ACCOUNTING STRUCTURE & SYSTEM
1. The Double Entry Accounting System: collects, organizes, summarizes and reports on Financial Transaction data.
There are three basic questions that must be answered for each financial transaction, they are:
- Question 1: How much money on hands? What is the value of this exchange?
- Question 2: How was the money used? What was either gained or paid for by this exchange?
- Question 3: Where did the money come from? What is the source of funds in this exchange?
- Answer 1: 385.00
- Answer 2: Rent Expense
- Answer 3: Checking Account
The answers for each of the financial transaction questions are recorded in Journals.
General Journal Example:
To ensure that both sides of the transactions are recorded, Total Debits must always equal Total Credits.
2. Chart of Accounts Organization:The Chart of Accounts is organized using three different methods.
- First: Accounting Types
- Second: Account Names
- Third: Account Numbers
The listing below shows the Chart of Accounts organization along with sample Account Number Ranges.
- Assets: 1000's
- Current Assets 1000 - 1499
- Fixed Assets 1500 -1999
- Liabilities: 2000's
- Current Liabilities 2000 - 2499
- Long Term Liabilities 2500 - 2999
- Equity: 3000's
- Revenue: 4000's
- Costs of Goods Sold: 5000's
- Other Revenue: 7000's
- Other Expenses: 8000's
3. Journals: Accounts should only be created in the Chart of Accounts/General Ledger to describe types of things not individual things themselves. Well, in some cases especially in the case of cash substitutes like Accounts Payable and Accounts Receivable more detail is required.
4. General Ledger:The General Ledger is the combination of the Chart of Accounts, Account Balances and Accounting Periods. The General Ledger maintains the summary balances of all financial transactions. The General Ledger adds the essential organizational element of Time (Accounting Periods) to the Accounting System, so in addition to the original three organizational methods of the Chart of Accounts, the General Ledger is organized in four ways.
- Accounting Type
- Account Name
- Account Number
- Accounting Periods
5. Posting Transactions to System: Once an account has been established in the system, transactions originated on various source documents may be posted to the account. The document type identifies the type of transaction and tells the computer system how to process that transaction.
6. Standard Operating Procedure: Standard operating procedures (SOPs) are the documented processes that a company has in place to ensure services and/or products are delivered consistently every time. When a company is growing, it is often highly dependent on the owner for all major decisions. As the company reaches a certain size, this form of decision-making can limit its capacity to grow further since the owner cannot possibly make all decisions properly. Additional management and documented SOPs are required to allow the company to continue growing, and also establish a succession plan and train the growing employee base.
- Some of the key SOPs required in every business would include:
- Strategic management – provides for the steps that senior management must follow to generate the company's long term strategy.
- Human resources and payroll management – provides for the steps to qualify, hire, train, and fire employees in the organization.
- Operations - provides the steps to handle every aspect of operations including quality control, procurement, safety, and overall execution of services.
- Finance & administration - provides the steps to handle all financial transactions as well as reporting of key performance indicators for the company.
- Forecasting and budgeting - provides the steps to follow for completion of the company's annual and 3 - 5 year forecasts.
- Sales and marketing - provides for a detailed description of all activities used in lead generation, sales presentations, and closing.
- Information technology - provides a detailed account of all IT protocols including password setting, backups, and disaster recovery plans.
Bookkeeping involves the recording, storing and retrieving of financial transactions for a company, nonprofit organization, individual, etc.
Common financial transactions and tasks that are involved in bookkeeping include:
- Recording the bills for goods sold or services provided to clients
- Recording receipts from customers
- Verifying and recording invoices from suppliers
- Recording suppliers payment
- Processing employees' pay and the related governmental reports
- Monitoring individual accounts receivable
- Providing financial reports
Our mission for bookkeeping is done with the use of computer QuickBooks Accounting software. Bookkeeping requires knowledge of debits and credits and a basic understanding of financial accounting, which includes the balance sheet and income statement.