The Basics Of Accounting, Bookkeeping, Assets And Liabilities
Posted at by NReed on category FinanceMost of us doubtless think of accounting and Bookeeping as being essentially the same, but in actual fact bookkeeping is a subcategory of accounting, where accounting includes additional financial processes which support the running of a business. Accountants prepare reports based, in part, on the work of bookkeepers.
Bookkeepers perform all manner of record-keeping tasks. So what the bookkeepers do is setup and organize what’s known as the source documentation for all the financial aspects for any given company: this will include payments and collections, as well as all the purchases, cash transferals and sales. These reports also contain documentation on expense reports, employee time sheets, credit card receipts, invoice payments, purchase orders as well as other normal day-to-day business transactions. The bookkeepers are also the people that calculate what are known as the ‘financial effects’ of all the fiscal transactions that the business undertakes. Examples of what that might include are: working out the payroll, buying the raw materials to create products and calculating sales.
The bookkeepers of the company also keep a detailed record of the financial effects in either journals or accounts. These are two dissimilar types of record. A journal is the record of transactions in chronological order. On the other hand, an account is an independent calculation of all the assets and the liabilities of the company. One transaction can affect several accounts.
Bookkeepers prepare reports at the end of a specific period of time, such as daily, weekly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they’re as error-free as possible.
The bookkeepers also compile complete listings of all accounts. This report is named the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 of such accounts.
The concluding procedure for the accounting team is to close the books which entails updating all the financial transactions for the year to a balanced closed summary.
Assets and Liabilities
The ultimate goal of a company is to generate profits and that is achieved by calculating the different financial assets. It can get a little complicated because just as in our personal lives, business is run on credit as well. Most businesses have to first borrow money before they can sell their products and services to their clients. Accountants keep track of the company assets by recording the information that is the equivalent of the total amount owed to the company, these are known as the accounts receivable. Frequently a company will not be able to consolidate all its receivables by the end of the fiscal year; this is more likely to be true for financial transactions that were conducted towards the end of the financial year.
The Accountant reconciles the sales profits against the cost of goods sold during the year when these products where actually delivered to the client. This kind of record is called accrual based accounting which tracks the actual time revenue was generated against accrued expenses, for example for the cost of raw materials. When sales are made on credit, the accounts receivable asset account is increased. When cash is received from the customer, then the cash account is increased and the accounts receivable account is decreased.
When a company obtains new products, that cost is a registered in an inventory asset account. The cost is deducted from the cash account, or added to the accounts payable liability account, depending on whether the business has paid with cash or credit.
The expense of merchandise or cost of goods, is one of the most significant charges for a business that sells products or services. Even a company that only offers services still has to incur expenses. A business makes its profit by selling its products at prices high enough to cover the cost of producing them, the costs of running the business, the interest on any money they’ve borrowed and income taxes, with money left over for profit.
Gain helpful recommendations about profile links software – study the page. The times have come when concise info is truly within one click, use this chance.