Accounting Basics

Accounting Basics at Free Geek

Each organization has its own spin on keeping track of its money. This page shows how we do it at Free Geek.

Keep in mind that we're not professional beancounters. This means that you should take what we say with a grain of salt. Hopefully, it also means we can explain things, more or less correctly, to the neophytes who want to see how we do this here.

Double entry bookkeeping

Double entry bookkeeping is an established and flexible way to keep track of our cash. It requires that every time we enter a number, we record where it came from and where it's going to. That is we're entering the numbers twice (therefor "double entry"). This is one of those things that seems overly complicated to folks who are new to accounting, but seems essential to those who have used the system. It will make more sense when you see the examples below.

Accrual vs. cash accounting

Most people are familiar with cash accounting. In that style of accounting you keep track of the money when you get or spend it. You don't count money that you owe or is owed to you until someone pays something.

At Free Geek we use accrual accounting, where we keep track of money owed us and money we owe. This method also allows us to note when the money is earned or when we begin to owe money to us, regardless if the cash has come in or gone out.

The five types of accounts

There are five types of accounts needed double entry accrual accounting, and they are income, expense, asset, liability, and equity. Every type of account has to fall in one of those five categories. Here are their definitions with examples:

Income

Income accounts are used to keep track of where money came from. At Free Geek, some of the major income accounts are:

• Thrift store sales -- about 34% of our income
• Monitor fees (collected at Front Desk) -- 26%
• Cash donations (collected at Front Desk) -- 24%
• E-scrap recovery (when a company buys scrap circuit boards, etc.) -- 11%

Expense

Expense accounts are used to keep track of where we spend our money. At Free Geek, some of the major expense accounts are:

• Staff -- about 60% of our income, including
  • Salaries
  • Payroll taxes
  • Health care
  • Salaries
  • Workers compensation insurance
• Facility -- 25%, including
  • Rent
  • Utilities
  • Liability insurance
• Monitor recycling -- 11%

Asset

Asset accounts keep track of what we have (or is owed us) that is of value. For instance:

• Bank accounts (checking, savings, etc.)
• Money owed by donors (often businesses) that we have billed (but haven't paid yet)
• Money owed by recyclers that have picked up scrap material (but haven't paid yet)

Liability

Liability accounts keep track of what we owe others. For instance:

• Unpaid rent
• Unpaid monitor transportation and processing fees
• Unpaid utility bills
• Unpaid loans

Equity

Equity accounts are the hardest to explain. Equity is the difference between assets and liabilities. For Free Geek's accounting purposes the accounts in this category have to do with how much money we had (or was owed us) at the beginning of the year. For instance at the end of 2004 we had about $275 in a paypal account. When we started the bookkeeping for 2005 we entered a transaction in the books showing that $275 as coming from an equity account rather than an income account, since it didn't come in during 2005. (We already had it).

For reading many reports, you don't need to understand what equity accounts are, so don't worry about it at this point.