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Here we are in our custom zero home page going into the company file we set up in a prior presentation get great guitars duplicating some tabs to put reports in like we do every time right click in the tab to duplicate it right click in the tab up top to duplicate it back to the tab to the middle we're going to go to the accounting drop down and open up the balance sheet tab into the right and then accounting drop down this time the income statement but I'm picking up the comparative income statement we set up in a prior presentation if you don't have it you can just open the income statement but this one comparing January and February where we are currently working on February going to the balance sheet again going to the drop down for the range change custom date bringing it on up to 2023 the end of it and then we want it to be up to date so we'll hit the update to do so let's go to the first tab now we're going to do some more normal operation type transactions we're going to be imagining we have sales at say a cash register type of situation where we are making the sale at the same point in time we get paid let's take a quick look at a flow chart to understand the process this is a screenshot of a quick books desktop flow chart but we're just looking at it here for the forms because it's just the accounting flow we're concentrating on the flow for the revenue cycle where at the end of the day no matter what cycle we're using we would generally expect cash to be going up for sales of goods and services of some kind now remember this is where you can have a lot of variation between the type of company you're in if you're just doing gig work or something it might wait till it hits your bank account in terms of a deposit to record revenue nice and easy if you're working at a food truck a restaurant or someplace where you get paid at the same point in time like a cash register in our case like selling guitars in a store where they bring the guitar up to the cash register then we're doing something like a sales receipt or a receive money form where we are getting paid at the point in time that we actually did the work it's a little bit more difficult than just making a deposit because the received payments that we have are not yet in the checking account oftentimes and there's an intermediary step either cash that we need to collect or credit card information that's going through a third-party financial institution or some other payment processor that needs to then be combined and often grouped before it hits our check-in account therefore we have that grouping situation that we have to deal with and possibly needing a clearing account in order to facilitate that grouping bit and that's what we'll work on this time and then of course we have the invoice situation which would be an accrual situation adding another step we're not in a store now but rather we do the work separately and typically email the invoice to the client these days and then they're going to have to pay us and that means we have to track the receivables all right so now we're going to be working as though we're at the cash register situation someone's coming up to our cash register in our store and we're recording the sales as they happen so we'll hit the drop down up top and instead of an invoice we're going to go into the receive money form receive money form for the sale that's happening now we could put this directly into the checking account but a lot of times if we're at like a cash register situation we might want to use a clearing account of some kind so we set up a separate uh checking type of account which is a clearing account because that will allow us to group our deposits imagining we have the cash for example that we're grouping together and then depositing it in one lump sum at the end of the day important for us to make the deposit on our end match what's going to happen when we physically have the deposit made into the bank either by us with cash or by the financial institution or intermediary credit card company PayPal or whatever that's putting it into the bank so that we can reconcile which is a critical internal control every company needs to do so we're going to say cash clearing account that's what we're putting it into here and we're going to say it's from now note that if you're at a cash register uh sometimes you want to collect all the information you can from the client and that's great but if you're selling like you know sandwich is that a food truck or something they probably their customers aren't going to give you their information they just want their sandwich thank you very much most likely so you might just have one generic customer saying this is my food truck sales or whatever uh so just that will be dependent upon the type of industry that you are in but I'm going to make a new customer here Garcia and and I just want to note that that's something that a lot of people don't really comprehend like the differences in how much data you're going to be collecting from a customer depending on the industry you're in because some industries obviously it is very important because you have a small amount of customers that are high quality customers and you're selling more higher income type stuff in which case you want to have a very good relationship with your customers in other cases it it's it's not that way because you're you might only have one off sales with your customers if you sell something online and you and you know their online e-shopify store once they buy your product they're not going to probably need the product again you want to try to get a good review and everything but it's not exactly