Adpoting proper accounting record keeping is a must for any business. Using good accounting practice make the overall management of the business very easy and also help in complying with regulatory authorities. Accounting is based on certain basic rules and principles. Adopting these rigid rules and principles make accounting practice consistent for all business transactions. There are seven major books of accounts. They are as follows :
1. Cash Book - Records all cash related transactions for a specified period.
2. Bank Book - Records all bank related transactions for a specified period.
3. Journal Book - Records all transactions, which are not cash or bank related.
4. Purchase Book - All purchase related transactions are recorded here.
5. Sales Book - All sales related transactions are recorded here.
6. Accounts Receivable Ledger – Records all transactions that your customers owe you money.
7. Accounts Payable Ledger – Records all transactions that your business owes to your suppliers/vendors.
Based on these books, a Trial Balance is prepared which shows the accuracy of accounting transactions involved. A Trial Balance has two sides, Debit and Credit sides. If the sum total of Debit equals the sum total of Credit side, then it shows that all transactions are recorded properly. These two sides equal only when the double entry concept is followed. Double entry concept stipulates that for every Debit amount, there must be a Credit amount.
From the Trial Balance, an Income Statement is produced. This is a statement to show the results of your business in numeric form as to how much profit or loss in a period of time (usually one year) your business has made.
A Balance Sheet is also produced. This is again a statement in numeric form showing business financial situation or standing as at a point in time, usually as at the end of the financial year end.
Nowadays, Accounting software is used to record these transactions. These are commonly known as Accounting Software. These Accounting Software are built on the Accounting principles. These accounting software make the whole accounting process very simple, fast, easy to use and integrated as one. One or more persons can work at a time in a computerized network system. A data entry operator may be entering the data and his superior can approve it. Thus, the management can analyze the whole accounting process with ease and thus helps in managing the business effectively.
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Tags: accounting, accounting software, balance sheet, bookkeeping, income statement, trial balance
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