Proper Bookkeeping Helps An Organization To Increase Profits, Reduce Taxes And Improve Cash Flow.

Accounting is the process of analyzing, classifying, recording, summarizing, and interpreting business transactions in financial or monetary terms. In order to summarize the results of a business activity, each financial transaction must be recorded in a bookkeeping system.

Basics of Accounting:
The owner’s right or claim to assets is expressed by the word equity, or investment. Other terms that may be used include capital, net worth, or proprietorship. Liabilities represent debts and obligations of the business. The business may have a liability to the owner, however, creditors’ claims to the assets have priority over the claims of the owner.

An equation expressing the relationship of these elements is called the fundamental accounting equation.Assets = Liabilities + Owner’s Equity

Revenues are the amounts of assets that a business or other economic unit gains as a result of its operations. For example, revenues represent earnings derived from fees earned for the performing of services, sales involving the exchange of goods, rent income for providing the use of property, and interest income for the lending of money.

Expenses are the amounts of assets that a business or other economic unit uses up as a result of its operations. For example, expenses represent the amount of cash paid for services received, such as wages expense rent expense, interest expense and supplies expense.

Revenues and expenses directly affect owner’s equity. If a business earns revenue, there is an increase in owner’s equity. If a business incurs or pays expenses, there is a decrease in owners equity. So, we place revenue and expenses under the “umbrella” of owner’s equity.

Assets = Liabilities + Owner’s Equity Capital + Revenue - Expenses

Steps to be followed for good Bookkeeping Systems :
Many methods may be used. At a minimum, certain procedures should be done on a monthly or other periodic basis to make sure that your accounting records are accurate. Some of these steps are as follows:

• All checks written and deposits made should be entered into a check register.
• A monthly bank reconciliation should be done to make sure that all transactions have been recorded (including bank originated charges) and that the ending cash balances to the adjusted bank balance.
• All expenses should be classified into business expense categories to record the various expenditures.
• All deposits made to the account should be identified and classified (e.g., boarding income, interest income and owner contributions).
• A financial statement should be prepared on a periodic basis to understand the results of your operation.

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