8. INPUT: Monthly [Revenue & Expense] Transactions from period ending Bank Statements

[M/S -8] is one-of-four software segments required to be populated with its respective data each month to fully utilize all the functionality features designed into FastBooks Solutions Software which includes generating monthly and annual business financial statements.

A principle design structure throughout the software is only [yellow highlighted cells] are formatted for entering [data].  All other cells are protected, and cannot be changed or altered in any way.  Therefore; entering incorrect data is the only possible mistake or error a user can make when using FastBooks Solutions Service-Based Service Business Accounting Model.

The best first step to quickly gain a basic understanding and appreciation for the business purpose of [M/S -8] is to review the [2] images below.  The first image populated with the [simulated-business-data] contained in the Practice Software. 

The second is an image of how [M/S -8] appears before populating any [data] in the software.  Take note of the protected cell coordinates designed to display calculations or information appear as blank cells.  Displaying cell coordinates not requiring a calculation as a blank cell is a principle design structure throughout the software to by design limit the [number of numbers] displayed in each respective software segment.  For example; cell coordinates designed to display actual vs. forecast better or worse calculations will appear as blank cells when the software does not contain a future forecast.Model Segment 8 of 18 -FastBooks Solutions Microsoft Excel Service Business Accounting Model

Left click on the image above to open an enlarged image in a new tab.

Click the link to open [M/S -8] in an Adobe PDF file:

Click the link to open [M/S -8] in an Excel file:Model Segment 8 of 18 -FastBooks Solutions Microsoft Excel Service Business Accounting Model

Left click on the image above to open an enlarged image in a new tab.

Click the link to open [M/S -8] in an Excel file:

Click the link to open [M/S -8] in an Excel file:

The Excel file will open in a Protective View. The [Enable Editing Button] on the top row must be clicked first to save an Excel file on a device. The carefully structured screen and scrolling design of the software segments in FastBooks Solutions were all formatted for viewing in the Excel Auto Hide Ribbon screen viewing mode.   Click on the first icon on the right top corner of Excel to change the screen display view to this designed screen display option. 

8- [Enter] Monthly Revenue & Expense Transactions from Monthly Bank Statement

The purpose of Model Segment 8 is to collect the revenue and expense transactions from the monthly bank statements.  The revenue and expenses are entered into an easy to understand Income-Statement presented in a trial balance format.

Column K calculates the Year-to-Date financial-results and Columns G and I generate a Year-to-Date Forecast and Better or Worse than Forecast calculation respectively. Creating a Future Forecast in Model Segment 1 is optional. If a Future Forecast is not created in Model Segment 1, the cells for the respective forecast and better or worse statistics throughout the model will appear as blank cells.

The revenue and expense data entered in Model Segment 8 automatically populates four additional Model Segments within the FastBooks Solutions model that provide uniquely structured presentations of the Income-Statement. These Model Segments restructure the traditional Income-Statement into [4 Activity-Based] categories.

This unique Income-Statement format is more appropriate for a service-based business for an easy understanding of the financial drivers that affect profitability, as well as identification of unusual items that may require further review. Structuring financial results in various Income-Statement presentations provide a unique methodology for quickly reviewing and understanding the monthly financial results.

The Income-Statement Model Segments populated by Model Segment 8 also include simple to learn, easy to use preset “what-if” functionality designed to perform future forecasting and assist in making logically based mathematically sound business decisions.

To keep things very simple; the FastBooks Solutions Model utilizes the same line numbering and line descriptions as the IRS form 1120 S Income Tax Return for an S-Corporation for the businesses [chart of-accounts].

From a big picture perspective; this allows the business to classify expenses using the same expense account classifications required by the IRS tax statement. The chart-of-accounts only includes eleven-line numbers and line descriptions of the tax-deductible expense classifications from the 1120 S tax statement which apply to a service based business. There are also 19 additional expense line account numbers and two income account numbers available that can be used as a revenue or expense account classification in the chart-of-accounts.

The FastBooks Solutions Model also automatically populates and updates the tax statement after each month of business [data] is entered. The Model Segment 6 tax statement revenue and expense lines are populated by the Year-to-Date Income-Statement results generated in Model Segment 8.

In contrast; the only Income-Statement that the QuickBooks financial software program can create is in a traditional Income-Statement or a trial balance format. The traditional Income-Statement format used by all publicly held businesses who are required to issue both quarterly and annual financial statements and operate under the rules and regulations required by all companies in the public sector of the economy. The traditional “Revenue Minus Cost-of-Sales=Gross Profit” Income-Statement format created in QuickBooks is not an appropriate Income-Statement format for any self-employed or home-based service business.

