Bookkeeping is the recording of financial transactions, and is part of the accounting process in business. Transactions include purchases, sales, receipts, and payments by individuals or organizations/companies. There are several standard accounting methods, such as single-entry bookkeeping systems and double-entry bookkeeping systems, but, while they may be considered "real" bookkeeping, any process involving the recording of financial transactions is the bookkeeping process.
Bookkeeping is usually done by bookkeepers . A bookkeeper (or bookkeeper) is the person who records the daily financial transactions of a business. They are usually responsible for writing day books , which contain records of purchases, sales, receipts, and payments. Bookkeeping is responsible for ensuring that all transactions whether cash transactions or credit transactions are recorded in the correct day book, supplier ledger, customer ledger, and ledger; an accountant can then make a report of information on financial transactions recorded by the bookkeeper.
Bookkeeping refers primarily to aspects of accounting recording. Bookkeeping involves preparing the source document for all transactions, operations, and other business events.
The bookkeeper brings the books to the trial balance stage: an accountant can prepare an income statement and a balance sheet using a trial balance and a cashbook prepared by the bookkeeper.
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Histori
The origins of bookkeeping are lost in obscurity, but recent research will emerge to show that some bookkeeping methods have been around since most distant times. Babylonian records have been discovered since 2600 BC, written with a stylus on small plates of clay. The term "junk book" used in colonial America refers to bookkeeping. The goal is to document daily transactions including revenue and expenses. These are recorded in chronological order, and their purpose is for temporary use only. Daily transactions will then be recorded in a diary or ledger account to balance the account. The name "junk book" comes from the fact that once the junk book data is moved to the actual journal, the trash can be discarded.
Process
The bookkeeping process primarily records the financial effects of transactions. The difference between the manual and the electronic accounting system is the result of the maker's latency between recording financial transactions and posting them in the relevant account. This delay - not in the electronic accounting system because of the almost instantaneous posting to the relevant account - is the basic characteristic of the manual system, resulting in the primary books of accounts such as Cashbooks, Bank Books, Purchase Books and Sales Books for recording direct effects of financial transactions.
In normal business, a document is produced every time a transaction occurs. Sales and purchases usually have an invoice or receipt. A deposit slip is generated when a deposit is made to a bank account. Checks (spelled "checks" in the UK and some other countries) are written to pay money from the account. The first booklet involves recording the details of all these source documents into the multi-column journal (also known as first entry books or diaries ). For example, all credit sales are recorded in sales journals; all cash payments are recorded in the cash payment journal. Each column in a journal usually matches the account. In a single entry system, each transaction is recorded only once. Most people balance their checkbooks every month using such systems, and most personal finance software follows this approach.
After a certain period, usually a month, each column in each journal is summed to give a summary for that period. Using double-entry rules, the journal summaries are then transferred to their respective accounts in the ledger, or account books . For example, an entry in the Sales Journal was taken and a debit entry was created on each customer account (indicating that the customer now owes us money), and a credit entry can be created in the account for "Class 2 widget sales" (indicating that this activity has generated revenue for us ). The process of transferring a summary or individual transaction to a ledger is called post . After the posting process is completed, the account saved using the "T" format under balancing , which is the process of achieving account balance.
As a partial inspection that the posting process is done correctly, a working document called unadjusted test balance is created. In its simplest form, this is a list of three columns. Column One contains the names of those accounts in a ledger that has a non-zero balance. If the account has a debit balance, the balance amount is copied to Column Two (column debit ); if the account has a credit balance, the amount is copied to Column Three (credit column ). The debit column is then summed, and then the credit column is summed. Two in total must agree - which is not by chance - because under double-entry rules, whenever there is a post, the post debit equals the credit of the post. If two totals disagree, an error has been made, either in the journal or during the posting process. Errors must be placed and fixed, and the total debit and credit column columns are recalculated to check the agreement before further processing can take place.
After the account balance, the accountant makes a number of adjustments and changes the balance amount of multiple accounts. This adjustment must still comply with multiple entry rules: for example, an inventory inventory account and an asset account can be changed to match it to the actual amount calculated during the inventory. At the same time, the cost account associated with the use of inventories is adjusted by the same amount and opposite. Other adjustments such as post depreciation and prepayment are also made at this time. This produces a list called adjusted test balance . This is the account in this list, and the debit or credit balance, used to prepare the financial statements.
Finally, the financial statements are taken from the trial balance, which may include:
- the income statement, also known as the statement of financial results , profit and loss account, or P & amp; L
- balance sheet, also known as statement of financial position
- statement of cash flow
- Statement of changes in equity, also known as the statement of total profits and losses recognized
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Entry system
Two common bookkeeping systems used by businesses and other organizations are single-entry bookkeeping systems and double-entry bookkeeping systems. Single-entry bookkeeping uses only income and expense accounts, which are recorded primarily in revenue and expense journals. Single-entry bookkeeping is enough for many small businesses. In a double-entry accounting system, at least two accounting entries are required to record each financial transaction. These entries may occur in an asset, liability, equity, cost, or revenue account.
