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Troubleshooting and Fixing Unit of Measure Problems

Unit of Measure Troubleshooting and Fixing Guide

This help topic explains hot to find common problems with Unit of Measure (or UOM). It also includes information on how to fix your UOM problems and links to more detailed help pages.

Here is a Common Unit of Measure Scenario

I am working in Total Office Manager Enterprise Edition. We are using the Unit of Measure feature with Inventory Parts. Often time, the Quantity on hand numbers (how many items we have in stock) numbers are incorrect. It seems like the Unit of Measure feature is the cause if this. How can we troubleshoot incorrect item quantities to see if the Unit of Measure feature is the cause?

Check the Unit of Measure (UOM) Item Settings

Check the Unit of Measure (UOM) item from the Unit of Measure list. Click Company > Unit of Measure List > double click to open the UOM. Is the multiplier set correctly?

Unit of Measure Setup Example: If you buy one container of refrigerant that contains twenty-five (25) pounds and you wish to sell that refrigerant one pound at a time (the Base Unit), make sure the multiplier field has a value of 25. That means when you buy (create a Bill or Item Receipt) a quantity of 1.0, you will have 25.0 in stock. When you sell (create an invoice) 1.0, you will have 24.0 in stock.

Check the Invoice Items That Uses the Unit of Measure Item

Open the invoice item that uses the Unit of Measure. Check the Unit of Measure value (UOM). Is the value set correctly?

Check the History of That Item

Go to the item’s “Item History” screen (form) and look at the “Avg. Cost History” tab. You should be able to see where the average cost began being incorrect.

Examine Sales Activity

  1. From the same invoice item, click Menu > History.
  2. Look at the Sales tab. Examine the Qty column. Do the quantities sold make sense? You will likely see quantities of 1, 1.5, 3, 7, and so forth. The quantity will reflect the number of pounds sold, if you are following our 25 pound per contained example.

Examine Purchasing and Item Adjustments Activity

Look at Checks, Bills, Item Receipts, Other, and Adj to see if any of the quantities used do not make sense for that item. This is usually where the problem is detected. It is common to enter a quantity of 25 when the purchaser had intended to buy 1.0 containers. The same thing is true for item adjustments.

Example: We noticed a use had entered a quantity of 500 on a bill when they purchased one box of staples. They should have entered a quantity of 1. The box had 500 staples. They knew better but they were in a hurry and no one noticed.

Examine Item History for Further Clues

In the same Item History form, look at the Avg. Cost History. The tab shows you the average cost and the quantity on hand at the end of each month. You are looking for months where the average cost or quantity on hand seems abnormal. If it does, investigate transactions and adjustments leading up to that month.

When Did You Begin Using the Unit of Measure Feature?

If you have ever purchased items before you began using the Unit of Measure feature and then you began using UOM with that item, you may need to perform an item adjustment to get the quantities on hand fixed.

Some users have noticed problems with certain UOM items were created when they turned the Unit of Measure preference on, off, and back on again. This feature could be turned off, users could buy and or sell that item without the Unit of Measure in affect, and then turn Unit of Measure on again. The History form will usually offer clues to that activity.

Examine the Audit Trail

You can examine the Audit Trail to see when Unit of Measure was turned on or off. Check the Details column. If the UOM is turned on and off, and there is activity with invoice items that had UOM set, that activity will likely cause problems.

Check the Inventory Sales Activity Report

  1. From the main menu, click Reports > Company > Items > Inventory Sales Activity Report.
  2. Use the report preferences to narrow the report by Inventory Part types and other settings as needed.
  3. Click the Preview button.
  4. Pay most attention to the On Hand and Total Sold column. You are looking for numbers that do not make sense for the Unit of Measure.

How to Fix Unit of Measure Problems

Once you have fixed any transactions that contained in correct values (usually the quantity ordered and or sold), you will need to simply make an Item Adjustment. You don’t have to fix the transactions if you don’t wish to. The important step is to make the item quantity adjustment.

