Maintaining the Company Accounts

 

We currently have a multitude of accounting programs that can help us to carry out the accounting management of our company in a simple and orderly manner.

It is easy to have access to all these programs since most of the time we only need a computer and an Internet connection.

Although the facilities are many, it is important to have some minimum knowledge of accounting to understand the accounting bases and, also, the operation of the applications that we use.

In this article we will give you some main ideas about accounting with which you can learn the fundamental concepts, but if you want to expand your knowledge, you can always look for some more in depth course.

What is accounting and what is it for?

The accounting of a company is a series of records and entries that are made identifying each operation that happens in the company. That is, records of each purchase, sale, transfer, payment, collection, etc. All operations that occur daily in the company must be recorded.

These accounting records are made in a certain way, which we will see a little later, based on a series of rules that must be followed. The main accounting standards are known as accounting principles.

The purpose of accounting is to control in an orderly and chronological way everything that happens in the company. It is necessary to accurately reflect each operation, which will then help us to know how the company is at all times and, with this information, we will be able to make the appropriate decisions for the best development and performance of our activity.

Also, it is necessary to inform some external agents about the situation of our company. Third parties to whom we are obliged to periodically inform the most relevant business data, such as shareholders, banks, investors or the Treasury. Our accounting will help us create the necessary reports and calculate the taxes that we have to present.

Who is obliged to keep the accounts?

All companies with a legal entity that carry out a commercial activity for a lucrative purpose, that is, that obtain an economic return.

If you’re self-employed you will also need keep accounts, so any record of sales and expenses so you can calculate your Profit/Loss account.

Creation of accounting entries

The accounting of the company, as we have already commented, is created through the recording of the accounting entries. The accounting entries are formed by accounting notes that contain the amount of the operation and its corresponding account code so, first, we will see what is an account code.

An account code or sometimes referred to as a chart of accounts code is a numeric code that represents a specific type of operation. For example, when we want to register a banking transaction, we will have to use an account code of this type, specified by a numerical code, in this case the account 1200.

Account codes represent the type of operations coded with a set of numbers. The chart of accounts includes the list of all the account codes, which you can consult at any time.

Once we know what an account code is, we can then move on to the principles of accounting, known as the double entry system.

All operations or accounting entries will consist of at least two accounts. This is because whenever an entry is made on one side there must be a corresponding entry on the other, so for every debit there will be a credit. For example, when registering a payment to a supplier we must record an entry in our bank account (cash out) and an entry in the supplier’s account (payment entry).

The graphic form of writing this accounting entry would be the following:

DEBIT                                                                                        CREDIT                                                                                           

———————————————————————————————————–

£1,000.00 Supplier control account (2100)            £1,000.00 Bank Account  (1200)

————————————————————————————————————

As you can see, we have two parts in the entry, the debit and the credit. The debit is clearing the supplier balance outstanding and the credit is money coming out of the bank to pay this. Also, keep in mind that the sum of the debit entries must match the sum of the credit entries. You can have a breakdown of several entries that contain several debits adding up to one credit and visa versa.

Main reports in accounting

In this section we will briefly comment on some of the main reports that you have to be familiar with when talking about accounting.

📑 Daily journal – This is a report in which all the accounting entries recorded during the year in a company appear in chronological order.

📑 General ledger – This report contains of the records made in a specific account code and reflects all the entries made in that specific account during a period of time.

📑 Balance sheet – This report reflects the economic and financial situation of the company at a given moment in time. It is the “photo” of the accounting information of the company at a specific time. The Balance is divided into assets, liabilities and net worth, presenting the information according to its type and nature.

📑 Profit and loss – The profit and loss account, also known as the income statement, reflects the summary of income and expense accounts.

📑 Closing entry – At the end of the fiscal year or accounting year, it is necessary to make an accounting entry, the last of the year, called the closing entry. This entry is a summary entry consisting of all accounts with outstanding balance, in which the accounts are “closed” leaving their balances at zero.

📑 Opening entry – At the beginning of a new fiscal year or accounting year, it is necessary to make an accounting entry, the first of the year, called the opening entry. This entry is a summary entry consisting of all accounts that had an outstanding balance at the close of the previous year. With this entry the  account codes are “opened” registering the corresponding initial balance.

conclusion

Although the accounting may seem simple, it is important to know some basic aspects to be able to correctly understand the financial position of our company. Also, it is important to keep the data record up to date, so that they allow us to know the business situation at all times.

The programs for accounting and billing companies are highly sought after by Internet solutions. Many of them are programs in the cloud that can be tested for free and immediately, without having to wait to speak with an operator or give our personal or banking information.

There are over 5 million businesses in the UK, a mixture of Limited companies and Self-Employed. If you are one of them and you are thinking about taking over your company’s accounting yourself, we hope that this article will help you. 😉