Accounting Unplugged


About

Posted in by Erin Lawlor on the August 27th, 2008

My name is Erin Lawlor, I am an Accounting Systems Consultant and I live in Utah.

My career in Accounting started over 22 years ago in Calgary, Alberta Canada where I handled Accounts Payable, Billings and Payroll for a Contractor who specialized in Protective Coatings for Rail Cars and Fireproofing for Oil Refineries. Since then I have gone on to earn a BS degree in Accounting, and worked as a Controller in the Home Health Care, Construction and Property Management Industries and I currently provide Accounting and Software Support as a Consultant.

From the beginning, I was more interested in what was going on behind the scenes with the accounting software than I was with the available tasks and reports.  I just wanted more flexibility and information than the software I used made available.  That is still my main interest but it cannot be accomplished without first “unplugging” and gaining a solid understanding of the structure of the Accounting System behind its Computerized version.  So, for the first part of this blog, I will “unplug” from technology and work on explaining the structure of the system.

My target audience is anyone who uses Accounting Data. I hope to help anyone who would like to know more about their Accounting Data. I wish the very basics had been explained to me more clearly from the beginning.

For those who are starting businesses or thinking of investing, there really is no substitute for a good accountant but there is also no substitute for understanding the numbers yourself.

Accounting is the language of our economy, it is relied upon to provide the feedback that keeps us competitive and able to provide the goods and services that we all depend on and enjoy. When accounting fails, we all lose. We lose because costs are always passed on to consumers and tax payers via increases in prices, tax dollars spent on bailing out failed businesses and tax dollars spent on prosecuting and sometimes jailing those responsible for the bad faith accounting.

Get Started: Accounting Overview

Note: There are two different aspects of the Accounting System, the two aspects are Structural and Content.  The aspect of the Accounting System that I address in the blog is Structural.  I will add Content for demonstration but the purpose of the information in the blog is related to Structure, not Content.

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© 2008 – 2010 Erin Lawlor

On Twitter: http://twitter.com/blusie

10 Responses to 'About'

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  1. dorie said,

    on February 27th, 2009 at 6:49 pm

    Hi! erin…I like the way you explain things about accounting – ordinary people who are not familiar with accounting easily understands it,…

  2. Jay said,

    on April 7th, 2009 at 3:14 am

    Hi! Erin… I agree with dorie… While reading these article of yours gives me a brief information about accounting transactions. Actually these articles were great it helps me a lot in many ways. I am a system analyst and were on the process of conceptualizing our own accounting system. Thank you.


  3. on May 15th, 2009 at 11:23 pm

    I very much like the clarity in your instructions. Obviously, you have a clear and deep understanding of the subject matter. I am particulary glad of your explanation of the % of completion transaction. I am still unclear on how to adjuct begining retain earning for the accrual to the % of completion. Which balance sheet accounts are involved in the reconciliation besides, A/R, A/P, Cost &Billing in Excess a/cs, depreciation and deferred tax liab? And how are these amounts determined. I appreciate your assistance.

    James.

  4. admin said,

    on May 18th, 2009 at 12:30 pm

    James,

    It is my understanding that there are no additional adjustments to be made once the over/under billing adjustments have been made.

    This is why.

    For AR which is an asset, the offset is Revenue. But, if it is found that billings were higher than they should have been under the percentage of completion method, the adjusting entry is a debit to revenue and a credit to a liability account for over billings. The revenue then, has been adjusted appropriately and the liability account offsets the receivable asset.

    I don’t believe there are any additional adjustments necessary for deferred tax liability or AP or AR since revenue has been adjusted appropriately through the over/under billing entries.

    Also, there are no reversing entries required for the prior year RE’s, I tend to reverse the balances of the over an the under billing accounts each month and replace them with the newly calculated balances, but even in those cases, the difference between previous and current balances exist only because of current period activities and so the only period affected should be the current period.

    Erin

  5. Rico said,

    on July 9th, 2009 at 2:33 am

    Nice blog! Many people think, accounting is not important, but it is. A startups financials are a major issue. Every day. I’ll start reading your blog from now on! Thanks!

  6. Pat Sanches said,

    on January 5th, 2010 at 4:53 pm

    Dear Erin,

    I will be starting up my own business in the near future. I am now in the process of taking Accounting III and started working on Quickbooks. I will have several clients that do not like computers and want their books done by hand. My problem is that I am not able to find journals and ledgers, do you know of a web site that I can access to purchase the necessary journals and ledgers.

    I have read all of your material and I have to say, yours is by far the best. It was better than my class Accounting Book.

    Hoping to hear from you.

    Pat

  7. admin said,

    on January 5th, 2010 at 5:43 pm

    Pat,

    Thank you so much for your comment – I appreciate the compliment and am very happy I could help.

    I’m sorry to say that I don’t know of sources for manual ledgers and frankly, although it is essential to understand the manual system, I would discourage anyone from doing the work “by hand” because there are so many advantages to computerized systems.

    Having said that, I’d try an office supply or even phone a local CPA firm, they may have sources.

    I think Quickbooks is a good starting point for software.

    Good luck to you!

    Erin

  8. BHJ said,

    on April 26th, 2011 at 8:29 am

    Hi Erin,

    Thank you very much for the resourceful information.
    I currently have a problem which I would like to ask you. In a percentage of completion contract schedule, does underbilling or overbilling reduce tax liaiblity? Hope this makes sense. Thank you.

  9. admin said,

    on April 26th, 2011 at 9:36 am

    BJH,

    Under billing understates earned income and therefore understates tax liability and the opposite is true for overbilling.

    In both circumstances though, it is a timing issue and the overall tax paid over time will not be affected.

    Erin

  10. Jenna Dalusky said,

    on April 18th, 2013 at 2:18 pm

    Erin,

    I have a question about Over and Under Billings. If at year end you have an Over Billing of $20,000 and you book it to a liability account and a revenue account, how do you reverse that in the next year without affecting the new year’s financials? The previous year’s revenue account zeroes out to retained earnings and the liability account does not.

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