Business

The small tasks involved in starting a new business can often times add up to become a seemingly overwhelming process when looked at in their entirety. It is important to remember that most of these tasks really are small, and looking at them as such makes things seem a lot easier. In this article I will focus on what I looked at in my situation in order to setup my business banking accounts.

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Exploring accounting basic it is important to understand that all the accounting data has to be recorded and classified properly in order to become a basis for the preparation of financial statements, which need to be clear, correct and reliable. So the first step towards proper financial reporting is adequate recording of the accounting information related to the business. For this purpose such data is usually is grouped into accounts, each of them having its own name and purpose. T-account is a certain form of the account, which will be explore in more details in this article.

Since the purpose of accounting is to records, summarize and provide financial data about the business to different users of such data, it is necessary to have certain means to achieve that purpose. One of the means is called account and this is one of the most important accounting terms. Let us explore its essence and practical necessity.

Every businessman is interested in finding out the true profit and correct financial position of his business at the close of the trading period. The effort of the accountant is to prepare the final accounts in such a fashion which exhibits true picture of the business. Accounts are considered to be authentic proof of true financial position of a concern. But in spite of best efforts there are certain transactions which are omitted to be recorded or entered wrongly in the books. Such errors affect the final accounts. An accountant should, therefore, try to locate such errors and rectify them before the preparation of final accounts.

As already stated profit and loss account is commenced with gross profit or gross loss as ascertained by trading account. Then the profit and loss account is debited with all indirect expenses and losses. This results in closing of indirect expenses and losses account. The profit and loss account is then credited with various incomes and gains accounts by which all these accounts are closed.

It is the summary of such accounts which effect the profit or loss of the concern. These are prepared by transferring from the trial balance all nominal accounts and accounts relating to goods by means of journal entries called ‘closing entries’. All remaining accounts i.e. real and personal, relating to properties, assets, debtors and creditors are shown in the balance sheet. In order to know the overall picture of the effect of these accounts they are grouped at one place. Items’ increasing profit (revenue) are put on one side (credit) and those decreasing profits (losses and expenses) on the other side (debit). The balance is either net profit or net loss. This income statement is normally divided into two parts – first part is called trading account and second part is called profit and loss account. The procedure for preparing various accounts is discussed in details in this article.

According to Rowland: “The basic book of accounting is called Journal. Precisely it is the book of prime entry which means – Day Book. Trader records his total daily transactions in it. The process of recording the transaction into journal is called ‘Journalizing’.

Its aim may not be profit-making, yet it cannot avoid account keeping. It must maintain proper accounts of its receipts, payments, incomes and expenses, because those who have donated money to such institution must know that their money is being used properly and fruitfully. So, profit or no profit accounting is a must. Its sole object is to do good to the society or members through welfare activities. Such institutions are clubs, societies, schools, colleges, hospitals and libraries etc.

There are many classifications of accounts. The accounts are treated as per their class at the time of posting of entries in Ledger. A set of hints may be used to post Journal. Lastly in this articles the advantages of Journal, a basic book of accounting, are discussed.