General Accounting and Book Keeping

Bookkeeping in accounting refers to the systematic recording, classification, and summary process, of financial transactions to maintain specific financial files for a company or a person. It is a question of documenting each transaction, including sales, purchases, receipts, and payments, in a coherent and organized manner. Bookkeeping thus ensures that data capture is current and hence always ready for both financial reporting and budgetary and strategic planning purposes.

The key activities include maintaining the journal and ledger, reconciling bank statements, accounts payable and receivable, and the preparation of a balance sheet and income statement. Good bookkeeping further assists in cash flow management, initiates control over expenditure, and facilitates compliance with tax obligations. Bookkeeping will also support decision-making by ensuring full visibility of the financial status and operational effectiveness. Overall, bookkeeping itself is crucial to make financial management accurate and forms the basis upon which more complex accounting tasks are built.

The basic principle of bookkeeping in accounting is the monotonous recording of the financial transactions of the business. The bookkeeping principles promise that all financial transactions are inclusive and updated and provide the required information for the preparation of accounts. The following are the principles of bookkeeping:

Revenue Principle: The revenue principle gives the timing when the bookkeeper can recognize a transaction as revenue on the books of account. According to the principle, a transaction is recorded as revenue earned about the business upon point of sale.

The revenue principle states that the revenue occurs at such a time when the business/buyer takes legal possession of the item/goods sold or the time when the service is performed. It implies that revenue occurs for business when the goods are received, or the services are performed irrespective of the time of payment for the transaction to the seller. This concept is also known as the revenue recognition principle.

Expense Principle: The expense principle states the timing of recording of a transaction as an expense in the books of account. Any expense of the business occurs at the time it accepts goods or services from another entity/seller. It simply means that the expenses arise on the receipt, relation, or performance of services, no matter when the bills or payments are made for the transaction.

Matching Principle: This is the principle that when the bookkeeper is recording revenues, all the expenditures related to such a recording should also be recorded in the same period. Thus, the stock is charged to the cost of the goods sold in the same period that the revenue from the sale of the inventory items is recorded.

Cost Principle: It states that the historical cost of an item should be used in the books of accounts and not the resell cost. For example - If a business owns property or vehicle, these assets should be recorded at their historical costs and not the current fair market value of the property.  

Objectivity Principle: The objective principle indicates that only the verifiable factual data in the books of accounts must be used and not the subjective measurement of values. Even when the subjective data appears better than the verifiable data, only the verifiable data must always be used.

• Accurate Financial Recordkeeping: Bookkeeping ensures that the financial transactions are correctly recorded. It helps in keeping the financial statements and reports correct and, simultaneously, facilitates a proper understanding of the financial position of the business through those financial statements and reports.
• Tax Obedience: Proper bookkeeping regularly helps any business to obey the policy and laws of taxation by maintaining records in order. It facilitates the preparation of tax returns and helps avoid penalties or audits.
• Improved financial management: Through bookkeeping, cash flows are noticed through records of expenses, revenues, and other financial activities that take place, hence enabling a business to make sensible financial decisions that improve its budget.
• Better Decision-Making: With reliable, timely financial data, businesses will analyze performance and trends and make strategic decisions based on trustworthy information.
• Easier Financial Reporting: Preparation of balance sheets, income statements, and cash flow statements for internal management and external parties becomes much easier with conventional accounting.
• Fraud Detection: It helps to easily observe discrepancies and different types of abnormalities that may indicate fraud practices or financial mismanagement.
• Smoother Audits: Properly kept books of accounts ensure ease during financial audits since all required information can be compiled and is present, hence reducing stress and possible hitches during the audit process.
• Informed Business Planning: Accurately kept financial records allow one to foresee and plan on a realistic basis regarding future conditions and performance of the business.

Comprehensive list of documents required:

• Source Document Collection: First, gather source documents, which include but are not limited to invoices, receipts, and bank statements, required to support the financial transaction with evidence of its accuracy in accounting.
• Transaction Analysis: After gathering these documents, they are analysed to identify the accounts that would be affected and the nature of each transaction, whether it is a debit or credit; hence, the financial effect is rightly identified.
• Recording of Entries: The details obtained from the transaction analysis are written in the accounting records, which means writing down the data on journals and ledgers either manually or on a computer. Of course, recording should be accurately done to keep financial records up to date.
• Posting to General Ledger: The entries recorded in the journals are then posted to the general ledger. The general ledger contains all transactions of accounts, which shows the overall picture of an account.
• Preparing the Trial Balance: After this step, a trial balance is prepared to make the total debits equal to the total credits. This helps to review any discrepancies or errors in the recording process further so that the books are balanced.
• Adjusting Entries: Accrued revenues, deferred expenses, and all that need correction are adjusted. These adjustments allow the financial records to show the accurate financial position of an entity concerned.
• Preparation of Financial Statements: The financial statements are prepared with the assistance of a modified trial balance. These statements reflect a representation of the company's financial health, its performance, and the capability with which it can meet its short-term obligations.
• Review and Audit: Financial statements are reviewed and audited to check their accuracy and completeness. This review can be done internally by the company's staff or by independent auditors to ensure that a company follows accounting rules and regulations.

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