What are the basics of bookkeeping accounting?
Bookkeeping accounting is the process of recording all financial transactions made by a business. This is a crucial part of the accounting process as it ensures that correct and comprehensive records are kept for future reference.
Here are the basic elements of bookkeeping accounting:
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1. Double-Entry System: This is the foundation of bookkeeping, where every entry to an account requires a corresponding and opposite entry to a different account.
2. Journals and Ledgers: The journal is the first place where transactions are recorded. Those records are then transferred into ledgers which are used to prepare the trial balance and financial statements.
3. Chart of Accounts: This is a list of all accounts used by a company, organized in a way that reflects the company’s operations.
4. Debits and Credits: Every transaction is recorded as either a debit or a credit. Debits increase asset or expense accounts, while credits increase revenue, equity, or liability accounts.
5. Financial Statements: These are reports generated from the ledgers and journals. The most common financial statements include the balance sheet, income statement, and cash flow statement.
6. Reconciliation: This is the process of comparing two sets of records to see if they match. It is often used to ensure that the money leaving an account matches the actual money spent.
7. Accounts Payable and Receivable: Accounts payable are the bills a company owes to its suppliers, lenders, etc. Accounts receivable are the money owed to the company by its customers.
8. Payroll Expenses: These are the expenses that a company incurs from paying its employees, such as salaries, wages, bonuses, and withheld taxes.
9. Inventory: Keeping track of the inventory is also part of bookkeeping. It involves recording all the goods that a company has on hand to sell.
10. Bank Feed: This is a digital report from the bank that automatically enters transactions into the company’s accounting software, saving time on data entry.