Introduction to Bookkeeping
It is
compulsory for every business to keep records of its business
transactions. In order to do this a bookkeeper is needed to assist in
recording the financial transactions of the business. This process
involves the use of a computerised accounting system or it can be done
manually.
Bookkeeping
is primarily concerned with:
-
Identifying;
-
Measuring; and
-
Recording business transactions.
A
bookkeeper will ensure that these transactions are accurately recorded
in the accounting system.
The main
purpose of bookkeeping is for the bookkeeper to record, classify and
report information about a business’ financial transactions. The
bookkeeper prepares a set of books, namely the accounts, for the
business owner. This is normally conducted on a weekly, monthly or
quarterly basis depending on the number of transactions along with the
size and complexity of the business.
Once
up-to-date, these accounts are then passed onto and reviewed by the
accountant. The accountant checks them, makes adjustments, if necessary,
and prepares a set of external financial statements that comply with the
Australian accounting standards issued by the Australian Accounting
Standards Board. The accountant also prepares the annual income tax
return of the business for lodgement with the Australian Taxation Office
(ATO).
The overall
objective of bookkeeping is to ensure that the financial transactions of
the business are accurately recorded and information is presented to the
business so that it can make informed economic decisions about the
allocation of their resources.
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Business Activity Statements
(BAS)
Bookkeepers
can also prepare monthly or quarterly Business Activity Statements
(BAS). The BAS is then reviewed by the accountant before lodgement with
the ATO.
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The Accounting Equation
A = L + E
Assets =
Liabilities + Equity
This
equation is necessary in order to understand the concept of double entry
bookkeeping.
The
equation means that if an asset is increased then a liability or equity
must increase by the same amount so that the equation balances.
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Balance Sheet
The balance
sheet reports on:
- Assets.
- Liabilities.
- Equity.
Assets
are future economic benefits owned or controlled by the entity. They
include anything owned by the entity that is valuable and
contributes to revenue generation, such as cash at the bank,
accounts receivable, inventory, land and buildings, and plant and
equipment.
Liabilities
are amounts owed by the entity to external parties which include bank
overdrafts, accounts payable, provision for annual leave and long
service leave, tax liabilities and loans payable.
Equity
represents the investments made by the owners of the business and the
sum of accumulated profits made over the years of operation. When a
profit is made, equity increases and vice versa.
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