ACCOUNTING AND BOOKKEEPING

As an owner of a business, it is vitally important that you have the financial information you need to run the business effectively. You will also need financial information to provide to outsiders such as the bank and to the taxing authorities.

The necessity for good, well-organized financial records cannot be over emphasized. One of the mistakes made by some entrepreneurs is not keeping good financial records and therefore not having sufficient information to make good business decisions or not receiving warning signals of potential problems such as a likely future cash crunch.

Good, timely financial reports do not necessarily require complicated bookkeeping or accounting systems. An appropriate system is like any tool used in your business; it needs to be sophisticated enough to provide the information you need but simple enough that you or your assistant or bookkeeper can run it.

Questions you will want to ask in developing your accounting and financial reporting system are:

1. Who will need and want to see the financial information?
   
   
2. What information do we need to manage the business?
   
   
3. What information will be needed to satisfy the government, regulatory and taxing authorities?

Please seek our assistance in developing a system that will consistently provide the right information on a timely basis.

1. THE ACCOUNTING PROCESS

Accounting is the process of collecting, organizing, maintaining, and reporting financial information. Let's review the process:

Everything starts with the creation of source documents which record your business transactions. Source documents include:

• Sales invoices
• Cash receipts
• Cash register tapes
• Purchase invoices
• Checks
• Miscellaneous, such as petty cash items
  

Journals. Journals (also known as "books of original entry") are where the information from the source documents are recorded in a prescribed way.

• Sales are recorded in a Sales Journal
• Purchases are recorded in a Purchase Journal
  
• Cash receipts are recorded in a Cash Receipts Journal
• Checks are recorded in a Cash Disbursements Journal

General Ledger. Once all the source documents have been recorded in the journals, the summary totals are transferred to a general ledger, where the balances of each account are displayed. A listing of these account balances is known as a "trial balance."

What we have described to this point is generally referred to as "bookkeeping" or "write-up work". At the end of a time period - usually a month - we want to summarize everything that has been done during the period and create reports, known as "financial statements."

Adjusting Entries. But before we can generate the financial statements, we need to carefully review what's been done and make sure that "what the books say" reflects reality. Part of this activity involves reconciliations of the bank accounts, receivables and payables.

We then make various adjusting entries to record such items as:

• depreciation
• payroll taxes
• bad debts, and
• bank charges

The next step is to prepare Financial Statements.

Call (626) 440-9511 for immediate help