Understanding Business Accounting For Dummies, 2nd Edition by Colin Barrow, John A. Tracy Page A
Authors: Colin Barrow, John A. Tracy
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the publisher, John Wiley & Sons, Ltd. The books are received and placed on the shelves. (50 copies are a lot to put on the shelves, but our relatives promised to rush down and buy several copies each.) The bookshop now owns the books and also owes John Wiley £600.00, which is the cost of the 50 copies. You look only at recording the purchase of the books, not recording subsequent sales of the books and paying the bill to John Wiley.
The bookshop has established a specific stock or account called ‘Stock-Trade Paperbacks' for books like this. And the purchase liability to the publisher should be entered in the account ‘Creditor-Publishers'. So the journal entry for this purchase is recorded as follows:
Stock-Trade Paperbacks + £600.00Creditor-Publishers + £600.00
This pair of changes is first recorded in one journal entry. Then, sometime later, each change is posted, or recorded, in the separate accounts - one an asset and the other a liability.
Not so long ago, bookkeepers had to record these entries by hand, and even today there's nothing wrong with a good hand-entry (manual) bookkeeping system. But bookkeepers can now use computer programs that take over many of the tedious chores of bookkeeping. Computers have come to the rescue - of course, typing has replaced hand cramps with repetitive strain injury, but at least the work gets done more quickly and with fewer errors! (See Appendix B for more about popular accounting software packages for personal computers.)
We can't exaggerate the importance of entering transaction data correctly and in a timely manner. For example, an important reason that most retailers these days use cash registers that read bar-coded information on products is to more accurately capture the necessary information and to speed up the entry of this information.
4. Perform end-of-period procedures - preliminary steps for preparing the accounting reports and financial statements at the end of every period.
A period can be any stretch of time - from one day to one month to one quarter (three months) to one year and is determined by the needs of the business. A year is usually the longest period of time that a business would wait to prepare its financial statements. As a matter of fact, most businesses need accounting reports and financial statements at the end of each quarter, and many need monthly financial statements.
Before the accounting reports can be prepared at the end of the period (see Figure 2-1), the bookkeeper needs to bring the accounts of the business up-to-date and complete the bookkeeping process. One step, for example, is recording the depreciation expense for the period (see Chapter 6 for more on depreciation). Another step is getting an actual count of the business's stock so that the stock records can be adjusted to account for shoplifting, employee theft, and so on.
The accountant needs to take the final step and check for errors in the business's accounts. Data entry clerks and bookkeepers may not fully understand the unusual nature of some business transactions and may have entered transactions incorrectly. One reason for establishing internal controls (discussed in ‘Protect the family jewels: Internal controls', later in this chapter) is to keep errors to an absolute minimum. Ideally, accounts should contain very few errors at the end of the period, but the accountant can't make any assumptions and should make a final check for any errors that fell through the cracks.
5. Prepare the adjusted trial balance for the accountants.
After all the end-of-period procedures have been completed, the bookkeeper prepares a complete listing of all accounts, which is called the adjusted trial balance. Modest-sized businesses maintain hundreds of accounts for their various assets, liabilities, owners' equity, revenue, and expenses. Larger businesses keep thousands of accounts, and very large businesses may keep more than 10,000 accounts. In
The bookshop has established a specific stock or account called ‘Stock-Trade Paperbacks' for books like this. And the purchase liability to the publisher should be entered in the account ‘Creditor-Publishers'. So the journal entry for this purchase is recorded as follows:
Stock-Trade Paperbacks + £600.00Creditor-Publishers + £600.00
This pair of changes is first recorded in one journal entry. Then, sometime later, each change is posted, or recorded, in the separate accounts - one an asset and the other a liability.
Not so long ago, bookkeepers had to record these entries by hand, and even today there's nothing wrong with a good hand-entry (manual) bookkeeping system. But bookkeepers can now use computer programs that take over many of the tedious chores of bookkeeping. Computers have come to the rescue - of course, typing has replaced hand cramps with repetitive strain injury, but at least the work gets done more quickly and with fewer errors! (See Appendix B for more about popular accounting software packages for personal computers.)
We can't exaggerate the importance of entering transaction data correctly and in a timely manner. For example, an important reason that most retailers these days use cash registers that read bar-coded information on products is to more accurately capture the necessary information and to speed up the entry of this information.
4. Perform end-of-period procedures - preliminary steps for preparing the accounting reports and financial statements at the end of every period.
A period can be any stretch of time - from one day to one month to one quarter (three months) to one year and is determined by the needs of the business. A year is usually the longest period of time that a business would wait to prepare its financial statements. As a matter of fact, most businesses need accounting reports and financial statements at the end of each quarter, and many need monthly financial statements.
Before the accounting reports can be prepared at the end of the period (see Figure 2-1), the bookkeeper needs to bring the accounts of the business up-to-date and complete the bookkeeping process. One step, for example, is recording the depreciation expense for the period (see Chapter 6 for more on depreciation). Another step is getting an actual count of the business's stock so that the stock records can be adjusted to account for shoplifting, employee theft, and so on.
The accountant needs to take the final step and check for errors in the business's accounts. Data entry clerks and bookkeepers may not fully understand the unusual nature of some business transactions and may have entered transactions incorrectly. One reason for establishing internal controls (discussed in ‘Protect the family jewels: Internal controls', later in this chapter) is to keep errors to an absolute minimum. Ideally, accounts should contain very few errors at the end of the period, but the accountant can't make any assumptions and should make a final check for any errors that fell through the cracks.
5. Prepare the adjusted trial balance for the accountants.
After all the end-of-period procedures have been completed, the bookkeeper prepares a complete listing of all accounts, which is called the adjusted trial balance. Modest-sized businesses maintain hundreds of accounts for their various assets, liabilities, owners' equity, revenue, and expenses. Larger businesses keep thousands of accounts, and very large businesses may keep more than 10,000 accounts. In
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