ABC Classifications (and Analysis) - Companies classify their inventory stock to make more intelligent purchasing decisions and keep their inventory as lean and effective as possible.
Specifically, the classifications indicate how items are selling, by their value. In the typical ABC Classification, "A" items are those with lots of money moving through the inventory in a year, "B" are the next group with less money involved, "C"s are numerous but collectively account for very few dollars moving through the inventory, and "D's are the dogs—defunct, dead stock items.
MyBooks employs an enhanced version of the standard ABC analysis in which it breaks down your inventory items into 13 different classes providing even more information to those responsible for replenishing stock levels.
Specifically, these classifications reflect how inventory items actually sell. The top 7.5% movers are designated Class 1. The second 7.5% are Class 2. The next 10% are Class 3 and the next 10% are Class 4. The remaining classes each represent 8% successively down the ranking. The last class can be viewed as ‘dog’ or ‘dead’ items—inventory that just doesn’t sell. In terms of an ABC Analysis, Class 1 and 2 are a breakdown of A, Class 3 and 4 a breakdown of B, and Class 5 through 12 are a breakdown of C. Class 13 is the same as D.
This classification system is the one preferred by the wholesale distribution ‘expert’, Gordon Graham, over the ABC Analysis and the EOQ (Economical Order Quantity) method of determining how to replenish stock levels.
Account Payable (A/P) - This term is applied to mean the system of tracking the monies owed by a company as a result of the purchases of goods and services from its suppliers (vendors).
Balance Method - There are two balance methods employed in the MyBooks Accounts Receivable functions: the Open Item method and the Balance Forward method. For most businesses, the Open Items method is preferable because it maintains the best level of detail. In some industries where customers are invoiced many times a day, the Balance Forward method may be preferred. MyBooks allows you to choose a method for each customer (as opposed to many other accounting systems that address all customers with one method). The differences in the methods are described here:
Balance Forward Accounting Method
Current transactions (invoices, credit memos, debit memos, payments, etc.) are placed in the customer's account as they occur. When the Move Paid-up Items to History function is performed at the end of a period, these transactions are summarized into one Balance Forward item for this particular fiscal period. Balance Forward items from previous fiscal periods are not included in this summarization process; they remain on account until their balances are reduced to zero.
Payments for Balance Forward accounts are applied directly to earlier Balance Forward items or to current invoices and debit memo items.
Keeping separate Balance Forward items for each fiscal period allows aging of Balance Forward accounts.
Open Item Accounting Method
Open Item accounts differ from Balance Forward accounts in that each transaction remains in the account until its balance is reduced to zero. Statements for Open Item accounts contain the current period's transactions (charges, credits, and cash receipts) as well as all older transactions with non-zero balances.
Cash payments are applied to the individual open items during Cash Receipts entry. After entering the check information, the operator may review a list of the open items in that account and apply the cash payments as desired to one or more items.
Cash Flow Statement - see Financial Statements. A cash flow statement shows the flow of cash into and out of a business for a period of time. It will help answer the guestion of "where did the money go?" by reporting activities that have a direct effect on cash.
Chart of Accounts (COA) - To develop a set of financial statements you have to start with an outline of how you will organize the information. This outline is called your chart of accounts, and it is the framework upon which the financial statements are built. Every category of income, expense, cash, assets, debts, and owner’s equity in your company is assigned to an account in your chart of accounts. Every transaction in your business (sales invoices, cash receipts, vendor invoices, etc.) will be distributed as debits and credits to appropriate accounts in the chart. Each account will have summary totals of debits and credits posted each accounting period. The financial health of your business can then be determined with the financial statements that will result from these categorized totals.
You need a chart of accounts whether you are doing bookkeeping by hand or using a computer — this system predates computers themselves.
A chart of accounts uses a numbering system to organize the data. All the data on all the reports you print comes out in numerical order. The first digit of each shows what sort of account it is, and the digits, which follow, put the accounts in order.
Customer Deposits - This is money that your receive from customers in anticipation of products to be delivered, or work to be done. Until you deliver the products or services, however, this money is technically not yours. You are just holding on to it as a kind of insurance. It will show as a liability in your books until you actually earn it.
