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69 lines
3.2 KiB
HTML
69 lines
3.2 KiB
HTML
<!DOCTYPE HTML PUBLIC "-//IETF//DTD HTML//EN">
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<html>
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<head>
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<title>Using Expense/Income Accounts</title>
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</head>
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<body bgcolor=#eeeeee>
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<h2>What is an Income/Expense Account?</h2>
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The words "Income" and "Expense" are beguilingly simple; everyone
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knows what they mean. Don't let this fool you: they have a
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special meaning when applied to double-entry accounting.
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<p>
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To properly record income and expenses in a double entry system,
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two special accounts must be created: one of type "Income" and one
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of type "Expense". Income such salary, wages, bank interest and
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stock dividends are then recorded as transfers from an income
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account to a bank (or generally, asset) account. Similarly,
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expenses are recorded as transfers from a credit card account
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(or generally, a liability account).
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<p>
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Why are accounts of type "Income" and "Expense" considered
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special? The answer lies in the nature of double-entry.
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With a double-entry transaction, one account is always credited,
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and another account is always debited. When salary is deposited
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in a bank account, the bank account is credited, and the
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income account is debited. In order to make income appear
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positive (as it is), and expenses look negative, the meaning
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of "debit" and "credit" is reversed for income and expense
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accounts. This makes them special.
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<p>
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Another way in which income and expense accounts are special
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is that their account totals do not appear on a balance
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sheet. A balance sheet shows "Net Worth": the sum of all
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assets minus all liabilities. Since income and expenses are
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neither assets nor liabilities, they do not appear on the
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balance sheet. There is a different kind of report, a
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"Profit and Loss" (P&L) report, that shows income and
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expenses. The total profit (or loss) is the total income
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minus total expenses. Since assets and liabilities are neither
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income or expenses, they do not appear on a P&L statement.
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<p>
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Even though the accounts may be "special", you do not need
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to do anything "special"
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to use income and expense accounts. Everything is handled
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automatically, as long as you remember to transfer income
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and expenses between income/expense accounts and ordinary
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bank/asset/credit-card/liability accounts.
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<h2>Using Income/Expense Accounts</h2>
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To use an income/expense account, simply create one from the
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"New Account" dialogue window, and then be sure to transfer
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income/expenses to it as you record paychecks, interest, etc.
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<p>
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If you have a complex account arrangement, you may want to
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create multiple income/expense accounts. One can be used to
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record salary, and only salary, another to record only bank
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interest, and a third only to record stock dividends. This
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partitioning is particularly useful when tax-time rolls around.
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<h2>Notes</h2>
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Users of Quicken (TM) products should realize that what Quicken
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calls "Categories" are really just Income/Expense accounts.
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Thus, if you are used to specifying a category in Quicken,
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just create an income/expense account of the same name in
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X-Accountant, and use that.
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</body>
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</html>
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