Accounting and Book keeping
The word 'accounting'
has different meanings to different people.
For some, it is a highly complex process of recording and
reporting financial transactions, often applicable to larger companies,
corporations and governments.
To medium and smaller businesses it is a collection of financial
records which report on transactions made and come together at the
financial year-end to report the health and profits/losses of trade in
the period. To
the majority of small to medium companies it is a book keeping exercise
that is a necessity to fulfill their obligations under the tax laws and
Accounting is a means of collecting together basic information on
the businessís transactions to indicate financial performance.
Individual and company financial positions can be determined by itís accounts. The commonest form of accounting is still the traditional Ďdouble entryí book keeping system, which allows a business to record where itís income has come from and where itís expenditure has gone to. This system requires amounts to be entered in two different sections of the ledger (double entry) and is a self-checking self-balancing record, which is easy to maintain. The majority of computer software accounting systems operate on the same principle.
Baltiboi has observed that Bookkeeping is the art of recording business
dealings in a set of books. Bookkeeping is the science and art of
systematically recording, classifying and summarizing the financial
transactions or events of a business in a set of books. A business
transaction means the exchange of money or items of value between two or
more persons. Anytime this occurs, bookkeeping comes into play.
It has been noted that the process of accounting begins as the business transaction occurs. Once a business transaction takes place it is recorded in the books of accounts. This process starts with recording transactions in the primary-entry cash book, bank book, sales book, purchase book, debit note/credit notebook and journal. These are regarded as the books of primary entry where transactions are first recorded.
Transactions are then posted to the ledger account. This is called the ledger posting. The balancing of each ledger account is done at periodic intervals which cannot be longer than one year. Many organizations do it on a monthly, quarterly or half-yearly basis.
The trial balance is prepared from the ledger balances. In this statement, the totals of debits and credits must agree with each other. This is the test of arithmetical accuracy of recording, posting and totaling. The debits and credits must tally.
Many necessary adjustments and provisions are made to ensure that accounting is done in conformity with the Generally Accepted Accounting Principles (G A A P). These rules and regulations are universally adopted by the accountants in recording accounting transactions.
Bookkeeping provides detailed information on bookkeeping, bookkeeping services, bookkeeping jobs, bookkeeping software and more. Bookkeeping is affiliated with Business Administration Degrees.
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Many companies have a
separate accounts department (for the smaller business, this may mean an
external book keeper) where the various financial transactions of the
business are handled and recorded.
Often, the Accounts department is headed by a qualified
accountant to oversee itís operation and prepare management reports
and official documentation. One
of the biggest advantages that a businessís accounting function
provides is the reports on which to judge past performance, recent
performance and to project future performance Ė often over a long
period of time. Many
planning decisions are taken based on this statistical information.