BREAKING DOWN 'Statutory Reserves'

Statutory reserves lead insurance companies to lose some potential profits as they are
unable to invest these funds into mutual funds or other forms of high yield investments.
However, holding reserves increases investor confidence that the company will be able to
fulfill its commitment in a bear market. Some insurance companies hold additional
capital, voluntary reserves. tate regulated reserve requirements. Insurance companies must
hold a portion of their assets as either cash or marketable investments. Statutory reserves
are the amount of liquid assets that firms must hold in order to remain solvent and attain
partial protection against a substantial investment loss. Holding reserves reduces the risk of
insurance.

Accounting System Overview

A typical accounting system is organized into sections called journals that feed financial
transactions to a master file called the general ledger. In the RetailWare system the transactions
are transferred in batches, a process that is explained later in this section. The General Ledger
contains the information which goes into the financial statements. The organization and flow of
information is diagrammed below.

For most of your transactions RetailWare will make the entries automatically but some of your
financial transactions will require manual journal entries, for example, the donation from petty
cash shown above. Another example would be the writing of a manual check as you would do for
a COD delivery. Your accountant should instruct you further on how to recognize transactions
which require manual entry. Later in these instructions you will learn how to make such entries.
Journal entries could be thought of as holding places for your individual money transactions. They
are not placed 'officially' into the system until you have had an opportunity to review all of them
for accuracy and completeness. Once you approve them you make a menu selection that moves
their totals to the 'master ' record, the General Ledger. This is the permanent record from which
information is collected for financial statements and various other reports.

CONTROL FEATURES:
Double entry system
The 'double entry' system is used in all accounting systems. It's components are 'debits' and
'credits'. These are the names given to the entry of money amounts into the books. The double
entry system requires that every debit amount entered into a journal must have a corresponding
credit entry or entries with a total equal to the debit amount. In other words the total dollar
amount of debits must equal the total amount of credits; the transaction must be 'in balance'.
The system checks to make sure your entries are in balance and lets you know if it detects an out
of balance condition.

Journal entry amount verification

Since a journal entry can be in balance but consist of wrong AMOUNTS the system requires that
for manual journal entries you enter a 'hash total' of the transaction amounts as part of the entry
process. The hash total is the total of the amount of money being processed. The total dollar
amount of the debits and the total dollar amount of the credits must each match the hash total
before the system will accept the transaction.

Journal entry account number hash total verification

Since an in balance journal entry can be made to the WRONG ACCOUNT NUMBERS this optional
verification feature assures that a manual journal entry is made to the correct ACCOUNTS. This
level of verification requires that you add together the ACCOUNT NUMBERS that you are going to
use in the transaction and enter the totals as part of the entry process. An example of this would
be the sum of account numbers 101, 206, 305, and 586 (1198). This feature may be turned on or
off at any time in the Accounting Setup screen.

Accounting date verification

Whenever an accounting date is entered for a journal entry or other accounting transaction, the
system checks to be sure that the date is for an open accounting period. This assures that journal
entries cannot be entered for a wrong period.

Batch processing
Batch processing is a method of control that calls for doing transactions in groups. Examples of
batches are: all the transactions for the sales journal for a single day or all the manual entries for
a week. The supporting documents (e.g. invoices issued, bills received), for all those transactions
are the 'batch' and it is the total dollar amount from all the papers in the batch that is the 'batch
total'. Batch posting means that the system sends the entries of a batch to the General Ledger as
a group rather than as they occur. This allows you to have an opportunity to review all
transactions before sending them to the General Ledger.

We recommend that you use RetailWare for at least three months before implementing the
Accounting module. This will give you an opportunity to become familiar with the RetailWare
menu system and many of the functions of the program. It will help to spread the 'learning curve'
over a longer period of time. When you do begin to use the Accounting module you should run it
in tandem with your manual accounting system for at least three months. This is a period in
which you can compare the results of the two systems and make any adjustments that might be
called for.
As mentioned earlier, the RetailWare accounting module is designed to do most of the work for
you so you needn't know a whole lot about accounting. You will need to have a little instruction
from your accountant to correctly manage a few of the transactions and processes but for the
most part you will be guided through the functions by the software itself.
It is necessary to set up the accounting module to suit your own way of doing business. You will
need to include your accountant as you go about this process. On the following pages you will
find an overview of this process. We recommend that you read through the steps to 'get
acquainted' with the setup procedures well before the date you intend to start using the
accounting system. You might even make some practice entries. Don't worry about 'messing up
anything' since you will go through a cleanup process before actually starting the accounting
system. You will not understand all that you read but this exercise will make the actual setup
process easier for you and your accountant. Following the overview pages is the detailed
information for each step. You should do all steps in the exact sequence presented.