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In today’s Business Studies class, We will be discussing Book Keeping. We hope you enjoy the class!
Bookkeeping involves the recording, on a daily basis, of a company’s financial transactions. With proper bookkeeping, companies are able to track all information on its books to make key operating, investing, and financing decisions.
Bookkeepers are individuals who manage all financial data for companies. Without bookkeepers, companies would not be aware of their current financial position, as well as the transactions that occur within the company.
Activities of bookkeeping
Book-keeping comprises of a lot of functions and activities bundled together. Some such activities are
- Recording all financial transactions
- Posting debit and credits in the respective ledgers
- Producing and organizing all source documents such as invoices
- Payroll accounting and upkeep may also be clubbed in with book-keeping
Here are 10 basic types of bookkeeping accounts for a small business:
- Cash. It doesn’t get more basic than this. All your business transactions pass through the cash account, which is so important that often bookkeepers actually use two journals, cash receipts and cash disbursements, to track the activity.
- Accounts receivable. If your company sells products or services and doesn’t collect payment immediately, you have “receivables,” or money due from customers. You must track accounts receivable and keep it up to date so that you send timely and accurate bills or invoices.
- Inventory. Unsold products are like money sitting on a shelf and must be carefully accounted for and tracked. The numbers in your books should be periodically tested by doing physical counts of inventory on hand.
- Accounts payable. No one likes to send money out of the business, but a clear view of everything via your accounts payable makes it a little less painful. Concise bookkeeping helps assure timely payments and avoid paying someone twice! Paying bills early can also qualify your business for discounts.
- Loans payable. If you’ve borrowed money to buy equipment, vehicles, furniture or other items for your business, this account tracks payments and due dates.
- Sales. The sales account tracks all incoming revenue from what you sell. Recording sales in a timely and accurate manner is critical to knowing where your business stands.
- Purchases. The purchases account tracks any raw materials or finished goods that you buy for your business. It’s a key component of calculating the “cost of goods sold” (cogs), which you subtract from sales to find your company’s gross profit.
- Payroll expenses. For many businesses, payroll expenses can be the biggest cost of all. Keeping this account accurate and up to date is essential for meeting tax and other government reporting requirements. Shirking those responsibilities will put you in serious hot water.
- Owners equity. This account has a nice ring to it. Basically, it tracks the amount an owner (or owners) puts into the business. Also referred to as net assets, owners equity reflects the amount of money an owner has once liabilities are subtracted from assets.
- Retained earnings. The retained earnings account tracks any company profits that are reinvested in the business and are not paid out to the owners. Retained earnings are cumulative, which means they appear as a running total of money that has been retained since the company started. Managing this account doesn’t take a lot of time and is important to investors and lenders who want to track how the company has performed over time.
We have come to the end of this class. We do hope you enjoyed the class?
Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.
In our next class, we will be talking about Ledger Entries. We are very much eager to meet you there.Pass WAEC, JAMB, POST-UTME & more in One Sitting for FREE!💃