If you cannot locate a faulty transaction, you may go ahead and make the item quantity adjustment. Monitor the item to make sure the problem doe not repeat itself.

Considering Disabling the Unit of Measure Feature?

Please wait. Before doing that, it’s import to understand what really happens when UOM is disabled, and the possible ramifications of turning-off the feature:

  1. When UOM is disabled Total Office Manager simply hides UOM throughout the software.
  2. All item quantities, prices and costs that had been based upon UOM now will be shown in terms of their base (or original) units. No mathematical adjustments will be made. The quantity on hand will not change.
  3. All previously configured related units of measure for an item in a transaction now will display the quantity, price and cost of that item in their base (or original) units.
  4. Disabling UOM significantly can alter the quantity on hand, cost and price information for your items, in many cases resulting in inaccuracies.
  5. Disabling UOM should really only be done when the UOM feature actually has not been used even though it has been enabled.

Help Pages Related to Unit of Measure

How to Setup Unit of Measure

Inventory Item Adjustment (Non-Serialized)

Handling Job Deposits or Down Payments on Job

Handling a Down Payment on a Job

This article assumes you wish to receive a down payment on a sold job, deposit the money, and you do not wish to recognize the money as income until later.

  1. Create an item called “Customer Down Payment”. Put “Customer Down Payment” in the item’s description field. Use the Item Type “Service”. Leave the Rate field blank for now since it will vary by customer. You will change the Rate on each invoice. In the item’s Income Account field, click Add New. Add a chart of account using the “Other Current Liability” type. Enter a description of “Customer Down Payments”. Click Save & Close.
  2. Create an invoice for the customer. Add your new item. In the Amount field, enter the amount of the down payment. All this invoice will be doing is acting as a placeholder for which the down payment is received.  The new service item will offset the income with a liability.
  3. On the invoice, click the button Menu > Receive Payment. Create a Receive Payment for the deposit as you would any other customer payment.
  4. Applying the Down Payment – When the job has been finished, we will finally generate an invoice for the job. At the end of the invoice input the Customer Down Payment line item and enter the total of all down payments from this customer as a negative number. This will now $0 the Customers Down Payments in the liability account and properly show the income as billed from the invoice.

Accounting Explanation

Why go through all this trouble? Why not just receive the payments for the customer and leave them as an open balance to be applied later? If you take a down payment on a job you’ve now thrown your accounts receivable in the other direction, it’ll be a negative balance.

Instead, if we setup a liability account it will properly reflect and give you a much cleaner understanding with what your liabilities are as a business (down payments that you owe for services yet to be fulfilled) and your accounts receivable will reflect as a positive number to show the total amount owed to the business for services that have been completed.

Explanation of the Liability Account: When we setup the Customer Down Payments account as an Other Current Liability we told Total Office Manager that this is money owed for work that has yet to be completed. It’s a liability for our company because they haven’t completed the work and the customer has full expectations to receive a final product that won’t be delivered until the job is complete. When the final invoice is generated, we’ll back the payment out of the liability account as a payment against the final invoice because the final product has been delivered to the customer.

 

Other Methods Inventory Costing Methods

Other Methods Inventory Costing Methods

Although Total Office Manager uses the Perpetual Average Cost and Specific Identification Method, the following methods are explained in detail for reference purposes.

Weighted Average Cost

Weighted average measures the total cost of items in inventory that are available for sale divided by the total number of units available for sale. Typically this average is computed at the end of an accounting period.

