In the previous 25 lessons I covered a lot of different terms and this lesson is merely a summary of the various terms a bookkeeper encounters.
Expenses are costs meeting the tests of ordinary and necessary given the nature of the business activity. ‘Expenses’ is a term customarily referring to overhead types of costs such as rent, utilities, office operations and so forth. This business term has several variances with its meaning; the articles associated with this tag will enlighten the reader about these different definitions.
To fully grasp the concept of accounting a bookkeeper must accept that there are six (6) different types of accounts. All the reports, ledgers, journals and entries revolve around these six types of accounts. Bookkeeping is the function of entering data based on the economic transaction into the respective type of account.
Many people turn their hobbies into a business operation. Not so much to make a living or make big profits, but more to help offset the costs of the hobby. Whenever you go to one of those community fairs, the vendors at the respective booths are mostly folks selling a product that is direct outcome of their hobby. The bands that play on stage, they make some money, but never enough to offset the cost of instruments, gear and transportation. But they enjoy entertaining folks and they hope someday they’ll get discovered.
The goal of accounting is to record the economic activity of the business. This is achieved by entering each economic transaction into a set of books. The books are formatted to reflect the balance sheet and income statement items. The chart of accounts is designed to present the information in the prescribed format.