In MyBooks, you can enter this type of cash receipt in the same place you enter all your cash receipts, and even specify the customer from whom you have received it. However, this money is not reflected in the customer's balance. When you eventually deliver the products or services, and issue invoices to the customer, you may then easily apply the invoices to the deposit amount and reduce your liability. In the meantime, the Aged Receivables reports and the inquiry screens will show you any deposits and their balances but not include them in the regular customer balance or aging.
Document - This term is used generically in MyBooks to refer to any kind of business transaction entered into the system, including: sales orders, credit memos, invoices, recurring orders, vendor invoices, vouchers, etc.
Drill Down - This refers to the method of inquiry in which individual elements of information lead to more detailed sources, which in turn contain elements that lead to more detailed sources, and so on, until the original source is finally reached. In other words, information is continually revealed in a systematic and logically related manner. This is the method employed in the MyBooks information centers.
For example: In the Customer Inquiry screen of the MyBooks information center, you would initially view the customer name and address along with a list of current invoices. A click on one of the invoice numbers would lead you to the A/R sales transaction which provides more detail about the invoice than did the line on the first screen. A click on the 'Original Document' button would then lead you to the original sales order record from which the A/R transaction resulted. From there, you can view the line items of the sales order, click on any of them, and see specific information about the fulfillment of that line on the invoice.
Dunning - This means asking your customers outright for monies owed to you. Perhaps the best way to do this is on the telephone. It puts you in direct contact with the people who are most important to your business. The dunning process in MyBooks efficiently facilitates ongoing interactive collection efforts. This program feeds you the customers who owe you money showing you their aged balance, contact name, telephone number, notes from prior conversations, and all the other information you have ever entered about each of them.
Effective Date - Every financial transaction has a date associated with it. For instance, customers send you dated checks. Their dates reflect the dates the customers issued those documents. However, these are not the dates on which you recognize, or enter, them in your books. If a customer sends you a check with the date May 1st but you receive it on June 1st you may wonder why it took so long for you to get it. Perhaps it was due May 4th, but the customer did not actually issue it until May 25th. To defend themselves against late charges, they backdate the check. In this case, that check date should be only a reference for you. The date you receive and recognize that check should determine the lateness of payment and any finance charges that will be assessed on the account.
The day you receive and recognize (enter it into your books) the document is referred to as the "effective date". In MyBooks, you record both the document date and the effective date for customer cash receipts and vendor invoices.
Finance Charges - These are penalties imposed on customers for late payments. MyBooks allows you to automatically calculate these finance charges (or interest) across all customer accounts based on a percentage applied after x days of lateness (where x is a number you specify).
Integrate - MyBooks uses this term to describe the process of bringing accounting information from one logical component of the system (e.g., A/R) into another (e.g., G/L), as in Integrate A/R Distributions on the Accountant's Page.
Interface - This term is used in different ways, depending on the context. In MyBooks, this term (usually expressed as "user interface") refers to what you see on the screen that facilitates your interactive use of the software (i.e., the menus, data entry screens, report selection screens, etc.).
Journal & Post - This is the final stage of the batch entry process. The "journal" that is produced is your hard-copy audit trail of the process. The "post" is the batch update process. This is when all the transaction data that you entered is used to update all the relevant master files of the system, making the transaction information permanent, and your master file information current.
Journal Entry - This refers to the transaction entries that are made directly into your general ledger.
Key - see Record Key
Kits -
Kits are special products (Items) that are made up of two or more non-kit items (which are referred to as kit components when used in kits). For example, a camera "kit" may include a camera, a case, a book on photography, and a roll of film, all of which may also be sold separately.
In MyBooks, kitting transactions are used to specify the packing (assembling) or unpacking (disassembling) of kits. The pack transactions pull the necessary quantities of the kit's components from the stock quantities-on-hand while increasing the quantity-on-hand for the kit item accordingly. Unpack transactions do just the opposite—they decrement the on-hand quantity of the kit item while putting the component items back into stock.
You do not need to know anything about the record you are looking for when using the Lookup Window. This feature produces a window that lists all the records in the requested file, allowing you to peruse the list and select the desired record.
