An Overview about the principles of Accounting and Bookkeeping
In accounting terms the term bookkeeping has different perceptions in its own way. Every individual have 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 day-books and later posting the same into accounts in ledgers.
Bookkeeping services in India was 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 day-books were introduced to reduce the amount of writing entries into 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 transactions and balances were taken into consideration and the account balances were used in the company’s financial statements. Apart from 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 has occurred, a trail 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 total in the credit column. This denotes that something somewhere has gone wrong in posting in journal or in the trail 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 was completed and the accounting phase began. An accountant used to prepare adjusting 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.
Types of Bookkeeping
Bookkeeping can be classified into two main methods
- Accrual Method
- Cash Method
· Receivables and revenues are reported as assets when they are earned
· When payable 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, Balance Sheet is concerned to be fully complete
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
The Current Trend in Bookkeeping
Times have changed and we also have to come to terms with changing times. Gone are the days when company’s used to maintain records pertaining to bookkeeping and accounting services manually. With the introduction of accounting software and faster processing systems in recent times have changed the course of bookkeeping. The latest trend in bookkeeping and accounting services has gone to a next level which denotes that most of the tasks have been eliminated and has made things look much simple and user-friendly.
The accounting software is designed in such a manner that every transaction in the debit column and credit column tally with one another. For example, the preparation of sales invoice will automatically update the relevant general ledgers like sales, Accounts Receivable, Inventory and Cost of Goods Sold. The modern method not just updates the customers or organizations detailed information, but also at the same time store the relevant information for various financial statements. As a result, the debit and the credit columns always tally and the trail balance do not mismatch anymore. Hence no wastage of time in spotting the errors that used to occur manually.
But a word of CAUTION! Though the accounting software is amazingly fast, accurate and reliable in processing the information, there are glitches in the software. At times the software is unable to detect some transactions that are omitted or there have been double entries. If a company fails to have internal controls, there is every chance of fraudulent transactions taking place.
The principle of Bookkeeping and accounting services applies to all whether they are Corporate or small business concerns. Irrespective of the size of the company, they play a prominent role in maintaining the day to day business. No organization can survive without their presence.
Now we are into Digital world where everything is taking place online. Online bookkeeping services have emerged as one of the latest trends in recent times. They have become the most preferred mode of undertaking transactions. Due to the drastic change in technology Online bookkeeping services have bolstered the organization’s revenues to a large extent.
With hundreds and thousands of transactions taking place on day to day basis, Online bookkeeping services have become the latest mantra as they have emerged as latest trend setters for any organization to be successful in their business endeavor.
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