the same kind of relationship of course depending on the industry that you're in all right in any case we're going to say tab we're going to say that this is going to be February 20th February 20th okay and then what are they going to buy what what do you want Garcia guitars apparently they brought up the an EPSP hold on i got an EPSP an epiphone standard pro and they want two of those all right and luckily we had the color and what not that they like in the shop and everything so they were cool with that and then we have an ELP key and they want two of those so there we have it and those are both subject to tax notice the data input should be nice and easy because we've already put the items into the system scrolling down sales tax being calculated automatically on these items as has been set up to do so what's this going to do it's similar to an invoice but now we're getting paid at this point in time so instead of accounts receivable going up for the 2310 we're going to have the some kind of cash account go up but we're not going to put it directly into the checking account because you'll remember we put it into the cash clearing account because we're imagining that whatever the payment processor is whether it be a credit card or whether it be cash we're going to have to somehow make sure the grouping comes out of the clearing account and goes into the checking account in a proper format so that's that's that middle step that we're going to take the other side is going to go to revenue driven by these items but only for the totals of the 1200 and the 1000 not including the sales tax of 110 the sales tax is going to be a payable account that's going to show up on the liability side for 110 and we're going to have a decrease in the inventory for amounts not showing here not the 1200 or the 1000 but rather by amounts known to the system because of the items that we set up and the cost of goods sold an expense account related to us selling the inventory is going to go up for that same amount the impact on the income statement is going to be the sales amount 2200 minus the cost of goods sold account and the sub ledgers for the inventory tracking not only by dollar amount but by unit will be decreased for the guitars that we sold so a lot going on even though the data input was quite easy let's save it and check it out so going on over to the balance sheet to see k-pas so what happened we're going to go in here we've got the clearing account is going up so it's not in the checking account yet it's in the clearing account so so that's good and then the other side went into the revenue so if I go into the income statement and update it we can see revenue 2200 populated there that looks good notice that that amount is not the full amount uh uh the same amount here as the clearing account because the clearing account includes the sales tax the sales tax is going to be a liability that we're going to have to pay and it's going to be increasing our sales tax liability account down here also we saw that the inventory is going to go down so if I go into my inventory and drill down on that one and check it out we'll check that one out in person here in a more formal fashion so scrolling down uh we can see that there's decreases to those for Garcia these two items that were decreased for these two items that are not they weren't actually on the invoice because uh these are driven by the items that we set up if I go back to the balance sheet and then tab on over to the income statement then we see that cost of goods sold has the these are those two items as well and the cost of goods sold the net impact on net income is the 2200 minus the cost of goods sold representing the selling of the guitar to get that 2200 and that I believe is the uh 440 impact on the income statement let's go back to the first tab and just double check that this inventory account uh right here should tie out to our sub ledger so I'm going to go to the tab to the right right click on it and duplicate the tab and let's take a look at a sub ledger for inventory if we could uh accounting drop down reports and I'm just going to type in inventory up top inventory inventory item list let's just take a look at the item list if we can just to see that everything's moving along as it should so here's the quantity on hand and here's the total uh at the 8536 which should tie out to what's on the balance sheet 8536 I think I said that I dislexified it 8536 8536 yes that is correct let's do it again ultra vase por favor one more time first tab uh we're gonna hit the plus drop down and say we're gonna receive money again another sale happening at the good old cash register it's going to go into the clearing account again and we're gonna say this time it was Anderson mr. Anderson here again once again we meet up we're gonna go back to january uh 20th and then what does mr. Anderson want this time okay so mr. Anderson wants a ukulele apparently who who doesn't want a ukulele uh two of those we want two ukes and then he also wants an epr okay that's an epiphone rithy era three of those all right stacking up on the guitar stuff and then we want to g i us a which is a gipson us a and uh so he wants one of those and that comes out to 2094 all right so what's that going to do this is going to be increasing the the clearing account by the uh for for the clearing account for the total of the two one nine eight seventy the other side is going to go to revenue for these three items 641650380 not including the sales tax of one of four seventy that sales tax one of four seventy is going to go to a liability account for the sales tax payable we're also have a decrease from the inventory not for these amounts but driven by