BOOKKEEPING II

          Bookkeeping is an essential accounting tool. A small business or company may employ only one bookkeeper, who records all of the financial data by hand; large organizations my employ many bookkeepers, who use electronic and mechanical equipment for a large part of their work. Each organization has its own bookkeeping requipments, but all systems operate on the same basic principles. The bookkeepers themselves must be accurate, good in math, and meticulous; that is, they must be very careful to record each detail in its proper place.

        About 3,000 B.C., the Sumerians, the Eqyptians, and other peoples of the Middle East developed the first known business records. The results of tax collections, farming harvests, and the transactions of merchants were recorded by means of written numbers. The Romans, too, were prolific keepers of records. Indeed, Roman numerals were used in many parts of Europe until the fifteenth century A.D The stimulus for modern bookkeeping came with the introduction of Arabic, or Hindu-Arabic, numerals and the decimal system in the twelfth century A.D Most people today use Arabic numerals.

                The two basic systems of bookkeeping are double-entry and single-entry. The double-entry method was perfected by the merchants of Venice during the fifteenth century and is still used today. The basic principle of double-entry bookkeeping is that every transaction has a twofold effect. In other words, a value is received and a value is yielded or parted with. Both effects, which are equal in amount, must be entered completely in the bookkeeping records.

                An account is a record of the financial transactions that concern one item or a group of similar items. The account includes categories of financial data for each area of interest during a specific period: the value at the beginning of a period, changes in value during the same period, and the value at the end of a period. The broad areas of interest can be labeled  assets, liabilities, and net worth. Income and expense accounts aare totaled at regular intervals, and the resulting profit or loss is posted to a capital account.

                Anything  of value that a business or organization owns is commonly known as an asset. Asset accounts include cash, which is the money on hand or in the bank; furniture and fixtures; accounts receivable, the claims against customers that owe money; stock or inventory; office supplies; and many other that show what the organization owns.

                Debts owed to creditors are known as liabilities. If money is owed to an organization or person for things or services purchased on credit, this liability is called an account payable. Other liabilities include wages or salaries that are owed to employees, or taxes that have not yet been paid.

                The value of the business to the owner or owners is known as capital. Other terms used to designate capital are proprietorship, owners’ equity (usually abbreviated OE), ownership, or net worth.

                A separate account is kept for each asset, liability, and capital item so that information can be recorded for each of them. Accounts are also maintained for income and for expenses, and like assets, liabilities, or capital, these accounts are also entered in the ledger, which is a detailed listing of all the accounts of an organization. Entries from all the journals are transferred  to the ledger at regular intervals. This process-called posting-is usually done monthly.

                Journals, or books of original entry, are designed to record information about different transactions, including sales, purchases, cash receipts, cash disbursements, and many  other. Journals have two or more columns to record increases or decreases in the accounts affected by the transaction, and they often have space for a date and an explanation of the transaction.

                All transactions affect at least two accounts. Each transaction mus be analyzed to determine which accounts are affected, and wheter they should be increased or decreased. An entry made on the left-hand side or column of an account is called a debit, while an entry made on the right-hand sde or column is a credit. Debit, usually abbreviated DR, at one time meant value received, or literally he owes. Crdit, usually abbreviated CR, meant value parted with, or literally he trusts. In modern bookkeeping, debit refers only to the left-hand side of account, whereas credit refers to the right-hand side. Some bookkeepers use  a far right-hand column to keep an up-to date balance of account.

                From the basic accounting formula, that is, assets = liabilities + owners’ equity (or capital), ceratin guidelines have evolved through general agreement and custom. Asset accounts are increased by debiting, that is, on the left side, and they are decreased by crediting, that is, on the right side. The opposite is true for liability and proprietorship accounts, which are increased on the credit side and decreased on the debit side.

                Income and expense accounts represent changes in equity. Income increases proprietorship, while expenses decrease proprietorship. Income accounts are increased on the credit side and decreased on the debit side, while expense accounts are increased on the debit side and decreased on the credit side.

                Since every transaction affect at least, two accounts, at least two entries must be made in the journal. When Morgan’s Appliance Store, for example, sells a refrigerator for $260, the bookkeeper debits the cash account (asset) and credits the sales account (income) by $260.  On the day that Mr. Morgan pays his monthly rent of  $500, the bookkeeper debits the rent account (expense) and credits the cash account (asset) by $500.

Regularly and at fixed intervals, usually monthly, the bookkeeper post all the entries from each journal to the appropriate account in the general ledger. The bookkeeper the foots, or totals, the columns of each account; that is, he or she adds the amounts of the debits and credits and records the balance of each account. Since debits are always recorded  in amounts equal to credits, the debits and credits should always equal each other. The test that determines whether the total of debits equals the total of credits is called a trial balance. If the accounts are not balanced, some error has been made which the bookkeeper must find and correct. The financial statements of a company, like those that will be discussed in the next unit, help management to evaluate and direct the operations of an organization.

                The second basic system of bookkeeping, as mentioned previously, is called the single-entry method. This method refers to any system that does not include the complete results of every transaction. The most common type of single-entry bookkeeping involves records of cash, accounts receivable, and account payable..

                Many bookkeeping systems include journals and records for specific types of transactions. Special purchase books, for example, include invoice and voucher registers. Invoices are itemized statements of merchandise sold to a customer; they list the quantity and the charges. Vouchers are bills received for merchandise or services. One important, widely used journal is the cash disbursement register, which record the details of all checks written : to whom, when, how much, and for what purpose. Another popular journal is the cash receipts journal, in which all payments received are recorded.

                Bookkeepers are also responsible for maintaining the records of a company, including, of course, the computation  of taxes that are to be deducted and withheld, and the completion of government forms that are required for tax and other employment purposes. In a small company, the bookkeeper may also function as a cashier, as an assistant to the manager, or in any number of clerical jobs. Larger firms have staffs of bookkeepers ranging from as few as two or three to several hundred. They often use special forms and high-speed computing and tabulating machines, but basic bookkeeping rules are the same. Regardless of the size of the operation, bookkeeper is a key person in the organization’s system of financial information.

post by : Rony Sutiyanto