Overview of Entering Transactions


Transactions are fundamental financial events that have a definite measurable economic impact. Think of them as your daily dealings with money: writing a check, withdrawing funds from a savings account, paying cash for a magazine, and so on.

Transactions in Membership Plus

In Membership Plus, you record transactions (such as a payment or a deposit) to track financial history and the current balance of each of your accounts.

Recording a transaction causes the related account balances to increase or decrease. Membership Plus is based on the concept of double-entry accounting.

Double-Entry Accounting

In double-entry accounting, every transaction must involve at least two accounts. For example, writing a check to pay for groceries involved a decrease (credit) to your checking account and an increase (debit) to your groceries expense account.

The transactions for each account are displayed in a Transaction Register (the Register tab in the Transactions module). You can use the transactions module to perform many accounting functions, including adding, editing, and sorting transactions. (Read more on double-entry accounting in Frequently Used Accounting Terms.)

Entering Transactions

Though the basic steps for adding or editing transactions are the same for all transaction types, transactions can be simple or complex in nature.

Simple transactions generally involve only two accounts and are generated by a single event. An example of a simple transaction is paying the bill for a magazine subscription. To record the payment for this service, you would decrease (credit) your checking account and increase (debit) an expense account, one you may have named "Books and Subscriptions," for example.

Complex (Split) transactions involve several accounts. An example of a more complicated (split) transaction is recording your insurance  payment. Even though you may only write one check for this, the transaction can actually involve several components such as: increasing the amounts paid for health insurance, property insurance, and life insurance.  This transaction might include four accounts, one checking account and three expense accounts.  These complex transactions are usually recorded as split transactions.

Frequently Used Accounting Terms


Double Entry Accounting

Membership Plus accounting is based on the double-entry (as opposed to the single-entry) accounting method. The fundamental aspect of this method is the balance sheet equation: Assets = Liabilities + Fund Balance(s).  Although various components of the equation may change, it must remain balanced. This means that every transaction must involve at least two accounts. Every event is recorded in such a way that the equation is correct after, as well as before, the event.

The process of double-entry accounting creates a ledger format that resembles the letter 'T'. A 'T' account shows debits on the left and credits on the right. (See Debits and Credits.)

Fund Accounting

Fund accounting is typically used by organizations that are deliberately structured as not-for-profit operations, such as churches, schools, hospitals, and local governments. In this context, a fund is a collection of accounts related to a specified subset of the activities of the organization. Membership Plus uses Fund Accounting for its accounting system. In most respects, using fund accounting is the same as maintaining your personal finances. However, there are some added details geared to the not-for-profit organization. When using fund accounting, you create special equity accounts of the "Fund balance" type. Each Fund balance account represents one of your funds. When you add income and expense accounts, you specify the fund that each account is to be linked to.   

Fund

A fund is a sum of money or other resources designated for a particular purpose. The use of funds lets your organization track your members' desire for how the money they give to your organization is to be used.

Debit and Credit

In double-entry accounting, there are two accounts involved in every transaction. This also means that there are two sides to every transaction. The left side of the 'T' transaction is always the debit. The right side of the transaction is always the credit. After you have identified the two or more accounts involved in a transaction, you must debit at least one account and credit at least one account. The types of accounts involved in the transaction determine whether debits or credits remove money from or add money to the accounts.

To debit an account means to enter an amount on the left side of the account. To credit an account means to enter an amount on the right side of an account.

Here's a visual explanation of how debits and credits affect each type of account:

+ indicates increase. – indicates decrease.

A Few Simple Rules


The following rules apply to the selection and use of Transaction Types:

  1. The Account Type entry for the transaction determines the available transaction types.
  2. The Transaction Type entry determines whether the transaction increases or decreases the account balance.
  3. Special transaction types are used for year-end processing transactions and archive transactions. These types are determined by the program; they are not available to you.

 

 

  • No labels