Suppose you purchase five parts at $10 apiece and five widgets at $20 apiece. You sell five units of product. The weighted average method is calculated as follows:

Total Cost of Goods for Sale at Cost (divided)
Total Number of Units Available for Sale =
Weighted Average Cost per Widget
–
Five widgets at $10 each = $50
Five widgets at $20 each = $100
Total number of widgets = 10
Weighted Average = $150 / 10 = $15
$15 is the average cost of the 10 widgets

First In/First Out (FIFO)

First in, first out means exactly what it says. The first widgets you bring into inventory will be the first ones sold as a product. First in, first out, or FIFO as it is commonly referred to, is based on the principle that most businesses tend to sell the first goods that come into inventory.

Suppose you buy five widgets at $10 apiece on January 3 and purchase another five widgets at $20 apiece on January 7. You then sell five widgets on January 30. Using first in, first out, the five widgets you purchased at $10 would be sold first. This would leave you with the five widgets that you purchased at $20, which would leave the value of your inventory at $100.

Last In/First Out (LIFO)

This method, commonly referred to as LIFO, is based on the assumption that the most recent units purchased will be the first units sold. A “widget” is an imaginary item that could be just about any product. The advantage of last-in, first-out accounting, or LIFO, is that typically the last widgets purchased were purchased at the highest price and that by considering the highest-priced items to be sold first, a business is able to reduce its short-term profit, and hence, taxes.

Suppose you purchase five widgets at $10 a piece on January 4 and five more widgets at $20 apiece on February 2. You then sell five widgets on February 20. The value of your inventory, using LIFO, would be $50, since the most recent widgets purchased, at a total value of $100 on February 2, were sold. You were left with the five widgets valued at $10 each.

Fixing Item Serial Numbers Entered Incorrectly

How to Fix Incorrectly Entered Serial Numbers (using serialized invoice item types)

This help topic explains how to correct serialized invoice items when the serial number was entered incorrectly on an Item Receipt, Bill, Credit Card Charge, or Check. This topic also covers when an incorrect serial number was selected on an Invoice, Sale, or Customer Credit.

Occasionally, there comes a time when you fat finger a number or just scan the incorrect number into the wrong item line. Or maybe you selected the wrong serial number. It’s ok, things happen.  In Total Office Manager, you can fix this issue quickly and easily. Here are complete steps and information on how to correct item serial numbers.

How to Locate the Serialized Item

You will first locate the serial number using the Serial Number List under Company | Inventory Adjustment.  Right click on the serial number and choose the option View History.  Click on the Purchased tab.

Fixing Serial Numbers on an Item Receipt

  1. Open the item receipt.
  2. Click on the Items tab and click the Serial # button.
  3. Change the entered serial number to the correct serial number.
  4. Save & close the transaction.

Fixing Serial Numbers on Bills When the Bill is Unpaid

  1. Open the bill.
  2. Click on the Items tab and click the Serial # button.
  3. Change the entered serial number to the correct serial number.
  4. Save & close the transaction.

How Can I Fix a Serial Number That Was Not Entered correctly on a Bill?

  1. Open the bill.
  2. Click on the Items tab and click the Serial # button.
  3. Change the entered serial number to the correct serial number.
  4. Save & close the transaction.

Fixing Serial Numbers on Bills When a Bill has Been Paid

  1. From the main menu, click Company > Inventory Adjustment > Serial Number List.
  2. Search for the serial number you are looking for.
  3. Right click on that serial number and choose the option Adjust Serial Number.
  4. Select the serial number in drop down and check the Remove checkbox.
  5. Save & Close the adjustment.
  6. Right click on the Serial Number List and choose the option Add Serial Numbers.
  7. Create a new serialized adjustment to enter the correct serial number with the same cost which was removed in Step #2.
  8. Save & close the transaction.

Fixing Serial Numbers on an Invoice or Sale

  1. Open the invoice, locate the serialized item, select the correct serial number, and save. You will need to select another serialized item. Be sure that the item is in the system before you open the invoice.
  2. Make sure the total invoice amount has not changed (unless you need it to).
  3. Total Office Manager might ask if you want to create Customer Equipment (depends of your settings). If you have already have created one, answer no. Open that equipment and update the serial number to the correct one.

