Bookkeeping Fundamentals is all about accurate record keeping. It is the process of recording into a set of books all money received and spent by a business and putting it in the correct account. This information is then used for the purpose of producing financial statements that guide business owners as they seek to operate profitable companies. The “books” are called Journals & Ledgers. Entering information begins with the Journals as money is received or spent. The Journals contain columns for transactions to allow them to be categorized to the proper asset, liability, capital and accrual accounts.
Once information is entered into the Journals it is transferred each month to the General Ledger which is referred to as the final book of entry. It gives a summary of all accounts in the bookkeeping system for the purpose of producing financial statements such as the Earnings Statement and Balance Sheet. If you open a general ledger report in QuickBooks it would show you every transaction in such detail that your CPA could do your taxes from it without needing your company file. But it isn’t laid out in summary form like other reports.
Bookkeeping is not only the entering of information into a set of books. It also involves the proper handling and filing of paperwork. A paper trail is always necessary in bookkeeping especially for the purpose of auditing. Having receipts and bank statements on hand allows for information to be verified at any time.
Just as the numbers need to be recorded in the proper place in the books, so the paperwork needs to be filed in the proper place in a filing cabinet. Creating an easy to use filing system for any business will be very helpful when paperwork is needed. It can be very frustrating to be unable to locate paperwork when it is needed.
Bookkeeping fundamentals require accuracy in record keeping. A business should be able to see how it is doing financially from a 3,000 foot view as well as be able to see details as to what may be producing good or bad results. With this information a business is able to keep abreast of the financial facts to determine how it is doing and adjust course if necessary.
Have you been looking for free lessons in bookkeeping? You will find a number of pages on this site dedicated to the different aspects of the subject such as Generally Accepted Accounting Principles, trial balance or debits and credits. Accounting as an overall subject can seem overwhelming because there is so much to learn.
My goal in creating this part of the site is to not only give an overview of bookkeeping, but to go into some detail and provide definitions of terms that are used to enable you to understand the subject better. By studying and learning the different topics you will establish a good foundation to get started. I have found that I never stop learning about this subject. New challenges present themselves all the time, especially when working for different companies.
Different Types of Accounts
Software does a lot of the work for us today but it is good to understand the fundamentals are done with actual paper ledgers and journals to understand the flow of information. One important subject to master is the Chart of Accounts. It is a list of all accounts used in a company’s General Ledger. The two categories of accounts found in the General Ledger are Balance Sheet accounts and Revenue or Earnings accounts. The three revenue accounts are…
- Cost of Goods Sold
The four Balance Sheet accounts are…
- Current Assets & Fixed and Other Assets
- Current & Long Term Liabilities
Each of the above listed accounts are further broken down for more detail in accounting. For example, Expense is a Revenue account, but a business will have multiple expense accounts in the Chart of Accounts that appear in the General Ledger. This is done in order to track the different kinds of expenses in detail.
If you are like me, you still need to come back to the basics from time to time. It is easy to get so caught up in your work as a bookkeeper that you can forget a few simple things that may make your job easier.