Accounting and bookkeeping services are rapidly changing the world the way people are looking at. This concept is in practice for decades and is making a tremendous impact for the purpose of building a better working world.
Accounting and bookkeeping services – History
Recent researches have shown that accounting and bookkeeping services have existed from the Babylonian period dating back to 2600 B.C. Then came to know that Babylonians used a very unique way of recording transactions written on small slabs of clay. The Colonial Americans referred the term bookkeeping as “waste book”. The main purpose was to record the daily transactions like receipts and the payments. This was recorded in a chronological manner. The term “waste book” comes from the fact that once the data were transferred to the actual journal, the waste book would be discarded.
Accounting and bookkeeping services is a process of recording financial transactions in a systematic manner. The key concepts include:
- Daybooks
- Single-entry system
- Double-entry system
- General ledger
- Trail balance
- Journals
- Debits and credits
- Petty cash
- Imprest system
- Bank reconciliation
- Depreciation
Transactions in accounting and bookkeeping services include purchases, sales, receipts, and payments undertaken by an individual or an organization. A bookkeeping system consists of a single-entry system and a double-entry system. But in the real term “Accounting and bookkeeping” is any process that involves the recording of financial transactions.
It is the bookkeeper who performs the accounting and bookkeeping services. The prime duty of a bookkeeper is to record the day-to-day financial transactions of a business. Their responsibility includes writing the daybooks, which contain the records of purchases, sales, receipts, and the payments. It is the bookkeeper’s responsibility to ensure that all transactions whether cash or a credit transaction is recorded in the correct daybook, supplier’s ledger, customer’s ledger, and general ledger. Based on the financial transactions recorded by the bookkeeper, an accountant creates various reports from the information provided.
It is the duty of the bookkeeper to bring the books to the trial balance stage. It is from this stage where an accountant takes over by preparing an income statement and balance sheet using the trial balance and the ledgers prepared by the bookkeeper.
In accounting terms, the term bookkeeping has different perceptions in its own way. Every individual has a different opinion about bookkeeping. Some individuals say that the concept of bookkeeping and accounting are almost the same. In their opinion maintaining a company’s books, financial statements and preparing tax reports are all part of bookkeeping. For the rest, bookkeeping is nothing but the process of recording transactions in journals or daybooks and later posting the same into accounts in ledgers.
Bookkeeping services in India were in practice from ancient time. In the earlier times, the process of bookkeeping was undertaken by posting entries into journals manually until the process got computerized. Special journals or daybooks were introduced to reduce the amount of writing entries into the journal. The specialized journals include sales journal, purchase journal, cash receipts journal and cash payment journal.
Before computers took the accounting industry by storm which made things rather simple and hassle-free, organizations used to transact the journals in date order manner. The amounts in the journals would be later posted to the concerned accounts located in the general ledger. Each and every transaction and balance were taken into consideration and the account balances were used in the company’s financial statements. Apart from the general ledger, organizations also maintained subsidiary ledgers like Accounts Receivable.
Since the entire process was undertaken manually, the chances of errors occurring were high. To check the errors that have occurred, a trial balance was prepared by the bookkeeper. It consists of each accounts name and the balance in the appropriate debit and credit column. One of the simple ways of finding the error is where the total of the debit column do not tally with the total in the credit column. This denotes that something somewhere has gone wrong in posting in the journal or in the trial balance. This seemed to be a tedious process in finding the one or more errors as the whole process was time-consuming and cumbersome.
After the errors were rectified and corrected, the phase for bookkeeping comes to an end and the accounting phase began. An accountant used to prepare to adjust entries so that they reflect the accrual basis of accounting. One may wonder for what reasons the adjusting entries are prepared? They are necessary for the following purpose:
- Not recording additional revenues and assets which may have been earned
- Failing to record additional expenses and liabilities which may have been incurred
- Prepayments that are no longer prepaid, but has been recorded by the bookkeeper
- It is necessary to compute and record non-routine adjustments and depreciation
2 Types of Bookkeeping
Bookkeeping can be classified into two main methods
- Accrual Method
- Cash Method
| Accrual Method · Receivables and revenues are reported as assets when they are earned · When payables are incurred they are reported as liabilities · Expenses are taken into account when they match revenues · During a financial year, Net Income is based on revenues earned and expenses incurred · As far as the reporting of assets, liabilities and the amount of stockholders equity is concerned, the Balance Sheet is concerned to be fully complete | Cash Method · Receivables and revenues are not reported as assets when cash is received · They are not reported as liabilities · Expenses are reported when cash is paid · In the case of cash method Net Income is totally based on cash receipts and cash payments · The Balance Sheet eliminates certain assets and liabilities. One can also notice changes taking place in the amount of stockholders’ equity |
Types of Entry systems:
There are 2 types of entry systems involved in bookkeeping.
