't account for that. However it's more difficult to account for that especially if your bookkeeper is not the actual owner of the business because it's going to be difficult to determine if you're just spending money out of one account. It's not about what stuff is business in which stuff is personal but you could kind of break that out if you if you wanted to. And also if you wanted to do account categories you might be able to have an income statement that's broken out that that be able to break out your business and personal allowing you for small businesses sole proprietorships for example to possibly have an income statement which would be what's necessary to create their tax returns on the schedule. With just one zero account and be able to track your personal stuff in there as well. Although that's not you know what you really want to do for a full service accounting system because you're kind of because it's still kind of mixing things up on the balance sheet. But it's kind of not it's could be a system that that works so you have that general option as well. All right so let's go back on over let's go to the first tab and set up a draws account or see if we have a draws account. So I'm going to go to the accounting drop down we're going to go into the chart of accounts. And the draws account is going to be an equity account. So if I go into the equity accounts down here we've got retained earnings let's add another account. Let's call it let's call it three eight zero zero or something and call it draws. So I'm going to say add an account three eight zero zero it's going to be an equity type of account equity and I'm going to call it draws. You could call it withdrawals draws you know you might have multiple draws for different capital accounts if it was a corporation it would be called dividends. We'll save it there. All right let's go back into our bank feed so that draws account by the way is right there. So OK back into our accounting drop down bank accounts back into our transactions for our bank account here and reconcile. And I'm going to find I'm going to find one that we can work with here. Now let's use this one. So this one looks like it's a transfer but we're going to we're going to pretend that this $75 was pulled out as a draw. So the owner pulled the money out as a draw. Now note again that if you're pulling money out of of the checking account just pulling cash out we would like to come up with a system that we're only doing that if we're pulling out for personal use. In other words if you're going to pay for something for the business with cash that's not typically what we would like to do because we want to have an audit trail for anything that we're paying because we want to be able to verify that we're paying it for the business. So if we have a legitimate business expense especially in the United States where we have an income tax system if the IRS comes back and says what did you spend this money on. What we would like to be able to say is I have this audit trail that shows it clearly being spent on this particular thing which is easier if we're not doing cash transactions right. The cash transaction eliminates the ability to to make the to make that connection which you might want on the personal side of things right. I don't want the IRS tracking all my personal transactions and whatnot but I want to have be able to write off the business type of transactions. So that's what we would like to do every time you if you're taking the money out just cash then try to do that with with just draws. If it's a business expense use some kind of electronic transfer so that we can make sure that we have an audit trail for it is the general rule. If you do pull money out for tips or something like that that are business related because cash is just the best method to use. Then you want to have to keep the receipts and whatnot so that you can you can verify the transactions you're making. So let's imagine this one was was taken out for personal use. So I'm going to add the details and I'm going to say that this this is going to be a transfer. OK we might just put that we might just put like owner owner owner. And then I'm going to say it's not an item reoccurring transfer in the account that it's going to go to is draws. Now for paying if we're just taking money out kind of like a salary out of the business that's somewhat standardized then we'll be able to see that clearly. But any money that's just cash coming out of the checking account that the owner is pulling out we would like to be able to assume that is draws. Now if you can't assume that then then you're going to have to say in your bookkeeper working with someone else or even if you're doing your own books you're going to have to then say OK what did I spend this cash on. Again that's not what you really want to do. That's that's kind of a pain to have to do that. So you'd like to be able to assume it was draws. OK I've said that you're beladling the point here for crying out loud. We heard we hear you we hear you. OK just making sure because it messes me up man it messes up my bookkeeping. So I want to make sure you know you know what I'm talking about. In any case we're going to go down in the checking account. So if I go into the checking account we see it coming out of the checking account with a money out form $75 and back to the balance sheet. Nothing happened on the income statement. The other side of course on the balance sheet you can call it like a Contra equity account down here with the draws because it's pulling down the equity. So we took this money out but it didn't flow through the income statement like on retained earnings. It's just went directly to to the draws account. Well the current earnings would flow into retained earnings. The current earnings flow this is the draws. Now the other thing I just want to point out here is that if you've taken accounting courses then you'll note that the temporary accounts are the income statement accounts which will close out to retained earnings. And typically we close out draws to retained earnings as well annually or possibly monthly. Usually annually most likely for small businesses but zero will not automatically close out the draws to the