Tips Related to Fixing Incorrect Serial Numbers

  1. You cannot delete a bill that has been paid, when that bill includes serialized items.

Other Help Topics Related to Fixing Incorrect Serial Numbers

Inventory Item Adjustment (Serialized)

How to Return a Serialized Item

Handling Serialized Items That Are Lost

Opening Balances for Customers and Vendors (As Of Fields)

How to Enter Opening Balances for Customer and Vendors

This topic offers additional details on how the Opening Balance feature works. This feature is only found in the customer and vendor forms.  This topic was designed for bookkeepers and accountants.

How to Use Opening Balances

This feature is not a required part of entering customers or vendors into Total Office Manager. The opening Balance feature was designed to allow you to quickly enter balances for customers and vendors without the use of a Journal Entry.

You MUST have ‘Accounting’ permissions to see or use Opening Balance feature.

When you enter a non-zero value and a date (which is preloaded) into the Opening Balance feature a Adjusting Journal Entry will be created for you <under the hood>.

You are allowed to enter a negative number . This would be necessary if YOU OWE the customer or the vendor OWES YOU.

These accounts cannot be changed. If you want to ‘Change’ Accounts or any other info you’ll have to open the JE form and manually adjust the info there.

Detailed Examples of the Adjusting Journal Entries

Vendor has negative balance <They owe us money>

Credit Account -> Opening Balance Equity

Debit  Account -> Accounts Payable

Vendor has positive balance <We owe them money>

Credit  Account -> Accounts Payable

Debit  Account -> Opening Balance Equity

Customer has negative balance <We owe them money>

Credit Account -> Accounts Receivable

Debit What Account -> Opening Balance Equity

Customer has positive balance <They owe us money>

Credit Account -> Opening Balance Equity

Debit  Account -> Accounts Receivable

Related Content to Beginning and Ending Balances

Entering Existing Beginning and Ending Financial Balances

Adjusting Journal Entries

Customer:Job Form – Overview

Retainage or Holdbacks on Construction Jobs

How to Setup and Bill for Job Retainage

In this knowledgebase article, you will learn how to setup Total Office Manager for retaining money on jobs. You will learn how to track that money and how to invoice your customer for that amount of retention. This article deals with money held in retention which is often referred to as retainage.

What is Job Retainage?

Retainage is money withheld from the contractor until specified terms are met. At that point, the contractor can invoice the customer for the amount of retainage.

Retainage: The withholding of a portion of the final payment for a defined period to assure a contractor or subcontractor has finished a construction project completely and correctly.

A Detailed Explanation of Job Retainage

For certain types of construction projects, customers might require you to hold back a certain percent of your total invoice or of each invoice (invoicing only for only a portion of the contract price) until you’ve completed the job satisfactorily. After the job is complete and it’s agreed that you can collect the remaining percentage, you then create an invoice to the customer for the balance.

The procedure described here for handling retainage in Total Office Manager will not only help you track who owes your for retention, but also track how much they owe. In addition, it helps to track the retention on your books as an asset until the customer pays the balance.

How Job Retainage Affects Financial Reports

Retainage appears on your company’s balance sheet as an asset. The account might be called “Accounts Receivable – Retainage”. This amount will eventually appear on your Income Statement as income, even if it has not been collected. Retainage is a portion of the total amount of the job. Once you have invoiced the entire amount, retainage is part of the income recorded for that invoice. Retainage is a “hold-back”.

Many construction related Total Office Manager users don’t record the income associated with the retention until it is billed. This is incorrect accounting since the income reported for any period should equal both the Net Due Balance on the invoice plus the Retention amount.

Retainage versus Down-Payments

Please don’t confuse retention for down payments on jobs. Down payments are up-front initial payments made prior to the work starting. Retention is money withheld from you until the expiration of a certain time frame.

