| Accounting is the process of analyzing, classifying, | | | | Many methods may be used. At a minimum, certain |
| recording, summarizing, and interpreting business | | | | procedures should be done on a monthly or other |
| transactions in financial or monetary terms. In order to | | | | periodic basis to make sure that your accounting |
| summarize the results of a business activity, each | | | | records are accurate. Some of these steps are as |
| financial transaction must be recorded in a | | | | follows: |
| bookkeeping system. | | | | * All checks written and deposits made should be |
| Basics of Accounting : | | | | entered into a check register. |
| The owner’s right or claim to assets is expressed | | | | * A monthly bank reconciliation should be done to |
| by the word equity, or investment. Other terms that | | | | make sure that all transactions have been recorded |
| may be used include capital, net worth, or | | | | (including bank originated charges) and that the ending |
| proprietorship. Liabilities represent debts and obligations | | | | cash balances to the adjusted bank balance. |
| of the business. The business may have a liability to | | | | * All expenses should be classified into business |
| the owner, however, creditors’ claims to the assets | | | | expense categories to record the various |
| have priority over the claims of the owner. | | | | expenditures. |
| An equation expressing the relationship of these | | | | * All deposits made to the account should be identified |
| elements is called the fundamental accounting equation. | | | | and classified (e.g., boarding income, interest income |
| Assets = Liabilities + Owner’s Equity | | | | and owner contributions). |
| Revenues are the amounts of assets that a business | | | | * A financial statement should be prepared on a |
| or other economic unit gains as a result of its | | | | periodic basis to understand the results of your |
| operations. For example, revenues represent earnings | | | | operation.it is extremely important to identify all the |
| derived from fees earned for the performing of | | | | sources of deposits to make sure that actual income |
| services, sales involving the exchange of goods, rent | | | | from operations is not confused with contributions of |
| income for providing the use of property, and interest | | | | working capital from the owner. |
| income for the lending of money. | | | | Advantage of Computerised bookkeeping : |
| Expenses are the amounts of assets that a business | | | | Computerized accounting systems allow you entry of |
| or other economic unit uses up as a result of its | | | | transactions into an automated system to provide a |
| operations. For example, expenses represent the | | | | variety of information. Simple accounting packages can |
| amount of cash paid for services received, such as | | | | be very powerful tools to assist in understanding the |
| wages expense rent expense, interest expense and | | | | results of business operations. After the entry of the |
| supplies expense. | | | | basic transactions, the data is available in a number of |
| Revenues and expenses directly affect owner’s | | | | reports (e.g., cash disbursements register, income |
| equity. If a business earns revenue, there is an | | | | statement, balance sheet.) These systems help |
| increase in owner’s equity. If a business incurs or | | | | “non-accountants” automatically produce |
| pays expenses, there is a decrease in owners equity. | | | | standard financial statements without much technical |
| So, we place revenue and expenses under the | | | | accounting background. Good habits in computer |
| “umbrella” of owner’s equity. | | | | processing procedures must be used to make sure |
| Assets = Liabilities + Owner’s Equity Capital + | | | | that all the transactions are recorded. Otherwise, the |
| Revenue - Expenses | | | | financial information presented may not be accurate. |
| Steps to be followed for good Bookkeeping Systems : | | | | |