Official blog official blog

Thursday, January 29, 2015

Templates to the rescue!

In our last post, we saw how the Balance Sheet, the Income Statement and the Statement of Changes in Equity are prepared and shown to us by the application.

To complete the work, we have to cover another little but important detail: automation.

As you might have noticed, there is a problem when we want to prepare the Financial Statement at the end of a period (say, at the end of the month), because there is a "difference yet unexplained" showing up before we close Income Summary to Retained Earnings and Dividends to Retained Earnings. The application takes into account what has been recorded in the journal, so, before these entries, there is no way to have the correct data.

But we don't want to actually write such journal entries at the end of each month, do we?

The solution lies in preparing some templates for the journal entries, and mark them to be automatically executed each time the statements are prepared.

A template is a place where we can define how a journal entry is made. If we frequently sell services of some kind, for instance, instead of choosing each time the accounts to use, we just prepare a template for the entry.

First, let's prepare a fictious entry, as usual, but instead of clicking the "Save" button we click on the "Create Template" link:

We will be taken to a page where we can fine-tune the template:

For each account, we can choose one of the following options:

  • ask, if we want the amount to be asked when we prepare the entry;
  • close, if we want the amount to be computed so that the account balance goes to zero;
  • balance anyway, if we want the amount to be always computed so that the entry's debits and credits balance automatically;
  • balance on match, if we want the amount to be computed so that the entry's debits and credits balance, but only if the resulting amount matches the ordinary outstanding balance for that account.
For templates that are to be used manually, we'll probably want to use always ask or close. There is also an option to set if we want this template to be used automatically. We'll discuss that later.

When we use a template manually, we are presented the accounts to be used, with the boxes for debits and credits highlighted:

This saves us the need of selecting the accounts and remember where to put our numbers. Helpful, isn't it?

The powerful thing comes when we check the "Apply this template automatically" box. Let's prepare two templates for the last entries of the month.

In the first one, we want Income Summary to be closed, and Retained Earnings to be balanced to, but only if the amount is a credit (and we want the comment "Net Income" to improve how the Statement of Changes in Equity looks like):

This automatic entry will fail if we have a net loss for the month (we can choose balance anyway to avoid that this happens).

In the second  one, we want Dividends Declared to be closed, and Retained Earnings to be balanced to, unconditionally:

The list of our templates should look like the following:

We can set each template to be automatically applied or not, and we can delete it to make a new one, if we want.

What are the benefits of these automatically-applied templates? If we don't have the last journal entries in our journal, the application knows how to compute all the needed data anyway. Let's check. From our previous example, let's remove the last three entries (concerning income summary, retained earnings and dividends), and let's have a look at our Financial Statement. It will look exactly as the one that we prepared last time, with some magic going on behind the scenes.

If we are curious, or if we need to debug our templates, we can have ask the application to show us the automatically-generated entries:

We will be presented the list of the entries coming from the automatic closing of accounts from the Income Statement and from the templates that we marked as automatic:

Entries that fail are shown as striked over, to let us understand what worked or didn't work. If we look at the journal, we won't find any trace of that. (Why? Technically these insertions are made during a database transaction that is rolled back, to the previous state, at the end.)

Sunday, January 18, 2015

How to prepare a Statement of Changes in Equity

This post has been edited after its first publication, to reflect some users' comments and changes in the application.

In this post, we will see how to get three of the statements required by the IFRS: the Balance Sheet, the Income Summary and the Statement of Changes in Equity.

We will also recap how to record transactions, how to see transaction analyses, how to have a look at the general ledger and at the trial balance, etc.

For our example here, we will refer to the online version of the book Introduction to
Financial Accounting, by Henry Dauderis and David Annand (ISBN 978-0-9936701-0-7), which is released under a Creative Commons License, Attribution–Non-commercial–Share Alike 4.0.

The second chapter of the book, The Accounting Process, explains the meaning of accounts, what is a transaction analysis, and how to use formal accouting records.

If we want to follow the example of the book, we can start by forking (duplicating) the provided "Basic Canadian Corporation", which already has the complete set of accounts and the configuration needed.

After confirming the creation of the new firm, we can change the settings (the name of the firm and the comment, for instance).

With our brand-new firm, we can have a look around. Of course, since the journal is empty (there are no transactions recorded), the statements will be empty, and so will be the general ledger and the trial balance.

If we are curious, we can have a look at the Chart of Accounts, just to check that there is one. We can notice that the accounts are grouped in categories and ordered by codes. We might guess that grouping is done by codes (Petty Cash is a child of Current Assets because the first part of its code, up to the last dot, is the same), and we would be right.