Quick Take on Setting Up Retainage or Retention for Jobs

This is a quick look at how to record & track retainage in Total Office Manager from Aptora:

  1. Add Retainage Receivable to the Chart of Accounts.
  2. Create a Retainage product.
  3. Add Retainage to an Invoice.
  4. Track Retained Amounts.
  5. Bill for Retainage.

The details are below.

Retainage Overview

Retainage can be handled many ways. Here is a quick narrative on retainage that may answer your question. If not, we have detailed steps blow.

  • Retainage is a portion of the retail price of the job held by the general contractor. It is paid when certain conditions are met and those vary. Retainage is an asset and appears on your balance sheet. That never varies. This finer details of how this is managed depends on your company and differs from one company to another.
  • You create a new account in your chart of accounts. It is a “Other Current Asset” type. This account is commonly called Retainage Receivable, Retention Receivable, or Accounts Receivable — Retainage. You can name your accounts however you like, but make sure it’s recognizable to everyone on the accounting team.
  • Now that you have an account for recording the transaction in Total Office Manager, you need to create an Invoice Item for Retainage. This will allow you to add a line item to an invoice for retainage. It will have a negative amount.
  • If you want to see what retainage you have outstanding, you can run the Transaction Detail by Account report for that account. You can also look at the history of the Retainage item you created. There are other ways to see detail about the retainage amount since it is an invoice item. You may create a customer report for Retainage items grouped by Customer:Job.
  • When the project is substantially complete or you are otherwise entitled to bill for retainage, you can create a separate invoice to bill your customer for retention on the project. The process to create a retainage invoice is the same as creating any other, except that in this case you will enter the Rate as a positive number. You can enter a Reminder in TOM to remind one or more people about retainage invoice deadlines.

Setting Up For Job Retention

  1. Add a new account to your Chart of Accounts. Create an Other Current Asset Account named “Accounts Receivable – Retainage” (or your choice).
  2. Create an Other Charge type item named Retention, in the description field enter “Amount Deducted for Retention”. In the Amount field enter -10% (negative 10%) or an amount appropriate for you. Select the % radio button. In the Account field select the Retention Receivables Account you created.
    • Note: You may also use the amount type ($). In that case, you will enter the appropriate dollar amount. The program will not calculate the amount for you.
    • For AIA Payment Applications, you must use the % option. You cannot use the $ type.

Invoicing the Customer and Deducting Retention

Consider the following example:

Customer has agreed to a $50,000 job, with 10% retention to be held until the job is completed. If I am billing the customer 50% complete I would do the following:

  • Create an invoice for the customer for the $25,000 amount, if you have created an estimate, you can generate the invoice from the estimate.
  • On the following line on the same invoice enter the Retention Item. The customer invoice now shows a negative $2,500 on this line, with a net due from customer of $22,500.

Note: If you have some invoice items not subject to retention (such as mobilization charges): Enter all items subject to retention, enter a sub-total line, then enter your Retention item. Follow with the remaining items that will not be subject to retention.

Reviewing Customer Retention Balance

When nearing the end of the job you will want to review your Retention Receivables account for that client.

  1. Go to Reports | Accounting | General Ledger and select the Transactions Details by Account report.
  2. Select the account you just create called Retention.
  3. Select an appropriate date range.
  4. Select correct Customer:Job.

Invoicing (Billing) for Final Retention

  1. After reviewing the retention balances in the Retentions Receivable Report,  create an invoice to the client.
  2. Select the Retention item, remove the -10% (negative) item price and place a positive amount equal to the retention withheld from prior invoices in the amount column.
  3. Your company now has a reduction in your retentions receivable account and an increase in the aging Accounts Receivable. Additionally, you now have an invoice to send to your customer.
  4. Now your company has the correct amount of revenue in the correct accounting period and we haven’t lost track of the amounts withheld from prior invoices.

