A series of lessons introducing bookkeeping. Theses lessons cover the basic principles involved and the corresponding terminology used in bookkeeping. The series covers basic debit and credit entries and explains the dual entry system.
Up to this point in this series about bookkeeping I’ve only mentioned accounts (ledgers) by name. To speed up the process of entering information accountants converted names to numbers. This made it easier to enter information in the original journals. Instead of long hand written words for the particular ledger, you simply enter a number.
When one account is fed information from several sources based on function or location, this account is referred to as a ‘Parent’ account. The sub accounts are called ‘Child’ accounts.
The primary report used by accountants is the trial balance. It is the job of the bookkeeper to make sure that it is in balance and that there are no abnormal values within the respective types of accounts. This lesson sums up the prior 15 lessons and illustrates the trial balance with a condensed version and an expanded version.
Many bookkeepers are initially misinformed about the dual entry accounting system. They think that based on the wording that accounting entries have only two lines of information, one line for a debit and a second line for a credit. What the words dual entry mean is that debits must equal credits.
Both contra and atypical values are reported with parenthesis. The same presentation format is used when reporting contra and atypical values on the profit and loss statement (income statement).
Contra information is always reported in parenthesis. Other financial information is also reported using parenthesis with the two primary financial statements. This lesson explains parenthesis in balance sheet accounts.
Contra accounts are utilized to help present clearer information to readers of financial reports. They are used to improve the decision model. This lesson provides several different methods to exercise the advantages of this accounting ledger.
To properly create a set of ledgers there must be a list of accounts. This list is referred to as the ‘Chart of Accounts’ or for shorthand – COA.
The equity section of the balance sheet identifies the approximate dollar value of net worth accrued to the owners/investors. Equity accounts can have both credit and debit balances. By far the most preferred is a credit value. Debit values does not mean that something is wrong, actually it can be a great sign of a good operation.
The financial statement reports illustrate changes in the businesses’ financial condition over time. Just as man has evolved, a business grows over time. Naturally, most small businesses want to be highly successful and the reports are issued to evaluate change.
