ACCOUNTING AND OFFICE PROCEDURES,continuation.......

How Bookkeeping Has Changed

With the arrival of computers and accounting software, bookkeeping errors decreased and efficiency increased. For example, the accounting software will refuse a journal entry if the debit amount entered does not equal the credit amount entered. Further, because journal amounts are posted electronically and account balances are calculated electronically, the potential for human error in these tasks is eliminated.

Since most entity needs to be technologically compliant to stay relevant and up to date, our focus will be on the automated office set up.

After having the necessary office documents in place, it is time to get down to the main business.

The first line of action is setting up your chart of account;

The chart of accounts consists of two types of accounts: (1) Statement of financial position formerly known as balance sheet accounts, and (2) Statement of comprehensive income  formerly income statement accounts. Account categories are generally listed in the following standardized order:

Assets; Fixed assets, Stocks, Cash.
Liabilities; Creditors, Payee payable, Amount owing, overdraft
Capital/stockholder’s (or Owner's) Equity; Ordinary share capital, Retained earnings.
Revenues: sales, interest income, service income
Expenses; cost of sales, charges, utility bills, depreciation, etc.
Gains; Gain on disposal of asset,
Losses; foreign exchange loss, loss on disposal of asset.

After the set up;which I will advised be carried out by someone with indepth knowledge of accounting pracrices and procedures, then  posting of daily transaction can commence.

It is important to note here that while posting entries into an automated system, the double entry principle is applied in every transaction.

Take for example; following tasks occur simultaneously when a credit sale is processed with accounting software:

1. A sales invoice is prepared(paper work)
2. The general ledger account Sales is credited(sales increase)
3. The general ledger account Accounts Receivable(debtors) is debited(increases)
4. The customer's account in the subsidiary ledger is updated (showing amount owed).
5. The Inventory account is credited (decreases by the quantity sold on credit).
6. Cash book is debited when customers pays while others account are updated as follows; debtors account credited to reduce amount of debts owed by customers

You might be wondering how all these account came up and how they are linked;

Another practical example is the set up in a Trading company; the accounts required are; the stock account which fall under asset, the cost of sales(comprise of purchase of stock, direct cost such as import duty, clearing, etc.), Revenue(sales), Bank/cash for receipts.

When stocks are purchased, cost of sales is debited, the cash book is credited for payment, and stock account is debited to increase the amount in stock.

When a cash sale is made, sale account is credited as revenue, cash book debited as asset.

Other examples will be sighted when discussing the usage of accounting software and excel templates.

      At large companies, the bookkeeping function is likely to be divided among a number of clerking specialists, such as accounts payable clerks, accounts receivable clerks, payroll clerks, and accounting clerks, each of whom use the accounting software to carry out their specific responsibilities.

Having discussed the automated part it is equally important to discuss the process involved when dealing with paper works.  This will come up in my subsequent write ups. Hope you have been enlightened. Please feel free to comment.