- Single entry system
- Double entry system
The former is a form of entry system that allocates the income and expenses to various income and expenses accounts. Individual accounts are maintained for petty cash, accounts payable, accounts receivable, and other relevant transactions like inventory and travel expenses.
The latter is a set of rules for recording financial information in a financial accounting system in which every transaction changes at least two different nominal ledger accounts.
Now let us look at some of the concepts used in accounting and bookkeeping services.
- Daybooks
Also called as the ‘book of original entry’ a daybook is a descriptive and chronological recording of day-to-day financial transactions. The details have to be posted formally in the journals to enable posting to ledgers. It includes
- Sales daybook
- Sales credit daybook
- Purchase daybook
- Purchase debit daybook
- Cash daybook
- General journal daybook
- Petty cash book
A petty cash book is prepared to record small-value purchases before they are later transferred to the ledger and final accounts. They are normally prepared by a petty or a junior cashier. Under a petty cash system, a certain amount of money is paid to the cashier to cater for minor expenditures.
- Journals
Journals are recorded in the journal daybook. For all transactions, a company can maintain one journal or maintain several journals to make transactions easier. For every debit journal entry, there must be an equivalent credit journal entry to maintain a balanced accounting equation.
- Ledgers
Ledgers are nothing but individual transactions by date of the amounts entered in the supporting journals. These accounts are recorded separately showing the beginning and the ending balance. The ledger also sums up the total of every account which is transferred into the balance sheet and the income statement. A ledger can be further classified into
- Purchase ledger
- Sales ledger
Abbreviations used in accounting and bookkeeping services:
Here are some of the abbreviations used in accounting terminology:
- A/C – Account
- A/R – Accounts Receivable
- A/P – Accounts Payable
- B/S – Balance Sheet
- c/d – Carried down
- b/d – Brought down
- c/f – Carried forward
- b/f – Brought forward
- Dr – Debit
- Cr – Credit
- G/L – General ledger
- P/L – Profit and loss
- TB – Trial Balance
- TDS – Tax deducted at source
- EBITDA – Earnings before interest and tax, depreciation and amortization
- EBDTA – Earnings before depreciation, taxes, and amortization
- EBT – Earnings before tax
- EAT – Earnings after tax
- PAT – Profit after tax
- PBT – Profit before tax
- Depr – Depreciation
- C/P – Cash payment
- C/C – Cash cheque
Did you know the 3 golden rules in accounting?
Well if you are from the commerce background then you should be familiar with the rules. Else make yourself familiar with the same. The golden rules states:
- Personal Account- Debit the receiver and credit the giver
- Real Account – Debit what comes in and credit what goes out
- Nominal Account – Debit all expenses and losses and credit all incomes and gains.
Before computers took the accounting industry by storm which made things rather simple and hassle-free, organizations used to transact the journals in date order manner. The amounts in the journals would be later posted to the concerned accounts located in the general ledger. Each and every transactions and balance were taken into consideration and the account balances were used in the company’s financial statements. Apart from the general ledger, organizations also maintained subsidiary ledgers like Accounts Receivable.
Since the entire process was undertaken manually, the chances of errors occurring were high. To check the errors that have occurred, a trial balance was prepared by the bookkeeper. It consists of each accounts name and the balance in the appropriate debit and credit column. One of the simple ways of finding the error is where the total of the debit column do not tally with the total in the credit column. This denotes that something somewhere has gone wrong in posting in the journal or in the trial balance. This seemed to be a tedious process in finding the one or more errors as the whole process was time- consuming and cumbersome.
After the errors were rectified and corrected, the phase of the bookkeeping comes to an end and the accounting phase begins. An accountant used to prepare to adjust entries so that they reflect the accrual basis of accounting. One may wonder for what reasons the adjusting entries are prepared? They are necessary for the following purpose:
- Not recording additional revenues and assets which may have been earned
- Failing to record additional expenses and liabilities which may have been incurred
- Prepayments that are no longer prepaid, but has been recorded by the bookkeeper
- It is necessary to compute and record non-routine adjustments and depreciation
Finally, after making all the necessary adjustments an accountant presents the adjusted balances in the way of financial statements. After completing the financial statements for every year, closing the entries is a must. The primary objective of closing the entries is to ensure that the balance in the income statement accounts (revenues and expenses) has to be zero before the commencement of the new financial year.
Hope this blog on accounting and bookkeeping services are clear.
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