the items so it's what we put in for the items the cost of good soul the expense account related to us selling the inventory is going to be going up for that same amount net impact on net income the sales of 2094 minus the cost of good sold and inventory sub ledger also going down not just in dollar amount but in units that are sold because we're using a perpetual inventory system let's save it and check it out back to the balance sheet to check it out update and so we have the clearing account now has two items in it now if these two items were sold on the same day then we're probably going to have them deposited together right and that's going to be the idea so you can see the clearing account goes up and then it goes down and so on and and we have this last one that went in there hold on a sec i think i put it in there for january 20th i should have put it in there for february so let's go back i'm going to drill back down in there and change the date what were you thinking we're in february these are things that happen in the practice problem let's go because we're not working real time edit the transaction just fix it we don't need any excuses okay just fix it okay here we go 20 it's going to be february 20th 2023 let's update it and then back to our balance sheet accounting drop down balance sheet and then now we'll go back in here and it's thinking let's hit the drop down custom date 2023 and update it okay so now if i go into the the cash clearing account we can see it going up and down and zeroing out and then we should have these two transactions towards the bottom now uh so now we have these two here okay that more what i would expect i expect it to be correct is that too much to ask i'm going to go tap to the right and then we're going to update it we're going to say the sales side of things has increased as well so if we go into that sales are happening that's good that's healthy healthy business stuff mr anderson so they're going into there at the sales amount and then back to the first tab we're going to have the difference between what went into the checking account and the sales items are the sales tax liability that we're going to have to pay to whoever's shaking us down for protection money which is usually the government so some kind of government entity it's for our own good though it's for our own good so in any case then that we're going to go into the inventory here and it should be going down not by an amount on the uh the the statement but by these amounts driven by the items so this is here's anderson right there and then if we go to the balance sheet or the income statement cost of goods sold we have the expenses related to the selling of the inventory called cost of goods sold calculated as we go because we're doing a perpetual inventory system the impact on net income of course being the revenue minus the cost of goods sold for the sales receipt and by go back to the balance sheet the inventory should have a sub ledger tracking that's over here by unit as well as by dollar so the units have gone down because we're selling inventory dollar amount now at the six eight six four and that should tie to the uh six eight six four where am i six eight six four right there boom all right so now let's gonna we're gonna imagine now that it's the end of the day and we're gonna imagine that we're gonna take this money and deposit it into our checking account now if it was a cash if it was cash transactions which is not likely to be when we have these high dollar amounts but similar concept if we had cash sales during the day we would go to the bank and deposit into the bank as that one lump sum therefore when it hits the checking account i don't want it to be there in these two amounts that are comprising what's in this clearing account but rather in one amount so that i can make the bank reconciliation as easy as possible and i keep on emphasizing this because this is a common error a common problem that people have especially when they're using all these different payment processors these days you've got cash you've got different intermediary payment processors stripes and whatnot you got credit cards which is another intermediary payment processor they all come with their own kind of issues with regards to how is it actually going to hit your bank and how can you make sure that you are doing it properly so that your reconciliation will be easy if you're going into your bank reconciliation or if you're looking at your bank feeds and you can't tie out your bank feeds to your sales reports that are being deposited ultimately into the checking account it's your accounting system that's wrong you got to figure out you got to figure out okay how can i make up a system so that when the money gets the checking account it's deposited in the same grouping i shouldn't have to basically add things together in order to reconcile right it should be the reconciliation should be easy almost automated these times these days if you have the bank feeds on but it will only be that way if you have the proper allocation when you're when you're pulling the money over so if it was cash you're going to deposit it as one lump sum so we would want to make one lump sum deposit if it's a credit card company you got to deal with how the credit card company is going to group the payments put it through the clearing account and then when they when the credit card company makes the deposits you want to make sure they pull over properly into the checking account and you can kind of then you can reconcile on both sides of the credit card uh or you can reconcile on the credit card deposit you know if it goes to the bank feeds you can think about then how the bank feeds are