Listed below are accounting terms used by Frazer. For a description of the term, click below on the appropriate button.
A Credit refers to any journal transaction that decreasesasset accounts or increasesliability and income accounts. Spending $5 on lunch credits your cash account. Withdrawing money from the bank credits your bank account.
A Debit refers to any journal transaction that increasesasset and expense accounts or decreasesliability accounts. Spending $5 on lunch debits your lunch expense account. Putting money in the bank debits your bank account.
A Department is used to track different business entities within the same copy of Frazer. Two common reasons people use departments are for keeping track of a Related Finance Company and separating Buy-Here Pay-Here and Wholesale portions of a dealership. You may add departments from the Accounting >> 7 - Departments window. You may print both the R-4-1 Financial Statement report and the R-4-2 G/L Listings report for different departments.
In its most basic form, a Journal is a record of credits and debits. The full Journal of the business is also called the General Journal or General Ledger (sometimes abbreviated as "G/L"). The General Ledger is often broken-down into specialized journals to make the accounting more manageable. Frazer automatically uses seven specialized journals in the system. You may add more journals as needed for manual G/L postings from the Accounting >> 4 - Journals window.
Cash Accounting: Revenue (sales) and expenses (cost of sales and other expenses) are reported on the income statement only when there is an actual exchange of cash and for only the actual amount of cash received or paid out.
Accrual Accounting: For this method, revenues (sales) and expenses (cost of sales and other expenses) are reported to the income statement at the time the transaction occurs rather than when the payment is made (or received). So, when a vehicle is sold, the full selling price, cost of the vehicle and added costs are reflected on the income statement at the time of sale, even though the cash from the customer may not have been received or costs paid out.
In both methods, the income statement is used as the starting point for calculations of income tax.
IRS publication 538 states that if a business is holding inventory meant for resale, they must use the accrual based method of accounting. Based on that regulation, Frazer is programmed to be accrual based.See the full publication here. If you are wondering what method is used on your taxes, and you file as a corporation, check out your form 1120, schedule K, line 1. If you are unsure about these regulations, be sure to contact your tax professional.