White Mountain Technology
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Quad Entry Accounting
What is Quad Entry Accounting?
In a long sentence, quad entry accounting is a system of accounting that was developed by a CPA firm in Des Moines, Iowa to handle the fund accounting requirements of both public governmental entities, as well as private and publicly held holding companies, where funds must be accounted for as if they were separate companies/entities, NOT separate departments of the same company/entity (GASB 32).
For over 30 years White Mountain Technology has utilized quad entry accounting methods and conventions with much success throughout its long history. Clients and auditors alike have consistently complemented the accuracy, integrity, and flexibility only quad entry accounting can deliver in the “fund accounting / holding company” arena.
Note: Quad entry accounting was developed specifically for fund accounting and “holding company” oriented entities only. It is not designed for a single (non-holding) corporate entity.
Quad Entry accounting differs from the standard double entry accounting method in that the balance sheet is built separately from the income statement. The income statement is built by a debit/credit to the revenue/expenditure account(s) and an “enterprise code”. The balance sheet is built by a debit/credit to the asset/liability account(s), while the second half of the entry is represented by a debit/credit entry to the (Net Income / Retained Earnings / Change in Cash) code for that fund.
The (Net Income / Retained Earnings / Change in Cash) therefore has an account code assigned to it that is either debited or credited. This is a helpful integrity tool as an auditor can quickly examine all common Revenue / Expenditure transactions for A SPECIFIC FUND by simply examining that fund's (Net Income / Retained Earnings / Change in Cash) code (“-333” code in White Mountain Technology fund accounting systems).
The other side of this debit/credit is an “enterprise account” code that handles all transactions that are run the enterprise as a whole (all funds included). This is also a helpful integrity tool as an auditor can examine all transactions for AN ENTIRE ENTERPISE (all fund combined) in one easy to find code --- the “1000” code in White Mountain Technology accounting systems. The enterprise code is comparable to a General Journal account for the entire enterprise. It is not listed with the balance sheet accounts or the income statement. It is simply an accounting facility to record the integrity of every transaction completed within an accounting enterprise (all funds included and accounted for under one code).
Why Quad-Entry Accounting
Quad-entry accounting, by its very nature, represents a substantially higher level of transactional integrity than simple double-entry systems, as it relates to the “fund accounting” definition. Since each transaction requires an entry to a (Net Income / Retained Earnings / Change in Cash) code, as well as the “Enterprise Code”, it is not possible to make simple manipulations to an income statement and still appear to be balanced relative to that fund's balance sheet / trial balance.
One of the greatest benefits of Quad-Entry accounting is the accommodation it provides for transfers between funds. Double Entry accounting (Credit/Debit Balance Sheet + Credit/Debit Income Statement) falls short and often accounts for a transfer by using a Revenue Code as both a revenue and expenditure simultaneously. Standard Double Entry conventions were never meant to accommodate simultaneous transactions within and between fully separate and independent funds or corporate entities. Current GASB regulations exacerbate the problem by requiring an even greater accountability of transfers between funds. With Quad-Entry accounting, transfers can be made between funds without affecting (or hacking) the income statement accounts in any way.
Sample Quad-Entry Accounting Transactions
The following is for example purposes and understanding only. Actual applications, codes, line account descriptions etc are user defined at each accounting site, and thus will be vary. The methods generally described below, however, are strict and identical for each installation.
Sample Revenue Transaction
Quad Entry:
Debit 01-111 (Checking Code - BALANCE SHEET)
Credit 01-333 (Equity / Net Income Code - BALANCE SHEET)
Debit 1000 (Enterprise Code - ENTERPRISE
Credit 01-415 (Revenue Code - INCOME STATEMENT)
Sample Expenditure Transaction
Quad Entry:
Debit 01-522 (Expenditure Code - INCOME STATEMENT)
Credit 1000 (Enterprise Code - ENTERPRISE
Debit 01-333 (Equity / Net Income Code - BALANCE SHEET)
Credit 01-111 (Checking Code - BALANCE SHEET)
Sample Transfer (Non-Income Statement Method)
Quad Entry: (From “01” Fund To “03” Fund)
Debit: 03-111 (Checking Code - BALANCE SHEET)
Credit: 03-332 (Equity -Tfrs / Adjustments Code - BALANCE SHEET)
Debit: 01-332 (Equity -Tfrs / Adjustments Code - BALANCE SHEET)
Credit: 01-111 (Checking Code - BALANCE SHEET)
Sample Transfer (Income Statement Method)
Quad Entry: (from “01” Fund to “03” Fund)
Debit 03-111 (Checking Code - BALANCE SHEET)
Credit 03-333 (Equity / Net Income Code - BALANCE SHEET)
Debit 1000 (Enterprise Code - ENTERPRISE)
Credit 03-422 (Revenue Code - Tfrs IN - INCOME STATEMENT)
Debit 01-523 (Expenditure Code-Tfrs OUT- INCOME STATEMENT)
Credit 1000 (Enterprise Code - ENTERPRISE)
Debit 01-333 (Equity / Net Income Code - BALANCE SHEET)
Credit 01-111 (Checking Code - BALANCE SHEET)
Note: All 50 states require that "income statement" transfers be clearly identified and sub-totaled as “Non-Operational” within the income statement in order to omit them from Enterprise perspective revenue/expenditure calculations. Unidentified transfers can appear as additional revenues and/or expenditures that are in actuality “wash” transactions from an enterprise perspective. By clearly subtotaling such items as “Non-Operational” within the income statement line accounts, they can be easily identified and omitted from enterprise level Revenue/Expenditure totals.
Sample Transfer (Due From - Due To Method)
Quad Entry: (from “01” Fund to “03” Fund)
Debit 03-111 (Asset - Checking Code - BALANCE SHEET)
Credit 03-222 (Liability - “Due To” - BALANCE SHEET)
Debit 01-122 (Asset - “Due From” - BALANCE SHEET)
Credit 01-111 (Asset - “Checking” - BALANCE SHEET)
Note: All 50 states require that the “Due To / Due From” method only be utilized in those instances where a transfer is to be payed back by the receiving fund. A permanent transfer should be handled by either the (Transfer - Non Income Statement) or the (Transfer - Income Statement) methods as described in prior samples.