Accounting may sound like a foreign language, but the concepts are very simple. Basically, it is recording all of your income, expenses, assets and liabilities to produce accurate financial statements.
Individuals who earn wages or salaries are paid by their employers and tax is deducted from each pay run. A bookkeeper is responsible for sorting and entering these entries into an accounting system.
Debits
Debits and credits are the yin and yang of accounting, working hand in hand to ensure accurate and complete bookkeeping. They are responsible for the balance and integrity of all accounts in your business’s general ledger – which consists of seven types of accounts that appear on your company’s financial statements: assets, liabilities, equity, gains, losses and revenue.
The function of debits varies across account types, but generally speaking, they augment the balance of asset and expense accounts while reducing the balance of liability and equity accounts. For example, when you sell goods on credit to a customer and collect payment for them, the money that comes into your business increases your Cash account (an asset), while decreasing your Accounts Receivable account (a liability).
While it may seem obvious in principle, understanding which accounts should be debited and which should be credited can be difficult for new accountants or those who have never worked with the concept of double-entry bookkeeping before. To help you, Patriot’s accounting software provides a handy t-chart that lists each account with its balance on the left and its debits and credits to the right. It is important to note that every single transaction requires a debit and a credit in order to accurately record your business’s finances.
For example, if you spend $500 on materials for your business, you will need to debit the Supplies account and credit the Cash account. This is because the purchase of materials is an expense that decreases your Cash account, while it adds value to your Supplies account.
The debits and credits that are recorded in your general ledger will ultimately make up your company’s financial statement, which reflects the current state of your business’s finances. By analyzing this statement, you can understand how your company is performing and plan for the future. The more accurate your records are, the more likely you are to make informed decisions that can benefit both your business and its customers. To learn more about how to properly record debits and credits, read the articles below.
Credits
Whether you’re managing your own business books or relying on a professional bookkeeper such as this firm that offers Bookkeeping Services in Denver, it’s important to understand debits and credits. These accounting concepts are responsible for balancing a company’s financial statements and ensuring that all transactions are recorded in the correct accounts.
Debits and credits are like the yin and yang of accounting, as they work hand-in-hand to keep your company’s financial statements balanced. Specifically, debits indicate value coming into your company, while credits indicate money going out. The two must be equal for a transaction to be recorded in your accounting records.
A credit (CR) is a bookkeeping entry that increases the balance of an equity, liability, loss or gain account. It’s the opposite of a debit and is typically recorded on the right side of an accounting journal entry.
If you’re purchasing a new piece of equipment on credit, for example, your asset account will increase via a credit. But, your accounts payable account will also increase due to the purchase.
The amount you owe to your suppliers is recorded as a credit, too. The same goes for any expenses you incur.
Accounting may seem intimidating, but it’s essential for businesses to properly record and analyze their financial transactions. With the right knowledge, you can make sound decisions about how to best manage your company’s finances and operations.
Procurement
Procurement is the process of acquiring goods and services for a company. It involves identifying needs, assessing potential vendors, negotiating terms and creating orders for the items needed. It also includes tracking when supplies are received and inspecting them to ensure accuracy. Procurement is a crucial part of ensuring that a company’s spending aligns with their financial goals.
While the fine details of procurement vary between companies, there are a few things that all businesses should keep in mind when managing this process. First, it is important to understand the difference between procurement and purchasing. Although these terms are often used interchangeably, they have very different functions within a business.
Purchasing is the transactional component of procuring, and it deals with costs and transactions that directly impact a company’s bottom line. This can include everything from raw materials to services for a marketing campaign. Generally speaking, purchases that are made through a purchase order or invoice are recorded in the expense account for the company.
On the other hand, procurement is a more strategic function that focuses on finding suppliers that offer competitively priced goods and services. This can include a variety of items, from raw materials to office supplies. The goal is to find the right balance between cost and quality, so that a company can continue to grow.
To do this, it is critical to seek out multiple bids from qualified suppliers and compare their offerings based on how well they meet the company’s specific needs. It is also important to remember that sacrificing quality for price may actually reduce the value of the product or service offered to customers. Finally, it is important to be transparent about the procurement process to help build trust with suppliers and create a more competitive marketplace.
The responsibilities of the procurement officer vary depending on the industry and company size. For example, a small business might only need one person to handle all aspects of procurement, while a large enterprise might require a dedicated team to manage the entire process. In either case, it is essential that a business has an efficient, effective and fair procurement process to support its growth.
Journal Entries
A journal entry is an accounting record that summarizes a business transaction. It typically includes a date, the affected general ledger accounts with account numbers, the amounts to be debited and credited, and a description of the transaction. It also contains a reference number, such as the check number or journal entry number, unique to that particular journal entry.
The most important feature of a journal entry is that it balances, meaning that the total debits must equal the total credits. This is known as the double-entry bookkeeping system and is an important part of ensuring that your financial records are accurate.
Journal entries are recorded on an ongoing basis and are used for a variety of purposes, including preparing income statements, cash flow statements, and balance sheets. Accurate journal entries are essential to meeting IRS reporting requirements and complying with tax laws. They are also a critical element in calculating inventory and cash balances, tracking business expenses, and monitoring the company’s financial health.
While many small businesses use specialized journals for specific types of transactions, such as customer billings or payroll expenditures, these are typically handled in a more streamlined way in modern accounting software. These systems will present users with a standard on-line form to complete, which then automatically creates the accounting record for you.
In a modern accounting system, you can make journal entries directly in the general ledger module that follow specific rules for combo edits, budget checking and approvals (workflow). There are also specific naming conventions for different types of journal entries to ensure that they are clearly identified. For example, a journal entry listing a credit will be titled “Credit” and should be entered in the right-hand column of the journal. A credit is money that flows into the company, increasing assets, liabilities and revenue, whereas a debit decreases them.
To make a journal entry, simply identify the accounts to be debited and credited, then write the amount in each of those columns. The balances in those accounts will change as a result of the journal entry, but you must be sure that your debit and credit columns are equal at the end of the period or ARC won’t let you post it.
