Accounting - Basic Accounting

Basic Terms and Concepts

There are a few things you need to understand in order to make sense of OMNI GL and the
accounting reports.
What is a Trial Balance?
A isting of the accounts for your dept or pro!ect "or the entire #ni$ersity% Genera Ledger and their
&aances as at a specified date "actua financia transactions'not &udgetary%.
Debits and Credits
These are the &ack&one of any accounting system. #nderstand how de&its and credits work and
you( understand the whoe system. )$ery accounting entry in the genera edger contains &oth a
de&it and a credit. *urther+ a de&its must e,ua a credits. If they don(t+ the entry is out of
&aance. That(s not good. Therefore+ OMNI has a mechanism to ensure that a entries &aance--it
won(t aow an out-of-&aance entry.
.epending on what type of account you are deaing with+ a de&it "/% or credit "-% wi either
increase or decrease the account &aance. "This can &e the most confusing part of accounting for
most non-accountants.% *igure 0 iustrates the entries that increase or decrease each type of
account.
Figure 1 Debits and Credits vs. Account Types
Account Type Debit Credit
Assets "0 or 122222% Increases .ecreases
Lia&iities "3 or 422222% .ecreases Increases
Income "5e$enue% "622222% .ecreases Increases
)2penses "722222% Increases .ecreases
IN85)A9) .)85)A9) IN85)A9) .)85)A9)
.):IT A99)T LIA:ILIT; .):IT )<=)N9) 5)>)N#)
85).IT LIA:ILIT; A99)T 85).IT 5)>)N#) )<=)N9)
Notice that for e$ery increase in one account+ there is an opposite "and e,ua% decrease in
another. That(s what keeps the entry in &aance. Aso notice that de&its go on the eft and credits
on the right.
Let(s take a ook at two sampe entries and try out these de&its and credits?
In the first stage of the e2ampe we( record a credit purchase?
Accounts =aya&e "300@@@% - A0+@@@
)2pense "722222% /A0+@@@
If you ooked at the genera edger right now+ you woud see that paya&es had a &aance of
-A0+@@@ and e2pense had a &aance of A0+@@@.
Now we( record the payment of the purchase?
8ash "001@@@% - A0+@@@
Accounts =aya&e "300@@@% / A0+@@@
Notice how &oth parts of each entry &aance? 9ee how in the end+ the paya&es &aance is &ack
to Bero? That(s as it shoud &e once the &aance is paid. The net resut is the same as if we
conducted the whoe transaction in cash?
8ash "001@@@% - A0+@@@
)2pense "7<<<<<% / A0+@@@
That(s it. Accounting doesn(t reay get much harder. )$erything ese is !ust a $ariation on the
same theme. Make sure you understand de&its and credits and how they increase and decrease
each type of account.
Assets and Liabilities
A ,uick reminder? Increase assets with a de&it and decrease them with a credit. Increase
ia&iities with a credit and decrease them with a de&it.
Identifying assets
9impy stated+ assets are those things of $aue that your departmentCpro!ect owns. 8ash in the
&ank+ as we as petty cash on hand+ is an asset. 9o is the e,uipment you use. Accounts
5ecei$a&e "money owed to you. i.e.+ a future coection of money% is an asset.
Identifying liabilities
Think of ia&iities as the opposite of assets. These are the o&igations owed to another. Accounts
paya&e are ia&iities+ since they represent the future duty to pay a $endor. 9o is a 5e$o$ing
*und ad$ance since it represents a future o&igation to repay the 5e$o$ing *und.
We segregate ia&iities into short-term "accounts &eginning with 3Ds% and ong-term categories
"accounts &eginning with 4Ds% on the #ni$ersity e$e. This di$ision is nothing more than
separating those ia&iities schedued for payment within the ne2t fisca year from those not to &e
paid unti ater--most departmentsCpro!ects wi ony see current ia&iities on their GL reports.
!uity
After the ia&iity section in the chart of accounts comes e,uity "accounts &eginning with EDs%. This
represents the difference &etween assets and ia&iities. It is the net difference &etween re$enues
and e2penses from prior years.
A ,uick reminder? ),uity is increased and decreased !ust ike a ia&iity?
.e&its decrease
8redits increase
At the end of one accounting year+ a the income and e2pense accounts are netted against one
another+ and a singe num&er is mo$ed into the e,uity account. The income and e2pense
accounts go to Bero. That(s how we(re a&e to &egin the new year with a cean sate against which
to track income and e2pense. "=ro!ects need to track FLife-to-.ateG income and e2penses since
most pro!ects cross fisca years.%
Assets and Lia&iities on the other hand+ do not get Beroed out at year-end. The &aance in each
asset+ ia&iity+ and e,uity account ros into the ne2t year. 9o the ending &aance of one year
&ecomes the &eginning &aance of the ne2t.
Income and "penses
*urther down in the chart of accounts "after the e,uity section% come the income
"re$enue% accounts "&eginning with 6Ds% and e2pense accounts "&eginning with 7Ds%.
These accounts are used to keep track of where the income comes from and where it
goes. *or income "re$enue% accounts+ credits increase them and de&its decrease themH
for e2pense accounts+ de&its increase them and credits decrease them.

.epending on where your departmentCpro!ect gets its funding+ typica re$enue accounts
coud incude?
9tudent Acti$ity *ees "if you are a 60@ fund%
Au2 9aes "if you are an Au2iiary "3<< *und%
Game Ticket 9aes "if you are an Athetics *und--63@%
*edera+ 9tate+ or =ri$ate grants "if you are a 9ponsored =rogram%
.onations "e.g.+ from the *9# *oundation or 5esearch *oundation%
#eminder$ if your department is %&$ you do not receive revenue$ but allocated
budget from 'tate Appropriations.
Typica e2pense accounts incude the foowing categories?
9aaries and wages "70<<<<< accounts%
O=9 8osts "71<<<<< accounts%
9pecia )2penses such as Li&rary :ooks "73<<<< accounts%
Genera )2penses such as #tiities+ 5epairs and Maintenance+ and 9uppies
"74<<<<< accounts%
O8O+ i.e.+ ),uipment =urchases "76<<<<< accounts%
Other )2penses such as 8onstruction and .epreciation "7I J 7K<<<<< accounts%
( 'ource) :usinessTown.com LL8
Adams - Accounting for t*e +e, Business
The 9trategies and =ractices ;ou Need to Account
for ;our 9uccess &y 8hristopher 5. Ma&urg+ 8=A+ M:A