Book Keeping Essay

Book charge it also referred as the keeping of throw. Book keeping is the att block off of keeping full, correct, up-to-date phone line immortalises. Proper methods can help businesses effectively dole out gold flow, stay abreast of dough and losses, and develop plans for the future based on monetary trends. Further more(prenominal), keeping consummate mass is required by both federal and local task agencies.The book keeping process involves do a record of the monies received by a business as well as the monies paid away. It encompasses money a phoner owes to vendors, employees, tax agencies, contractors, and any other individual or entity. Likewise, accurate records of amounts owed to a friendship by breakside individuals and organizations argon also recorded in a companys books.Though necessary and beneficial to business owners, the line can be very duration consuming. With no exceptions, every monetary amount that is paid or received essential be recorded. Ad ditionally, verity is of the utmost importance, making keeping the books in a rushed manner a very inquisitive idea. As business owners ar often lacking in time, some(prenominal) choose to hire nonrecreational bookkeepers to keep company records well maintained.Of the many reasons for keeping accurate records, business and income taxes are among the most important. In the United lands, for example, the Internal Revenue Service requires business owners to keep financial records that are complete and up-to-date. State and city tax agencies may require businesses to maintain accurate records as well. In fact, a business owner who fails to keep acceptable financial records may be liable for significant monetary fines or other penalties.A companys books are utilize to determine the amount of taxes the company must pay, and they are also used in preparing tax returns. Sometimes, a tax agency may break up to investigate the information reported on a return or other type of tax-rel ated memorial. In such cases, business owners arerequired to present accurate records for the tax agencys inspection. distress to do so could lead to hefty fines, penalties, or in severe cases, imprisonment.Although hiring bookkeeping professionals may be a good idea for many companies, not all business owners can afford to do so. This is particularity true of smaller, home-based, or start-up businesses. Fortunately, there are many computer programs designed to make the task of keeping the books manageable and less time consuming. Many programs handle all of the calculations for the user, taking the worry out of keeping accurate figures. Available even to those on tight budgets, this software makes record keeping easy.(N. Madison, 2013, keen-sighted Geek.)onlineACCOUNTING CYCLEThe reporting cycle is often described as a process that includes the pursuance steps identifying, collecting and analyzing documents and transactions, recording the transactions in journals, bill of fa re the journalized amounts to method of accounting systems in the general and subsidiary ledgers, preparing an unadapted rill balance, perhaps preparing a worksheet, determining and recording adjusting entries, preparing an adjusted mental testing balance, preparing the financial statements, recording and posting closing entries, preparing a post-closing trial balance, and perhaps recording reversing entries.Cycle and steps seem to be a carryover from the days of manual bookkeeping and accounting when transactions were first written into journals. In a dissipate step the amounts in the journal were posted to accounts. At the end of each calendar month, the remaining steps had to carry off place in order to get the monthly, manually-prepared financial statements.Today, most companies use accounting software that processes many of these steps simultaneously. The speed and accuracy of the software reduces the restrainers need for a worksheet containing the unadjusted trial balan ce, adjusting entries, and the adjusted trial balance. The accountant can enter the adjusting entries into the software and can obtain the complete financial statements by simply selecting the reports from a menu. After reviewing the financial statements, the accountant can make additional adjustments and close to immediately obtain the revised reports. The software will also prepare, record, and post the closing entries.(Harold,A.2013, accounting system Coach.)online.SOURCE DOCUMENTS antecedent documents are documents, such as hard cash slips, invoices, etc. that form the source of (and serve as conclusion for) a transaction. In other words, they are the first documents that exist relating to a transaction. Invoices, cash slips, receipts, check counterfoils, border deposit slips ,credit notes ,debit notes ,voucher , purchase orders and even internet payment confirmations are all source documents.For exampleInvoices conviction NotesReceiptsVoucherPurchase ordersBOOK OF PRIME ENT RYBook of thrill entry is book used in recording transaction. Books of uncreated entry are also know as books of lord entry or subsidiary books. Types of books of prime entryBooks of prime entry are also known as either journals or daybooks. The term day book is, perhaps, more commonly used, as it more clearly indicates the nature of these books of prime entry entries are made to them every day.The commonly used books of prime entry areSale mean solar day Book /Sale JournalsSale journals is to record credit sales.Purchases Day Book/Purchases JournalsPurchases journals is to record credit purchases.Sales consecrate Day Book/Return In JournalsReturn in journals is to record returns from customers.Purchases Return Day Book/Return Out JournalsReturn out journals is to record returns to suppliers.General journal/The journalThe journal is to record other transactions.The cashbook is a combined account of the cash account and the bank account. It is the only one of the six daybooks t hat is both an account and a daybook at the same time. Apart from the cashbook, all the other double-entry accounts are kept in one of the three ledgers. utilisation for 3 Column Cash BookLEDGER (T-ACCOUNT)The ledger is a collective term for the accounts of a business. (A ledger of accounts is like a school of fish). The accounts are in the shape of a T and frankincense are often referred to as T-accounts. In this step we take all the debits and credits (journals) relating to one account lets say bank and draw up an account for bank that shows all the transactions relating to it.The different types of ledgers most businesses use areSale LedgersSale ledgers is to record customers account balance.Purchases LedgersPurchases ledgers is to record suppliers account balance. General LedgersGeneral ledgers is to record miscellaneous account.ExamplePETTY CASH BOOKThe little(a) cash book is used to record the changes to the petty cash investment trust both money put into the fund and mon ey taken out. The fund is commenced with a petty cash advance cheque and topped up with a reimbursement cheque at the end of each petty cash period.The