Part I The QuickBooks System in .NET

Integrating EAN13 in .NET Part I The QuickBooks System
60 Part I The QuickBooks System
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The retained earnings account tracks all of the net pro ts earned by the business from the date it was formed. It is the total of all earnings that have been retained by the business as opposed to distributed to the owners. The retained earnings account appears on the Balance Sheet. It is presented on the sample Balance Sheet for Larry s Landscaping shown in Figure 4-6. QuickBooks automatically adds the retained earnings and owner s equity accounts to the Chart of Accounts whenever a new Chart of Accounts is established. At the end of each scal year, QuickBooks automatically transfers the amount of net income (or loss) for the year to the retained earnings account so that it increases the balance of the retained earnings account for the following year.
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Figure 4-6: The retained earnings and owner s equity accounts appear on Larry s Landscaping s Balance Sheet.
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Temporary versus permanent accounts: A close call
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At this point, I ll give you the bene t of an insight that seems to help my clients understand the interrelationships among different types of accounts. Accounts can be viewed as either permanent or temporary. Temporary accounts are closed at the end of the year (or accounting period) and start the next period with a zero balance. Permanent accounts stay open inde nitely and have cumulative balances year after year.
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4 Accounting Basics for QuickBooks Companies
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Accounting Jargon
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Asset, liability, and equity accounts are considered permanent accounts. They are permanent because the balances in them carry over from one accounting period to the next. In contrast, revenue and expense accounts are temporary accounts because they are closed out at the end of an accounting period. An accounting period is usually the company s scal year, but it can be a shorter period such as monthly or quarterly. A scal year is a one-year period that the company uses for reporting purposes. The scal year may or may not correspond to the calendar year.
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It may be helpful to consider some speci c examples of permanent and temporary accounts. An equipment account is a good illustration of a permanent account. The balance in your equipment account will be there on December 31, 2000, and still be there on January 1, 2002. In contrast, revenue and expense accounts are temporary accounts because they are closed out at the end of one accounting period and start with a zero balance in the next accounting period. But what happens to the balance in the revenue and expense accounts that is, the temporary accounts when they are zeroed out at midnight on December 31 The answer is that the difference between the total income and the total expenses for the year will be used to determine the company s income or loss for the scal year. The income or loss for the current scal year will then be added to (or subtracted from) the permanent retained earnings account, which is shown on the Balance Sheet.
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Most businesses prepare two major types of nancial statements: the Balance Sheet and the Pro t and Loss (Income) Statement. These statements are generally prepared at the end of each scal year. Permanent accounts with cumulative balances are shown on the Balance Sheet. These are the assets, liabilities of the business, and the retained earnings and owner s equity accounts discussed earlier. The Pro t and Loss Statement lives up to its name by showing the balances in the temporary accounts, which are the income and expense accounts, for the applicable reporting period.
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Pro t and Loss Statements
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The Pro t and Loss Statement (also called the Income Statement) reports the revenues and expenses of the business over the scal year. A new Pro t and Loss Statement is prepared at the end of each scal year. In other words, businesses start with a fresh Pro t and Loss Statement each accounting period, and each account has a zero balance at the beginning of the new accounting period.
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