There is no logical reason for a service-based business to classify and group business expenses in the manner required to determine a “Gross Profit subtotal” line within the structure of the Income-Statement. A subtotal calculation of “gross-profit” has no value for a service-based business and is not a requirement in any of the IRS federal tax forms for businesses who file business annual federal tax filings under the “cash method of accounting.”

Moreover; the departmentalized expense classification format used in traditional business Income-Statements offers little help in making business decisions for a service-based business. In fact; it is more likely to be more misleading than add any informational value when utilized for making business decisions.

It’s this easy! The purpose of Model Segment 8 is to collect the revenue and expense transactions from the monthly bank statements. The chart of accounts revenue and expenses are presented into an easy to understand trial balance format of an Income-Statement.

Most of the business facts and figures you will require to populate Model Segment 8 each month to generate monthly financial statements will be included on your businesses monthly bank account statement. Each month-end Excel file reconciles to the opening and closing cash balance on each respective month ending bank statement. This provides an excellent audit trail for reconciling the month-end financial statements to its respective bank statement.

A very few self-employed or home-based businesses may require additional business software functionality to handle not very typical business tactical tasks for home-based businesses like managing accounts receivables. That falls outside the scope of the niche business functionality provided in the FastBooks Solutions Model. The eight unique model functionality features offered in the FastBooks Solutions Model is provided on the homepage of the website.

If a business uses some method of software to handle tactical business tasks that are required by their business, for example, accounts receivable, billing, appointments, etc. there’s no need to change anything. If this tactical workload is being maintained in QuickBooks or similar business software, keep using that software for completing the task.

If you are using QuickBooks for accounts payable, you are wasting time. Home-based businesses should use their free online bill paying software provided by their bank as their business accounts payable software. The bank’s online payment software will handle your accounts payable requirements with a lot less investment in time and require a lot fewer steps then processing expenses and paying bills that you may be using now to perform this tedious business tactical task.

Now for the simple instructions for entering most of your business monthly revenue and expense transactions from a bank statement into Model Segment 8 at the end of each calendar month of business.

Bank statements have a section called “Deposits to Your Account.” Look at the total for check deposits and the total for credit card deposits. Make sure no other deposits other than customer payments have been included in your monthly revenue entered in row number ten and eleven in Model Segment 8.

As already explained, the model provides two chart-of-accounts classifications for revenue. The two-revenue chart of account descriptions used in the home-based practice model is Revenue Paid by credit and debit cards and Revenue Paid by check and cash. If two better account classification exist that provide informational value for sure use it.  If not, use the same account description for the two revenue accounts as used in the home-based business practice model.

The two-revenue account classification structure included in the model provides more value in FastBooks Solutions Model 1 which was designed for a business with employees who have some employees who track or bill for their time. A good example is provided in the Dentistry Practice Model. The chart of account descriptions used for the two revenue accounts in Model Segment 8 in cells B10 and B11 is Revenue Service Group 1 -Dentists and Revenue Service Group 2 -Hygienists. The structure for both FastBooks Solutions Models is provided on the homepage of the website.

From a big picture perspective; it’s a good general practice to have a few deposits that are not related to customer payments as possible in your business bank account. When populating any yellow highlighted input cell in any core sheet tab Model Segment you can enter a number, a simple to very intricate calculation, cell notes or a [cell-pointer]. So, if a check for a non-customer transaction is included in the total for checks deposited, use the bank statement total and subtract the check that is not revenue related, and add a note in the cell for an audit trail.

Now to explain how to populate the expense account categories included in your chart of accounts as displayed in Model Segment 8.

Your bank statement will have two other sections, checks paid from the account and other debits from the account. As explained earlier, and worth repeating, if you are using QuickBooks for accounts payable, you are wasting time. Home-Based businesses should use their free bill paying software provided by their bank as their business accounts payable software.

The bank’s online payment software will handle your accounts payable requirements with a lot less investment in time and require a lot fewer steps then processing expenses and paying bills that you may be using now to perform this tedious business tactical task.

The monthly revenue and expense business transactions taken from these two standard bank statement segments is the only source document that you will require to populate “most” of the 30 available expense categories and the two revenue categories in order to fully populate Model Segment 8 at the end of each calendar month.

Use as few expense categories as possible in your chart of expense accounts for expense classifications. Using Excel, you can add numbers and include notes in cells for informational related notes. Most transactions on the bank statement will be easy to categorize into one of the 30 possible available expense categories. Populating Model Segment 8 using your bank statement makes for a great financial review.