Reporting and Viewing History

  • You can run reports on the “Accounts Receivable – Retainage” account as you normally would for customer A/R.
  • Since retainage is just an item, you have all of the same reports available to you as any other item.
  • Since retainage is just an item, you can use the Item History form to view complete details about that item.

Tips on Job Retainage

  • Retainage amounts withheld from project payments can be a financial challenge. That’s because they often account for a contractor’s entire net profit margin on a job.
  • Why you can’t record retainage in your regular Accounts Receivable account? The timing of retention payments is different from regular invoices. If retainage is withheld on any of your projects, you need to track it separately from Accounts Receivable.
  • A mechanics lien is the most powerful tool in a contractor’s collection toolkit, but it has an expiration date. Every state has a specific deadline by which contractors must file a lien claim for retainage, often based on the day it was due.

Help Topics Related to Retainage

AIA Billing – A Complete Overview of What AIA Billing is and How it Works – All-In-One Field Service Management Software by Aptora

Entering Existing Beginning and Ending Financial Balances

How to Enter Beginning and Ending Financial Balances

When setting up Total Office Manager it may be necessary to enter existing balances for customers and vendors, along with Balance Sheet related accounts and other COA accounts.

As an overview to the process, each customer and vendor — including their respective existing balances — are entered first.  The appropriate A/R and A/P accounts thusly increase along with the built-in “Uncategorized Income” and “Uncategorized Expense” offset accounts.  Then balance sheet related accounts (like bank accounts) and their respective existing balances are entered.  The built-in “Opening Balance Equity” offset account is automatically used behind-the-scenes when entering these balance sheet related accounts.  Based on the advice of your accounting professional, the resulting balances in the “Uncategorized Income”, “Uncategorized Expense”, and “Opening Balance Equity” accounts are then typically dispersed across appropriate COA accounts (like Income, Expense, and COGS accounts) using journal entries.

Recommended Reports and Documentation

Prior to entering existing balances, it is advised to have available the most recent reports as follows:

  • A/R Aging Report

  • A/P Aging Report

  • Balance Sheet

  • Income Statement

Entering Customer Balances

Setup each existing customer using the Customer:Job form.  On each customer’s Payment Info tab, accept the default A/R account, or use a different one based on advice from your accounting professional.  Then enter the opening balance info for the customer (see the related topic, “Customer:Job Form – Payment Info Tab” for more info).  When the new customer’s information is saved, the program automatically creates an “Opening Balance” invoice for the customer, which increases the A/R account and to which future payments may be received against.  Simultaneously, the built-in COA offset account “Uncategorized Income” increases by the same amount as the opening balance invoice.

Entering Vendor Balances

Setup each existing vendor using the New Vendor form.  On each vendor’s Additional Info tab, accept the default A/P account, or use a different one based on advice from your accounting professional.  Then enter the opening balance info for the vendor (see the related topic, “Vendor Form – Additional Info Tab” for more info).  When the new vendor’s information is saved, the program automatically creates an “Uncategorized Expense” bill for the customer, which increases the A/P account and to which future payments may be applied.  Simultaneously, the built-in COA offset account “Uncategorized Expense” increases by the same amount as the opening balance bill.

Entering Balance Sheet Related COA Accounts

Balance sheet related COA accounts (like bank accounts) are those which have opening balance information fields.  Simply setup these accounts in normal fashion, entering the opening balance info for each account (see the related topic, “Chart of Accounts List” for more info on creating new accounts).  As each of these accounts is saved, the built-in “Opening Balance Equity” offset account is automatically increased to maintain proper balance of the books.

Dispersing Uncategorized Balances

As the preceding activities occur, amounts have been automatically accumulating in the built-in accounts “Uncategorized Income,” “Uncategorized Expense,” and “Opening Balance Equity” to maintain proper balance of the books.  Based on the advice of your accounting professional, these uncategorized balances are typically dispersed across appropriate COA accounts (like Income, Expense, and COGS accounts) using journal entries (see the related topic, “Journal Entry” for more info).