Single-entry system
The primary accounting records in single-entry bookkeeping are cash books , similar to checking accounts (UK: checking accounts, current accounts) signing up, but allocating revenue and expenses for various account earnings and expenses. Separate account records are maintained for petty cash, payables and accounts receivable, and other related transactions such as inventory and travel expenses. These days, single-entry bookkeeping can be done with DIY bookkeeping software to speed up manual calculations.
Double entry system
The double-entry bookkeeping system is a set of rules for recording financial information in a financial accounting system in which each transaction or event changes at least two different nominal ledger accounts.
Daybooks
A diary is a descriptive and chronological record (such as daily) of everyday financial transactions also called native entry books . The diary details should be formally entered into the journal to allow posting to the ledger. The diary includes:
- Sales diary, to record all sales invoices.
- Sales day sales book, to record all sales credit records.
- Buy a diary, to record all purchase invoices.
- Buy Debit diary, to record all Debit records of purchase.
- Cash diary, commonly known as a cash book, to record all the money received and the money paid. It may be divided into two diaries: the book of the day of receipt for the money received, and the payment of the day book for the money paid.
- Journal Journal diary, to record the journal.
Cashbook
The petty cash book is a small-value purchase record before being transferred to the latest ledger and account; it's managed by a small or junior cashier. This type of cashbook typically uses an imprest system: a certain amount of money is given to a small cashier by a senior cashier. This money is for small expenses (hospitality, stationery, regular postage, etc.) and is replaced periodically for a satisfactory explanation of how the money is spent.
Journals
Journal is recorded in the journal diary. A journal is a formal and chronological record of a financial transaction before its value is taken into account in the ledger as a debit and credit. Company can manage one journal for all transactions, or keep multiple journals based on similar activity (eg Sales, cash receipts, revenues, etc.), Makes transactions easier to summarize and reference later. For each recorded debit journal entries, there must be an equivalent credit journal entry to maintain a balanced accounting equation.
Ledgers
A ledger is an account note. The ledger is a permanent summary of all amounts included in the supporting journals that list individual transactions by date. These accounts are recorded separately, showing their start/end balance. The journal records financial transactions in chronological order, without showing its balance but indicates how much will be charged on each account. The ledger takes each financial transaction from the journal and records it into the corresponding account for each registered transaction. The ledger also summarizes the total of each account, which is transferred into the balance sheet and income statement. There are three main types of books related to bookkeeping:
- The sales ledger, which is mostly related to accounts receivable. This ledger consists of records of financial transactions made by customers for business.
- The purchases ledger is a record of a company's purchase transaction; it goes hand in hand with Account Debt account.
Abbreviations used in bookkeeping
- A/C - Account
- Acc - Account
- A/R - Accounts receivable
- A/P - Account payable
- B/S - Balance
- c/d - Submit
- b/d - Brought
- c/f - Brought forward
- b/f - Brought forward
- Dr - The discharge side of the ledger. "Dr" stands for " D ebit r egister"
- Cr - The credit side of the ledger. "Cr" stands for " C redit r egister"
- G/L - general ledger; (or N/L - nominal ledger)
- PL - Fortunately and loss; (or I/S - income statement)
- P/R - Payroll
- PP & E - Property, factory, and equipment
- TB - Trial Balance
- GST - Tax on goods and services
- VAT - Value added tax
- CST - Central sales tax
- TDS - Reduced tax on source
- AMT - Alternative minimum tax
- EBITDA - Earnings before interest, taxes, depreciation, and amortization
- EBDTA - Earnings before depreciation, taxes, and amortization
- EBT - Pre-tax income
- EAT - Income after tax
- PAT - Profit after tax
- PBT - Pre-tax profit
- Depr - Depreciation
- Dep - Depreciation
- CPO - Cash paid
- CP - Cash Payment
The account chart
The account chart is a list of account codes that can be identified with numeric, alphabetical or alphanumeric codes that allow accounts to be placed in the general ledger. The equity portion of the account chart is based on the fact that the entity's legal structure is a particular type of law. Possibilities include sole trader , partnership , trust , and company .
Computerized bookkeeping
Computerized bookkeeping eliminates many "book" papers used to record an entity's financial transactions - instead, relational databases take their place, but they still typically implement double-entry bookkeeping systems and methodologies. CPAs design internal controls for computerized bookkeeping systems, which serve to minimize errors in documenting the large number of activities undertaken by entities during that period.
See also
- Accounting
References
External links
- CA Student Blog (April 27, 2017). "Infographic: What are Primary Books?". icas.com . Institute of Chartered Accountants of Scotland . Retrieved June 16 2017 .
Source of the article : Wikipedia
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