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Introduction to Bookkeeping

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<span style="color: blue;"><span style="font-family: "Arial","sans-serif"; font-size: large;">Introduction to Bookkeeping</span></span></h2>
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<span style="font-family: "Arial","sans-serif";"><b>                     <span style="font-size: small;"> Definition</span></b><span style="font-size: small;">:
Bookkeeping involves organizing and managing all business</span> <span style="font-size: small;">transactions in a
company. </span></span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: small;">   Bookkeeping
is the recording, on a day-today basis of the financial transactions and
information pertaining to a business. It is concerned with ensuring that
records of those individual financial transactions are accurate, up-to-date and
comprehensive. Accuracy is therefore vital to the process. </span></div>
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<span style="font-family: "Arial","sans-serif"; font-size: small;">Bookkeeping provides the
information from which accounts are prepared but is a distinct process,
preliminary to accounting.</span><br />
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<span style="font-family: "Arial","sans-serif"; font-size: small;">Each transaction, whether it is a question of purchase or sale, or change of
loans, has to be recorded in the books. </span><br />
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<span style="font-family: "Arial","sans-serif"; font-size: small;">Historically
bookkeeping was done by hand, but accounting systems have streamlined this
process</span></div>
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<span style="font-family: "Arial","sans-serif";">In principle transactions
have to be recorded daily into the books or the accounting system</span></h2>
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<span style="font-family: "Arial","sans-serif"; font-size: small;">For each
transaction, there must be a document that describes the business transaction,
in the terms of a simple sales invoice,
sales receipt, a supplier invoice, a supplier payment, bank payments and
journals. </span><br />
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<span style="color: blue;"><span style="font-family: "Arial","sans-serif"; font-size: large;"><span style="font-family: "Arial","sans-serif";">Bookkeeping: Past and
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<span style="color: purple;"><span style="font-family: "Arial","sans-serif"; font-size: large;">Bookkeeping in the Old Days</span></span></span></h3>
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<span style="font-family: "Arial","sans-serif";">Prior to computers and
software, the bookkeeping for small businesses usually began by writing entries
into <i><span style="font-family: "Arial","sans-serif";">journals</span></i>.
Journals were defined as the books of original entry. In order to reduce the
amount of writing in a general journal, special journals or daybooks were
introduced. The special or specialized journals consisted of a sales journal,
purchases journal, cash receipts journal, and cash payments journal.</span><br />

<span style="font-family: "Arial","sans-serif";">The company's transactions
were written in the journals in date order. Later, the amounts in the journals
would be posted to the designated <i><span style="font-family: "Arial","sans-serif";">accounts</span></i>
located in the <i><span style="font-family: "Arial","sans-serif";">general
ledger</span></i>. Examples of accounts include Sales, Rent Expense, Wages
Expense, Cash, Loans Payable, etc. Each account's balance had to be calculated
and the account balances were used in the company's financial statements. In
addition to the general ledger, a company may have had subsidiary ledgers for
accounts such as Accounts Receivable.</span><br />

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<span style="color: purple;"><span style="font-family: "Arial","sans-serif"; font-size: large;">Bookkeeping Today</span></span></span></h3>
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<span style="font-family: "Arial","sans-serif";">The electronic speed of
computers and accounting software gives the appearance that many of the
bookkeeping and accounting tasks have been eliminated or are occurring
simultaneously. For example, the preparation of a sales invoice will
automatically update the relevant general ledger accounts (Sales, Accounts
Receivable, Inventory, Cost of Goods Sold), update the customer's detailed
information, and store the information for the financial statements as well as
other reports.</span><br />

<span style="font-family: "Arial","sans-serif";">The accounting software has
been written so that every transaction must have the debit amounts equal to the
credit amounts. The electronic accuracy also eliminates the errors that had
occurred when amounts were manually written, rewritten and calculated. As a
result, the debits will always equal the credits and the trial balance will
always be in balance. No longer will hours be spent looking for errors that
occurred in a manual system.</span><br />

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Introduction to Bookkeeping

Introduction to Bookkeeping Definition : Bookkeeping involves organizing and managing all business ...

Accounting Cycle

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<span style="font-family: "Helvetica Neue",Arial,Helvetica,sans-serif;"><span style="font-size: small;"><span style="background-color: blue;"><span style="color: red; line-height: 115%;">Accounting Cycle:</span></span></span></span><span style="font-family: "Arial","sans-serif"; font-size: 12.0pt; line-height: 115%;"></span></h2>
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<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt; line-height: 115%;">A cycle means the happening
of events in a systematic manner and recurring of the same at regular
intervals. The accounting activities are undertaken in such a sequence that
they form a cycle. That is why the term “accounting cycle” refers to the
activities relating to the different stages involved in accounting process .As
these steps are undertaken repeatedly is a sequential manner in each accounting
period, as a whole they are identified and termed as a cycle.<br />
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The steps or phases involved in an accounting cycle are: (i) recording of
financial transactions, (ii) classification and summarization of the recorded
transactions and (iii) preparation of Trial Balance and Final Accounts. So each
accounting cycle starts from recording of transactions in Journal and ends in
preparation of financial statements.<br />
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The above stages of an accounting cycle are discussed hereunder:<br /> </span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 12.0pt; line-height: 115%;">(i) <b>Recording</b>: As soon as the financial transactions take place they are
recorded in journal or primary books of accounts. Accounting process starts
with the task of recording.<br />
(ii) <b>Classifying and summarizing</b>: After recording the recorded transactions are
classified into personal, real and nominal accounts and accordingly they are
posted in different ledger accounts. The balancing of ledger accounts helps
providing summarized information of classified transactions.<br />
(iii) <b>Preparation of Trial Balance and Final Accounts</b>: At the end of a
particular time span Trial Balance is prepared with the ledger balances to
check the arithmetical accuracy of the first two accounting steps. Similarly at
the end of a particular accounting period, to find out the end result of the
transactions recorded in that period, a Profit and Loss Account is prepared.
Along with the Profit and Loss Account a Balance sheet is prepared on the
closing day of the accounting period to exhibit the claims owned and debts owed
by the concern.<br />
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The above steps are followed in the same order in each accounting period. The
concept of accounting cycle is further explained in the following diagram.</span></div>
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Accounting Cycle

Accounting Cycle: A cycle means the happening of events in a systematic manner and recurring of the same at regular intervals. Th...