Topics Related to Beginning and Ending Balances

Entering Customer and Vendor Beginning Balances

Debits and Credits Fully Explained

Credits and Debits and how They Affect Financial Reports

Understanding what credits and debits are, what they do, and the rules for which they add or subtract is vital to figuring out why accounting data is what it is and how it got that way. Please learn the rules of credits and debits.

Total Office Manager does not use the terms Credit and Debit very often.  We have provided this topic as a reference for those of you who need to know more about this subject.

When you deposit money in the bank, the cashier will tell you “I’ll credit your account.” From that experience, most people assume that cash is a credit, and so credits are good. That is further reinforced when reductions in the accounts are referred to as debits. Besides, if you remove the “i” from debit, you get “debt.” So, debits are bad.

Unfortunately, the conditioning we receive at the bank is causing real confusion in the accounting class. Why? Because in accounting we understand that the bank account is a debit account, and that debts are credit accounts – the opposite of what most people expect.

In fact, debits and credits are neither good nor bad. Each transaction, whether it be a good transaction (deposits), or a bad transaction (bills) has both a debit and an equal credit. That’s why they call it “double-entry accounting.” When the cashier is telling you he or she will “credit your account”, they are also entering a debit for the same amount that they are not telling you about. The same is true for the debits to your account – there is also a credit being made at the same time.

The best way to understand debits and credits is to identify two components of each transaction: 1) what did you get; and, 2) where did it come from. The debit is what you got, and the credit is the source of the item you received. For instance, let’s imagine that you purchase a computer with your credit card. Since the computer is what you received it’s going to result in a debit to the asset account for your computer. The credit will be applied to the credit card liability account for the same amount.

The banks tend to confuse us because they are telling us the entry to their liability account. When you deposit money in the bank, their liability to you increases. Since liabilities are credit accounts, they are crediting our account. When they reduce their liability to us, they are debiting their liability account.

Rules for Applying Credits and Debits

  • To increase an asset account, debit it
  • To decrease an asset account, credit it
  • To increase a liability or equity account, credit it.
  • To decrease a liability or equity account, debit it.
  • To record expenses, debit an expense account.
  • To increase Accumulated Depreciation, credit it.
  • There is no exception to the rule that debits must equal credits Debit is often abbreviated as “Dr.” and credit as “Cr.”
  • Credits increase income, liability, and fund accounts and reduce asset and expense accounts
  • Debits increase expense and asset accounts and reduce income and liability accounts
  • When recording expense transactions, the word “charge” is often used in place of the word “debit.”
  • A Credit increases sales, income, liability, equity, and accumulated depreciation accounts. Credits decrease expense and asset accounts.
  • A Debit increases expense and asset accounts. A Debit reduces sales, income, liability, equity, and accumulated depreciation accounts.

What is a Contra Account?

An account that offsets another account. A contra-asset account has a credit balance and offsets the debit balance of the corresponding asset. A contra-liability account has a debit balance and offsets the credit balance of the corresponding liability.

Bad Debt is an example of a “contra-account.” The notion that the account is an income account that is expected to hold a balance opposite to what is normally expected, to counteract the balance in another income account. Accumulated Depreciation, used to diminish the value of an asset over time, is another example of a contra-account.

Understanding Debit Balance Accounts and Credit Balance Accounts

You might hear the phrase debit balance account or credit balance account. A debit balance account is one where a debit adds to the balance. Examples include assets and expenses. A credit balance account is one where a credit adds to the balance. Examples include liabilities and income.

Credits and Debits Cheat Sheet

There are just five main account types used in accounting. They are asset, liability, income, expense, and equity. Accountants will often break those main types down into sub-types. Total Office Manager has thirteen account types, but they are sub-types of the five main account types used in accounting.