For each account, there is a position (P for Permanent Accounts, T for Temporary Accounts, etc.) and an ordinary Outstanding Balance, that can be used for some checks (for instance, it wouldn't be normal that Petty Cash has a credit outstanding balance, would it?).

On the right side of the page, we find a menu called Operations, which lists some things we can do with the Chart of Accounts:

We can create a new account, we can import accounts (copying and pasting from a spreadsheet, for instance), we can export our accounts list, we can synchronize our chart of accounts with the one of the firm we forked our one from. By the way, this is why when we create a firm we don't "duplicate" it but "fork" it: a link to the parent firm is kept so that, if the chart of accounts of the parent firm is modified, we can easily import the changes.

The last operation, Configure, takes us to a section of the program where we can have a look at how the accounts are, not surprisingly, configured.

Basically, this section allows us to:
  1. define which kind of accounts we can have in our chart of accounts (it is here that we define the P code for permanent accounts, for instance);
  2. define which statements we want to be able to prepare.
Now that we have explored a bit around, let's move to the journal (which is empty) and prepare a new journal entry to record the first transaction, like the following (see page 48 and 58 of the book):

After saving the entry, we can have it analyzed, by clicking on the icon Analyze the transaction:

We can also have a look at the General Ledger, at the Trial Balance and at the Statements, which are prepared with the available data.

If everything looks right, we can proceed with the other transactions, described at pages 48–52 of the book (and formalized at pages 58–59). The public view of our firm should show our journal like in this screenshot:

The Trial Balance shows us the values of page 54 of the book:

Most of the data show on page 55 of the book is now available, and in fact we can get auto-generated Income Statement and Balance Sheet from it (don't look at the Statement of Changes in Equity yet). They are not perfect yet (you may notice that there is a line stating Difference Yet Unexplained for $2,200), but we may be satisfied as we are finished with Chapter 2.

The third chapter of the book, Financial Accounting and the Use of Adjusting Entries, deals with the operating cycle and with the concepts of revenue recognition, accrual accounting, matching principle and adjusting entries.

If we go through pages 103–112 of the book, we find a detail explanation of why adjusting entries are needed and how they look like.

In our journal, it is easy to record the corresponding journal entries, such as follows:

The interesting thing at this point is that we can have a look at the accounts to see the effects of the asjusting entries. For instance, here's the account Unearned Repair Revenue, that shows an ending balance of $100:

If we look at the Statements now, we see that we are closer to what we want to obtain. The Income Statement, for instance, shows that the difference between revenues and expenses is $1932, and that amount is indicated above, in the Balance Sheet, as a difference yet unexplained:

Why is it unexplained? Simply enough, because there is no journal entry that explains it explicitly. In other words, there is a missing link between the Income Statement and the Balance Sheet (through the Statement of Changes in Equity, as we'll soon see).

But that's an easy task. What we need to do is:
  1. to close all temporary accounts to an account called Income Summary;
  2. to close the Income Summary account to the Retained Earnings account;
  3. to close the Dividends account to Retained Earnings.
This process is well described in §F, The Closing Process, of the book (pages 116-118).

Luckily, the application helps us, because in the Journal section we can choose to prepare a Closing Entry:

and then select the appropriate closing option:

We are presented a new journal entry with all temporary accounts closed and the Income Summary accounts selected as destination of the difference:

(The Income Summary account is automatically chosen because it is the only account that has a position code of lowercase t, and we are closing all the accounts with a position code of uppercase T).

In the book there are two separate entries, one for revenues first, and one for expenses later. The net effect is the same, of course. Anyway, if we want, we can delete the rows concerning expenses, save the entry, and prepare a second entry for expenses.

When we look at the journal entries, we see that the closing entry we just added is shown in green.

This indicates that this particular journal entry does not have any effect on the statements that are shown in the Statements section. Why is that? Because the application needs the amount of the balances of temporary accounts to show the statement (the Income Statement in this case) and, if the accounts are closed, the amount is zero; so it just excludes journal entries with this special status.

The second and third entries are not automatically generated (but we will see in an upcoming blog post that we can have them automatically generated, don't worry), so we must prepare them in the traditional way (but we can press the ? key on the keyboard, when we have the amount field selected, to automatically retrieve the amount that closes the Income Summary account).

Now that we have journalized all the transactions and the adjusting entries and have completed the closing process, let's have a look at the statements.