retained earnings. It will close out automatically the current earnings from the income statement to retained earnings. So it's not a big deal if you don't want to close your draws out then this draws account is just going to keep on going up. This will just be the lifetime draws instead of the current year draws. If you want to track your draws just for the current year you can go into the draws account look at the detail and see what happened in the current year. What was the increase for the current year or you can do a year and adjusting entry closing the draws out to retained earnings so that you can just see the draws accumulating upwards for the current year. Nothing happened to the income statement which is good if we did record it to the income statement as miscellaneous expense or something it would be an increase to the expense which would be lowering net income. Alright let's do another one and imagine that we paid for something that I'm seeing in the bank feeds but it was for something personal as opposed to business related. So let's pick up another one of these items here on the prime America. Let's do another one of these and pretend that this one was for personal use. Let's pretend it was like Disneyland or something right. I look through here and I say well that's not a business thing but it came out of the business checking account. Well what do I do now because what should have happened is you should have taken the cash out of the checking account which I would easily see as a draw because it was a cash draw which I would have recorded the draws and then you could have spent the money out of your personal account for Disneyland or whatever. And then we can track that on the personal zero side of things but you didn't do that. We didn't do that let's imagine and we just spent money for personal stuff out of the business checking account. Now obviously one of the problems with that is it's difficult especially if you have a separate person doing the bookkeeping then the owner for them to be able to say is this business or is this personal what accounts should it go to. But if we can differentiate that we can say well I know this is personal then we can put it to the draws account directly right. So now it's not a big deal we can still deal with it we can just put it to the draws account instead of to the income account. The other thing you could do if you want to track personal and business on the same in the same zero software is you might try to use categories breaking out the income statement between business and personal so that you could put it to like a personal expense account entertainment that's personal and possibly break out a different column on the income statement. That's a little that adds a little bit more complication but it allows you to track business and personal in one account. You can't really do that with larger businesses because the balance sheet is going to be more difficult to break out and sometimes even for taxes you need to report the balance sheet. But possibly small businesses might be able to to get away with that so you might want to look into that option. Alright so I'm just going to add the detail here that's the wrong one hold on a sec hold on a sec I want to add the detail for for this one. Okay so and I'm just going to say Primarica okay and then I'm going to say this was for personal use so we'll say $25 and I'm just going to put it to the draws account draws draw. Alright so now so now we'll just put that directly to the draws account so I'll just save it and boom and reconcile okay so then if I go back on over here I could say update if it was a decrease to the checking account which is a liability because it's overdrawn and now the draws account has the $150 in it so there we have it and so there we have it. Now the added complication with this is that you know we're not showing any detail for the personal side. You know if you want to track your personal financial statements you would like to record that as a personal expense on your personal financials which you might do in another zero accounting system. Or again you might use that class tracking kind of system but a lot of times people are really kind of just concerned with getting their corporate or their business side correct so they can comply with whatever needs need to be complied with such as in the United States for example taxes but in any case nothing's recorded on the income statement for that transaction. Let's notice if I go to this first tab by the way we've been still building our financial statements from this information. So you could see that the we've been reconciled everything here our account transactions we've been making our account transactions and reconciling them. Meaning they obviously tie out to what's on the bank statement because because we built them directly from the bank statement so we're creating these transactions from the bank feeds as we go in our contacts. We can also see that we are you know creating our contacts as we go and we've been creating our chart of accounts. All right let's open up another tab right click in the tab and look at our trial balance just to see how this trial balances is formulating because I think that gives us a good look of what is happening reports and trial balance trial balance. And this is just a trial of our balances so if I scroll down notice. This is just the balance sheet on top of the income statement now and now we've added another account to the equity section so equity stops that retained earnings and then the income statement happens income minus expenses. The assets equal the credits because I have all the accounts balance sheet and income statement accounts in debit and credit format which is the same thing as saying in double entry accounting terminology that the assets equal the liabilities plus the equity right. But where does the income statement fall into assets equal liabilities plus equity the equity actually includes all of the income statement which is summarized here at the 83849 which is what's on the income statement 83849 the income statement given us that performance statement the temporary accounts showing our performance over a certain timeframe a month or a year for example.