Accounting & Bookkeeping
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Accounting & Bookkeeping
Effective financial management is one of the basic tenets of business, no matter in which industry sector it operates. When bookkeeping and accounting are done efficiently, it ensures the wide growth of business and significantly mitigates risks.
Accounting includes interpretation, classification, analysis, reporting and summarizing of financial data. Accounting enables financial reporting of values and performance measures to investors, business managers and other stakeholders of the business. Accounting encompasses the difficulties in measuring the financial effects of economic activity.
Bookkeeping involves preparing source documents of all the operations, transactions and any other events of a business. It is a process of accumulating, organising, storing and accessing the financial information base of an entity.
Functions of Bookkeeping
- Posting debits and credits
- Producing invoices
- Maintaining and balancing general ledgers and historical accounts
- Completing payroll
- Creation of financial transaction and recording it
- Recording, balancing and securely filing the financial transactions
- Recording of changes in Assets, liabilities, owner’s equity, etc
Benefits & Advantages
- Quick document submission and Report creation
- Document management
- Improves the organisations accounting functions
- Provide tracking capabilities
- Increase data delivery time and ensures accuracy
- Secure and protect critical data through ISO compliance
- Improve and streamline the workflows
- Enhanced integrity and quality of service
- Ensure business continuity with active management
- Identify, implement and upgrade accounting information system
The accounting cycle consists of the following sequence of activities: -
- Collect and verify source documents
- Analyze and classify the transaction
- Recording of transactions in journal
- Posting entries into respective ledger account
- Trail Balance preparation
- Adjusting entries of accruals or estimations
- Adjusted trail balance
- Financial statement preparation
- Closing of Nominal Accounts for the financial period
Process of Accounting and bookkeeping
Identifying transaction: The financial transactions are analysed according to their nature and are assigned to specific accounts. All business transactions are to be correctly identified and appropriately reported to concerned manager for recording of such transaction.
Recording of accounting transactions into journal: The business transactions are recorded into journal book using debit and credit method.
Preparation of ledger accounts: This includes posting entries to respective ledger accounts. Both debit and credit effect shall be recorded into its respective ledger accounts.
Trail balance and Adjusting entries: At the end of each accounting period, trail balance is prepared and specific entries related to accruals, provisions or estimations shall be made and adjusted.
Preparation of Financial Statements: Financial Statements consist of statement of profit and loss, balance sheet, notes to accounts, cash flow statements, capital account (in case of firm), etc. After trail balance, statement of profit and loss shall be prepared so that actual profit earned can be identified and this net profit is capitalized in the owner’s account. After closing of all accounts balance sheet is to be prepared.
Post-closing Trail Balance: After closing all the nominal accounts; the remaining real and personal accounts are to be closed. The closing amount balance shall be carried forward to next financial year/ accounting period and shown as opening balance brought forward in next year’s opening trial balance.
Video on Accounting & Bookkeeping services for small business
- Who should maintain books of accounts?
- Financial Statements
- Books of Accounts to be maintained by Specified Professionals
- Deemed Income
- Period of maintenance
- Recording of transactions for the accounting period
- Preparing Ledgers
- Preparing Bank Reconciliation Statement
- Generating Trial Balance
- Preparing Draft P&L and Balance Sheet
- Bank Statements
- Record of transactions made in cash
- Purchase and sale transactions
- Any other document that may be required
Bookkeeping involves preparing source documents of all the operations, transactions and any other events of a business. It is the process of accumulating, organising, storing and accessing the financial information base of an entity. It signifies the recording of financial transaction in the respective books such as ledger account, etc. and is an integral part of the process of accounting in business.
Bookkeeping is the source of accounting. Bookkeeping involves recording all financial transactions on a daily basis in chronological order.
Accounting on the other hand requires analysis and classification of the records maintained by the book keeper and presenting them in appropriate heads of accounts for the preparation of financial statements. Accounting is more complex and requires specific skills as compared to bookkeeping.
Bookkeeping forms the base of accounting. The accountant analyses, summarises and classifies the records maintained by the bookkeeper. In simple words, the source of data for an accountant is the records maintained by the bookkeeper. Inaccuracy in the records maintained by the bookkeeper would lead to inaccurate accounts.
The bookkeeper should maintain the following books depending on their applicability:
- Bank book
- Cash book/ Petty Cash Book
- Day books
- Trial Balance
Each transaction is recorded chronologically in a journal just like a transaction log in the single-entry system. In the double-entry system, each transaction is recorded with two equal and offsetting entries – a debit and a credit. Single-entry system is not ideally used in businesses with complex business transactions. Under the double-entry system, the transaction related to account receivables and account payables are better suited for this method of book keeping.
Virtual book keeping allows an accountant to provide book keeping services to the client remotely. Services such as virtual book keeping are highly beneficial for small businesses as they can focus on their business without having to worry about maintaining their books.
Under cash basis the income and expenditure are recorded on the basis of inflow and outflow of cash. On the other hand, accrual method requires recording of transactions based on the period to which it relates. The decision to follow cash basis or accrual basis depends on the nature and size of business. For e.g. companies are mandatorily required to follow accrual basis of accounting. However small proprietorship businesses may choose to follow cash basis of accounting.
Some popular accounting software used are Tally ERP, ACES, Quickbooks, BUSY, Accord, FACT, etc.
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