going to fit into this process but the bank feeds are going to match the bank statement and and therefore you know you want to be able to match out to that okay so i'm going to make i'm going to make a deposit then taking it out of here and it's going to go into the checking account or we could do a transfer form so let's go to the first tab and i'm going to hit the drop down and we could say now either of these forms you can kind of you you can use a i think a receive money form would be appropriate because because then you're going to show it as an increase uh to the checking account although on the other side the receive money form will be a decrease so the transfer form uh will show it as a transfer so that looks appropriate on either side so let me show you what i mean if i hit the it's going from the cash clearing account it's going to the uh the checking account and we're going to say this happened on jan 20 jan 20 can you get the date right this time messing i'm all messed up because of your date thing okay whatever dude wasn't that bad of a date issue so we're going to we're going to transfer it over and then there we go so let's go ahead and transfer it and then we're going to go to the balance sheet and so when i update this this should go away and it should go into the checking account let's update it and so now it's in the checking account so if i go into the checking the trustee checking to check it out then i'm going to scroll down and say that uh we've got the money shows up in here as hopefully a transfer don't don't date like i did it again with that i did it i messed up the date again all right it's up here on jan 20 so i'm going to go in here again sorry about that it's in february i can't i can't wrap my mind around the fact so this one i'm just going to remove and redo it so i'm going to say remove and redo i did this on purpose just so you can see what you have to do if it was a transfer you've got to remove and redo it so i'm going to hit the drop down and all ultra vase one more time it's going to go from the cash clearing account to the checking account it's going to be on not january but february february that's not february 20th for crying out loud for crying out loud 4508.7 for sobbing softly's sake we're gonna say then we're gonna let's try it again let's go to the accounting drop down and balance sheet and see if we got it right this time or if i messed anything up further cross your fingers people cross your fingers if it's not right it's your fault because you didn't cross your fingers we're going to go into the checking account check it out and scrolling down it should be properly populated here as a transfer now note that the fact that it's in here as a transfer allows us to sort so if i was going to sort items by transaction the the increase is now a transfer so i have to make sure that i don't just sort by the money informs i sort by transfers as well when i'm looking at the increases if i was to go up top for example and filter and my reports and try to look at just the increases then you want to make sure you pick up the transfers now the other thing that you could do is say well i want all my increases to basically be deposits so you could use maybe a deposit form or a money inform that would be an increase here but then it would look a little bit funny on the clearing account because the clearing account would have everything as a receive money form both increases and decreases so that might not be a problem because it's just a clearing account as long as it clears out to zero but that's why a transfer form is a little bit more proper of a form when you're transferring between two account two like checking accounts so just to reiterate that a little bit more like if you had two checking accounts here you can imagine that you could use a deposit form you could you would you would receive money form or deposit form either that what's two names for the same thing you could use an expense type form or a spend money form same things or number three you could use the transfer form if you use a deposit form it will look correct on the deposit side of things but the money that's coming out of the other checking account will have a deposit form that is a decrease to that checking account which looks funny if you use an expense type form or spend money form it'll look correct to the the account the checking account that you took the money out of because it'll be a decrease but it will look funny when the for the place that you put the money into because then you'll have an expense form that's an increase which are usually deposits which is kind of why you have the transfer form because the transfer could be either an increase or a decrease and it gives you a little bit more indication of what actually happening it's going between two you know cash type of accounts all right that said let's open up the trustee trial balance go into the last tab we're going to go to the accounting drop down reports and type in trial balance trial balance and then we'll range into the change and change the range customize it 2023 if you please and then update it all right so if your numbers tie into our numbers great if not try changing the date range if you tied out last time but you're off this time the things we changed were the checking account we had an adjustment to that if you have a clearing account that should be gone because it should be cleared out so that could be one of the things that would be an issue we changed the inventory account because we sold stuff on a perpetual system and we changed the sales tax when we sold stuff and we changed the sales line item down here the income statement and we changed the cost of the goods sold