Whenever a prompt field has the capability to provide you with a Lookup Window, the top application button's description begins with the word 'Select'. When you click on the 'Select' button, the Lookup Window appears. Now just double-click on the record of your choice.
Price Class - This is a category designation that you define for your inventory items. Price classes determine whether or not an individual customer will be allowed quantity breaks on items; they also define individual cost-plus pricing or discounts for each customer. Examples of items which might be grouped in the same price class are: items with similar pricing margins; items that belong to a family of products; items that appeal to a specific buying market
Sequential Integrity - In some transaction-based processes, the MyBooks program automatically generates a number that is assigned to the transaction as its key. This transaction number is generated in a sequential order. The program will not allow the
deletion of any transactions in order to maintain the integrity of the sequential number. (Transactions are viewed in sequential number order on a Register found on the 'Reports' menu.)
Rather than allowing deletion of transactions—which would compromise the integrity of the numerical sequence (effectively creating 'holes' in the Register), and prompt the controller to question and investigate the situation (using valuable resources such as time)—a 'Void Transaction' option if provided in the transaction menu.
Statement Cycle - This refers to the schedule on which you send out customer statements. You may, for instance, send statements to some customers on the 15th of every month, and to others on the last day of every month. You may not send statements to the remaining customers. In MyBooks, you assign a statement cycle number to each customer to whom you wish to send statements. Whenever you actually print the statements, you specify which cycle number you are printing, and only those customers whose cycle matches that number will be selected for statement printing.
Statement of Cash Flow - see Financial Statements. A statement of cash flow shows the flow of cash into and out of a business for a period of time. It will help answer the guestion of "where did the money go?" by reporting activities that have a direct effect on cash.
Task - In MyBooks, a "task" refers to the use of a specific function, such as "Enter Invoice", "Print Checks", etc.
Transaction - These are records of business activities (e.g., sales, payments, inventory adjustments) that lead to entries in your accounting books. In MyBooks, the term "transaction" is used to describe the financial documents that are entered in batches and do not update any master file information until they are posted.
Trial Balance - This is a list of all the accounts in your chart of accounts along with their opening balances, total debits, total credits, net change, and closing balance. At the bottom of the report are the totals for all the accounts taken together.
Void - This refers to the nullification of a posted accounting transaction without its erasure.
In some transaction-based processes, the program automatically generates a number that is assigned to the transaction as its key. This transaction number is generated in a sequential order. The program will not allow the
deletion of any transactions in order to maintain the integrity of the sequential number. (Transactions are viewed in sequential number order on a Register found on the 'Reports' menu.)
Rather than allowing deletion of transactions, which would effectively create 'holes' in the Register prompting a controller to question and investigate the situation (using valuable resources such as time), a 'Void Transaction' option if provided in the transaction menu.
The 'Void' option stamps the transaction as void and nullifies any effect it could have on any master files. The transaction itself is preserved in a format suitable for presentation on the Register. This method ensures that gaps in the sequential number order and Register are avoided completely.
Voucher -
Every business continually makes cash disbursements. Most of these disbursements are for overhead expenses (e.g., rent, electricity, office supplies) and inventory (goods purchased for resale). In most cases, the suppliers (vendors) send invoices to the company for the goods or services rendered. In an accrual accounting system such as MyBooks, invoices are entered as they are received, and then paid at a later point in time. Sometimes, payments are made without invoices (e.g., travel or entertainment expenses). In these cases, there is really no documented pre-approval, and a receipt is the only proof of the expense. Enter the "voucher system".
A voucher is, in fact, a written authorization of an expense. The voucher system pre-dates computer-based accounting systems, and it remains the method preferred by accountants. This is the method that is built into the MyBooks accounting system.
In addition to entering vendor invoices, you enter every other expense as soon as it is anticipated and approved. The voucher may then go through an approval process prior to making payment—whether or not it is based on a vendor invoice. For instance, an invoice should not be paid just because it is received. What if the goods or services were never received? What if an item was refused or returned? What if you never ordered it? What if an employee hands in a receipt for an expense that was not approved? The voucher is basically the beginning and the end of the approval-for-payment process. The voucher system dictates: no voucher—no payment.