Make notes on the bank statement to simplify the process. On your bank statement, write down the chart of accounts number for each expense transaction. Yellow input cells can be used to add numbers or perform calculations. Any expense category, like Travel and Entertainment, could contain several expense transactions added together. Most transactions are easy to logically categorize. For instance, if you are running payroll twice per month, you’d have two payroll expense and payroll tax transactions in the bank statement each month.

Remember to only include payroll and payroll tax expenses, and vendor and business expense related bank line item transactions into its respective expense account classification in Model Segment 8 each month. There will likely be other bank line transactions on a bank statement that are not tax-related expenses, such as a monthly loan payment related to the purchase of the business. Only the interest portion of the payment is a tax-related expense.

A transaction for a credit card payment can require a closer look. Some credit card companies group transactions into generic expense categories that can be used to enter as a monthly total for its respective expense classification. The most used transactions on the business card are most likely Travel Entertainment or Auto. Other than payments for business-related transactions, it is a good practice to use as few non-business transactions as possible to flow through your business bank account.

After you have reviewed all transactions in these two sections of the bank statement each transaction line on your bank statement should have either the expense account chart-of-account number line or a brief note about the nature of the transaction.
 
There could be a few business tax-deductible expenses that do not flow through a bank statement.  A few good examples would be depreciation or amortization expense and monthly Interest expense related to a business loan should all have a source document. The information from this source document should be used to record its respective monthly business expense in Model Segment 8 in order to complete the process of entering all business expense transactions for each calendar month.

When selecting the expense account to use for posting the debit transactions from the bank statement into Model Segment 8, keep in mind that most tax-related expense accounts have the same impact within the total tax calculation. In other words, rent expense is no different than utility expense for calculating taxable income. Incorrectly assigning a debit transaction to the wrong expense account is not a big deal. However, be as consistent as possible each month so expense items are correctly and consistently classified in Model Segment 8.

As explained, the chart-of-accounts structure of the Income-Statement format used in Model Segment 8 includes thirty account numbers available to assign expense accounts and two for revenue accounts. Two of the account numbers, nineteen six and nineteen 8 are populated in Model Segment 7 and the totals are carried over to Model Segment 8.

The purpose of Model Segment 7 is to offer a useful tool for tracking and planning two KEY business expense accounts that are structured into [Activity-Base 3].  Assigning two expense accounts in [Activity-Base 3] is not required. A user can assign one or two, or no expense accounts in [Activity-Base 3]. All the business line item expense transactions from the monthly bank statement can be entered in Model Segment 8.

Assigning one or two chart-of-accounts expense classifications in [Activity-Base 3] allows a user to track and plan two significant expense accounts that include goods or services purchased from several vendors. For example, the two expense accounts assigned in [Activity-Base 3] in the Dentistry Practice Model are Dental Supplies Expense and Lab Fees Expense. In the Home Base practice model, the two expense accounts assigned to [Activity-Based 3] are Contract Labor Expense and Material Purchased Expense.

Model Segment 7 is populated by entering the monthly vendor invoices related to each respective expense account classified in [Activity-Base 3]. The monthly total for these expense accounts is carried over to populate the respective line items in Model Segment 8. The totals for each expense account should be reconciled to the respective transaction lines contained in the bank statement. The unique screen design allows for a quick understanding of the dollar value of the goods and or services purchased from each vendor, and the percentage of expense distribution of the dollar purchases by each supplier for both expense account classifications.  

Model Segment 7 allows a user to set a target as a percent of revenue goal for both expense accounts and display both Current-Period and Year-to-Date better or worse statistics in relation to the targeted percent of revenue forecasted for each of the two primary expense account classified in [Activity-Base 3].

The key value of investing the time and effort for structuring one or two expense accounts in [Activity-Based 3] is the important matrix in the left-hand corner of Model Segment 7. Every time a new vendor invoice is entered into Model Segment 7 this critical need to know vendor distribution percentage for these expense accounts will be recalculated and be readily available when negotiating with suppliers.

The keystone simplicity feature in the FastBooks Solutions model is each month-end Excel file reconciles to the opening and closing cash balance in each respective monthly bank statement. This provides an excellent audit trail for reconciling the month-end financial statements to its respective monthly bank statement.

The last step for entering the monthly revenue and expense transactions in the FastBooks Solutions Model is to reconcile the Income-Statement calculated in Model Segment 8 to the Monthly Bank Statement. This is accomplished by populating the simple matrix provided in the bottom right-hand corner of Model Segment 1.