The Balance Sheet and the Income Summary do not present any surprise, because they look like they were before (but we may observe that there is not anymore a "difference yet unexplained", since the Retained Earnings are part of Equity and are shown in the appropriate place).

How does the Statement of Changes in Equity look like?

You may have noticed that, before the completion of the closing process, the statement was like this:

Now it is better, because the Income Summary is taken into account:
The amounts shown are not taken from account balances, like for the Balance Sheet and the Income Statement, but straight from the journal entries. You might recognise that the first column is filled with their descriptions, with the "To record" part stripped away. How is it so?

If we get back to the configuration of the Chart of Accounts we can see how the item for the Statement is configured:

The main point here is that the format is set to "Statement in analytic format": this means that the journal entries are analyzed to compute the needed data. The other two kind of formats (pancake format and two separate sections) are used for the Income Statement and for the Balance Sheet, respectively.

In the comment field, you can see that there is:
  1. a caption, which is the text that appears after the name of the statement, in the title
    (the "{date}" part is automatically replaced by the date of the last journal entry found);
  2. a strip tag, in form of a regular expression used to replace some text from the journal entry description (you don't need to know how regular expression work to use them: it is enough to kwow that this particular one means that the application should replace every text that begins with "To" + a word, like in "To record", "To close", etc.).
As children of the item Statement of Changes in Equity there are two other items, Share Capital and Retained Earnings, that represent the needed columns in the statement. Each of them, in the comment field, has the list of account to analyze (hence the name of the format of the statement). So, for instance, the first one has the following "analyze" tag, that tells the application to consider accounts with codes 320 (Share Capital) and 325 (Preferred Shares).

Last thing, now. If we want to obtain better values for the first column, we can add extra comments in the journal entries involved, in the lines of the single postings (just put a hash sign after the account name, with a comment afterwards). This way, the comment is taken into consideration, instead of the journal entry description.

Ok. Now the statement looks nicer (and similar to the one on page 114 of the book):

We are done. If you have comments, corrections or hints, just write a comment here below in the blog or contact us through the form on the website.

Licenza Creative Commons
How to prepare a Statement of Changes in Equity on by Loris Tissino is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Based on a work at

Monday, January 12, 2015

Economia aziendale CLIL

Per elaborare e proporre una unità di apprendimento di economia aziendale in lingua inglese, nell'ambito di un'attività CLIL (Content and Language Integrated Learning), il sito web può essere una valida risorsa.

Il sito è infatti pensato per essere utilizzato in modalità plurilingue, e questo per quanto riguarda sia l'interfaccia utente sia le scritture contabili.

Anche il piano dei conti, infatti, può essere plurilingue: per ogni conto è possibile impostare un nome in italiano e un nome in inglese (o in qualsiasi altra lingua si desideri). E la stessa cosa vale per la strutturazione dei documenti che compongono il bilancio di esercizio.

Inoltre, nel blog del sito si trovano link a diversi siti web in lingua inglese dedicati al mondo della contabilità, ai quali ci si è rifatti per l'uso della terminologia appropriata e per la predisposizione di alcuni esercizi svolti.

A seconda del livello di competenza linguistica chi usa potrà decidere se impostare l'interfaccia utente in italiano o in inglese e, per le aziende di cui gestirà la contabilità, se vorrà utilizzare i conti (e vedere poi il bilancio) in italiano o in inglese. È possibile anche passare da una lingua all'altra durante l'esercitazione. Dunque, happy accounting!

(Nel caso ve lo stiate chiedendo: sì, l'uso del sito è completamente gratuito, ed il sito è basato su software libero che potreste anche installare su un vostro server personale / di istituto, se lo desiderate.)

To record transactions is now easier

Lots of enhancements have been introduced with releases 1.5 and 1.6 of DELT, the software is built on.

Many of them concern the interface that you use when you prepare a journal entry, and have been requested by the users.

A new little icon has been introduced, to allow swapping amounts from the debit column to the credit column. It's handy, because if you are a student you can easily correct an error and if you are a teacher you can easily show what would happen if two amounts were inverted.

A calculator is available when your cursor is in an amount field. Just press the + or the - key to make it appear. If there is an amount already, you can add a value.

If your cursor is in an amount field, other two useful keystrokes are now available:

a) type = to compute the amount that would close the journal entry by making the sum of debits equal to the sum of credits;
b) type ? to get the amount that would close the account you selected on the left field.

Other enhancements concern advanced issues (customization of stylesheet, statement of changes in equity, management of the chart of accaounts, etc.) and deserve future blog posts. Stay tuned!