NAIC Club Accounting Made Easy (...almost)

Editor's Note: This material is adapted from information submitted by Bob Adams, a director of the Puget Sound Council. Herb Barnett, Chairman of the NAIC Computer Group, added comments and additional basic concepts. Special thanks to Bob and Herb for their contributions.

Overview

The NAIC Club Accounting software is a tool that investment clubs use to manage their finances. Remembering steps to get to the appropriate data entry window can be frustrating for club treasurers. This material will assist club treasurers in performing their monthly duties.

Important NAIC Club Accounting Concepts

• Custom Designed

  The NAIC Club Accounting software is specific in its design. Attempts at "creative re-engineering" are not recommended. By utilizing the software as it is intended, you decrease the possibility of error.

• Transaction Specific

  Transactions identified with a specific club member are entered as a Member Transaction. Transactions identified with a specific security are entered as a Security Transaction. Cash transactions are used only when a member transaction or security transaction doesn't apply.

• Account Selection

  The financial source or destination is the key to selecting the bank, broker, or suspense account. If your club's cash assets are held in the bank, select the bank account when you write a check to purchase stock.

• Petty Cash Account

  The petty cash account is used for items that are not connected to the investment activities of the club. Review the explanation of accounts in the software manual. Most clubs don't need the petty cash account.

• Buyout a Withdrawing Member -- A Misnomer

  A member withdrawal and the addition of new money are two separate transactions. The withdrawing member's units are canceled when they withdraw. Money from an existing member or a new member buys new units. Trying to link the two events complicates transactions and accomplishes nothing.

• Record Deletion

  Every entry in the NAIC Club Accounting software represents the history of your investment club. Records of withdrawn partners and securities no longer held are permanent records and should not be deleted. Club Accounting provides a means of marking inactive records.

  To mark a withdrawn member as inactive:

  Select: Members | Edit/Delete Member

  To mark a security that has been sold:

  Select: Security | Edit/Delete Security

  When you are viewing the appropriate Edit window, select the member or security to be marked as inactive and remove the check mark from the Active box.

• Distribution of Earnings Statement

  When keeping books manually, a Distribution of Earnings must be calculated before processing a member withdrawal. The software does this automatically when calculating a withdrawal, so the "Distribute" task should NOT be run before withdrawing a member. The "Distribute" task should only be run to close the books at the end of each year, and when the club disbands.

• Annual Distribution of Earnings Statement

  Each year, value the club's assets as of December 31. Enter all transactions that occurred since the last valuation date.

  Select: Securities | Enter/Edit Valuations

  Enter the security prices at the close of business on December 31.

  Select: Utilities | Audit
  Select: Utilities | Distribute
  Select: Reports | Distribution of Earnings Statement

  Print a copy of the Distribution of Earnings Statement for each club member.

• Total Return

  New investment clubs and clubs that have converted to the NAIC Club Accounting software and not entered two or three years of records are encouraged to turn off the Total Return calculation on the Valuation Statement and Member Status Report. The Total Return calculation on short-term data appears distorted, and generates repeated questions. To turn off the calculation:

  Select: Utilities | Parameters

  Remove the check mark from the "Show Returns" box. The numbers will stabilize after a year or two. The check mark in the "Show Returns" box can be replaced at that time.

• Archiving Historical Records

  With the high performance characteristics of today's personal computers, archiving of a club's historical records is no longer necessary. If you still wish to archive your club's records, remember that archiving records affects the total return calculation. To provide a more accurate total return, make a backup copy of your current records and then restore the archived records.