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:: Accounting Basics ::

Accounting is the process of recording, classifying, reporting and analyzing financial data. And while the accounting requirements of every business vary, all organizations need a way to keep track of their money. Many small businesses hire accountants to set up and keep their books. Other companies use accounting software like QuickBooks, Peachtree and M.Y.O.B. Accounting and keep their accounting functions in house.

Using a system of debits and credits, called double-entry accounting, accountants use a general ledger to track money as it flows in and out of a business. They record each financial transaction on a balance sheet, which provides a snapshot of a business's financial condition. Accountants record every financial transaction in a way that keeps the following equation balanced: Assets = Liabilities + Owner's Equity (Capital)

:: Accounting methods ::

Cash-basis accounting is a method of bookkeeping that records financial events based on cash flows and cash position. Revenue is recognized when cash is received and expense is recognized when cash is paid. In cash-basis accounting, revenues and expenses are also called cash receipts and cash payments.

Two types of cash-basis accounting exist: strict and modified. Strict cash-basis follows the cash flow exactly. Modified cash-basis includes some elements from accrual-basis accounting such as inventory and property capitalization

:: Basics of Bookkeeping ::

Bookkeeping is the recording of all financial transactions undertaken by a business or an individual. A bookkeeper sometimes called an accounting clerk in the US, is a person who keeps the books of an organization. The organization might be a business, a charity or a local sports club. Two methods are widely in use: single-entry accounting system and double-entry bookkeeping system.

The system most commonly used in bookkeeping is the double-entry bookkeeping system. A bookkeeper is usually responsible for writing up the "daybooks". The daybooks consist of purchase, sales, receipts and payments. The bookkeeper is responsible for ensuring that all transactions are recorded in the correct daybook, suppliers ledger, customer ledger and general ledger. The bookkeeper will bring the books to the trial balance stage for a financial accountant. This accountant will prepare the profit and loss statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.

The actual process of keeping your books is easy to understand when broken down into three steps. A) Keep receipts or other acceptable records of every payment to and every expenditure by your business. B) Summarize your income and expenditure records on some periodic basis (daily, weekly, or monthly). C) Use your summaries to create financial reports that will tell you specific information about your business, such as how much monthly profit you're making or how much your business is worth at a specific point in time.


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