Journal Entry Debit and Credit Cheat Sheet
Account Type Account Type Name Used in TOM Debits Credits
Asset Accounts Receivable Increases Decreases
Asset Bank Increases Decreases
Asset Fixed Asset Increases Decreases
Asset Other Asset Increases Decreases
Asset Other Current Asset Increases Decreases
Equity Equity Decreases Increases
Expense Cost of Goods Sold Increases Decreases
Expense Expense Increases Decreases
Expense Other Expense Increases Decreases
Income Income Decreases Increases
Income Other Income Decreases Increases
Liability Accounts Payable Decreases Increases
Liability Credit Card Decreases Increases
Liability Long-Term Liability Decreases Increases
Liability Other Current Liability Decreases Increases
Quick Tip: Debit all expenses and losses and credit all income and gains. Another way to say it is, debit what comes in and credit what goes out.

Tips on Credits and Debits

  1. Recall that there are several types of COA (Chart of Accounts). COAs are used to keep track of where to place currency in the GJ (General Ledger). They are Income, Expense, Asset, Liability, and Equity. There are others but they are sub-types of these. For example, Cost of Goods Sold (COGS) is really just an Expense type. COGS is a way of further defining it. When you are looking for the source of currency, understanding COA types and what they mean is essential.
  2. Debit all expenses and losses and credit all income and gains. Another way to say it is, debit what comes in and credit what goes out.

Related Help Topics

Accounting for Sales Discounts

 

Accounting for Sales Discounts

How to use Sales Discounts in Accounting

This article offers an overview of discounts and terms (financial terms of the sale). We don’t explain the details of how to setup discounts or terms. There are links at the bottom of this article for that.

Terms and Discounts

There are mainly three types of discounts to manage in accounting.

  1. The discounts you offer customers on a sale.

  2. Discounts you offer customers when they pay early or perhaps within terms, these are called payment terms.

  3. Discounts you receive when paying your vendors early or within terms, these are also called payment terms.

Payment Terms are setup for either customers or vendors. You can setup as many terms as you may need. When you setup terms, you use the same form for both vendor terms and customer terms.

Sales Discounts

When you offer a customer a discount, say 10% for being a senior citizen, you create a discount item. This is a regular item but the item type is a discount. The account (from the Chart of Accounts) is usually the type “Income”. That may seem counter intuitive but your discounts should decrease revenue (AKA: Sales). Otherwise discounts will make your income (sales) too high.

A/R Discounts

Accounts receivable discounts are those you may offer a customer if they pay you within a certain amount of time. This is done to hopefully get your customers to pay you early.

For example you may setup terms that say “1% 10, net 30”. These terms may offer a 1% discount off the sale price if the buyer pays within ten days of the invoice. Otherwise they will owe the entire amount after thirty days.

A\R discounts cost you money and this expense must be tracked. When you setup customer terms, you will be required to pick an account from your COA. We recommend that A\R discounts be treated as a Cost of Goods Sold so you will need to pick an account type of “Cost of Goods Sold”.

A/P Discounts

Accounts payable discounts are those your vendors may offer you if you pay them within a certain amount of time. This is done to hopefully get you to pay them early.

For example, your vendor may offer you terms of “1% 10, net 30”. These terms offer you a 1% discount if you pay your bill within ten days of your purchase. Otherwise you will be required to pay your bill after thirty days.

A\P discounts make you money and this income must be tracked. When you setup vendor terms, you will be required to pick an account from your COA. We recommend that A\P discounts be treated as income so you will need to pick an account type of “Income”.

Tips on Credits and Debits

  • Use the Terms feature to setup terms for both customers and vendors.

  • There are a number of popular terms used by vendors. In fact there is no limit to what vendors may offer you or what you may offer your customers. Another popular term is 1% 10 net 30th. This term offers you a 1% discount if you pay within ten days from the date you made the purchase. Otherwise you owe the entire amount on the thirtieth.

Related Credit and Debit Help Topics

Debits and Credits Fully Explained

 

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