petty cash book is prepared from the petty cash vouchers, as well as the details from the advance and reimbursement cheque butts.The petty cash book is prepared fromadvance (and/or reimbursement) cheque butt/scompleted and classic petty cash vouchers.The wides can be checked by cross-adding related pillar totals.The total of the vouchers (Cash Payments column total) added to the balance left in the petty cash fund ( oddment column) should always equal the imprest amount.TRIAL equilibriseA sheet displaying all the accounts of a business, drawn up as a trial (test) of whether the total of all the debit balances equal the total of all the credit balances (A balance is the amount of an item at a point in time. For example, The balance in the bank account on the 1st of January was $5,000.). The trial balance is prepared as a final che ck just before the financial statements are drawn up. The trial balance is our penultimate step in the accounting cycle. Example for Trial BalanceFINAL ACCOUNTFinal accounts are all of the financial statement for a business or company at the end of the fiscal or calendar year, on whichever the business calendar the company operates. The statements for the final accounts show the gross profit and net income of the company. A number of accounts are included, such as the profit and loss statement for the business, the balance sheet, and the trading account. The profit and loss statement tracks all of the income that comes into the company, as well as the expenses that the company pays out.The profit and loss statement dogs a particularized period typically the fiscal year, but it can also cover the calendar year. It shows how revenue becomes net income, and whether or not the company made money for the year. While the company tracks these figures throughout the year, the final accou nts include the statement for the additive fiscal or calendar year. The balance sheet is another one of the business financial statements that are prepared as part of the final accounts process when the year closes out. The balance sheet provides a mobile look at how the company is doing at that specific moment in time, at the end of the year. In addition to assets and liabilities, a balance sheet also includes information on shareholder equity.Trading accounts cover profits and losses incurred from trading securities. Many companies invest in stocks, bonds, mutual monetary resource and other types of investment funds. The final accounts for the trading account show the amount of gain or loss from these investments at the end of the year that the company runs on. Final accounts and the statements that make up these accounts typically help companies to prepare their various tax returns. If the company accountant prepares the tax statements, then the accountant prepares these state ments for his or her own use. If the company hires an outside accountant or accounting firm, then the statements for the final accounts are handed over to the third party, so they extradite the information they need to prepare the companys tax returns and any of tax paperwork that is required. (Kristie,L and Wilborn,C.2013,Wise Geek)onlineINCOME STATEMENTA financial statement that measures a companys financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year. Also known as the profit and loss statement or statement of revenue and expense.Example for Income StatementsSTATEMENT OF FINANCIAL POSITIONA statement of financial position, also known as a balance sheet, is a financial document that provides an overvi ew of an entitys finances at a given point in time. These statements are commonly used by companies large and small, but they can also be applied to mortalal finances, for people who essential to generate a document that they can use to review their financial situation for the purpose of making budgeting decisions or financial plans. Many accounting software programs have mechanisms to automatically create one. There are ii main areas on a statement of financial position. One covers the assets, everything owned by the person or company, including real estate, cash in hand, contents of bank accounts, and so forth. The other side includes the liabilities, funds owed. A statement usually breaks these sections up into several categories for ease of reference, so that people can chop-chop look up a topic of particular interest, such as accounts payable or due loans.The liabilities also include the ownership equity or the shareholder equity in the business. The assets should equal th e liabilities in one case the ownership or shareholder equity has been factored in, and if they do not, it is a sign that the financial statement is out of balance. This is in accordance with the accounting equation, which states that assets = liabilities + ownership or shareholder equity. Incidentally, this explains the term balance sheet, which reflects the idea that the two sections of the sheet should be equal or balanced.Commonly, a statement of financial position will be generated at the end of every month. Looking up past months can provide information well-nigh how a companys finances are progressing, and these documents can also be compared with statements from the same month in prior years. Using this document, decisions can be made about the next steps to take. If, for example, a company has a lot of assets, it may be a sign that it can comfortably brandish because it has the available capital to do so.Companies that are publicly traded must provide public disclosures ab out their financial health, including statements of financial position. These are provided to shareholders by request and are also commonly published to make them pronto accessible to prospective investors. If a company has a website, they might be found on a section of the website that includes documents that the company is required to disclose by law. (Smitch,S. and Wallace,O.2013,Wise Geek)onlineExample for Statement of Financial Position decisionBook keeping is important to proper accounting records because proper methods can help businesses effectively manage cash flow, stay abreast of profit and losses, and develop plans for the future based on financial trends. moreover to complete the financial account, accounting cycle are used. The accounting cycle included source of document, books of prime entry, ledgers, trial balance and the final accounts.REFERENCE1. Anon.2013,Book of Prime Entry and Ledgers.online.Available from World Wide Web http//principlesofaccounting2.com/topics /books-of-prime-entry-and-ledgers/ Accessed 05/07/2013 2. Anon.2013,The account statement Cycle.online.Available from World Wide Web http//www.accounting-basics-for-students.com/accounting-cycle.html Accessed 05/07/2013 3. Anon.2013,Income Statement.online.Available from World Wide Web http//www.investopedia.com/terms/i/incomestatement.asp Accessed 05/07/2013 4. Beanne,O.2013,The Complete Accounting Cycle.online.Available from World Wide Web http//youraccountingcoach.blogspot.com/2013/01/the-complete-accounting-cycle.html. Accessed 25/01/2013