Facts About Books of Account
When it comes to entrepreneurship, the first idea that comes into most people’s mind would be they would have the freedom to make financial decisions on their own and being able to earn (Also see Understanding Definition of Retained Earnings) a lot of money by starting their own business. Many would neglect the fact that business owners need to take a lot of responsibility, including that of maintaining the records for all business transactions that occurs in the normal course of business.
This is probably the least exciting part of being our own boss. However, undeniably, this is crucial for all business owners to know the result of their business operations. The records of daily business transactions that the companies need to keep are known as the books of accounts. As this task is rather time-consuming and requires some skills and knowledge in bookkeeping and accounting, it is more advisable for business owners who are unfamiliar in this field to hire a bookkeeping firm in Singapore.
Different companies may use different forms of books of accounts, which are manual books of accounts, loose-leaf books of account, or the computerised books of account. The manual books of accounts are the ledgers, journals and columnar books that you can buy in the bookstores. The records in this form of books of accounts (Also see How Do the Accountants Close the Books?) are handwritten. Typically, small companies tend to use manual books of accounts as it is easy to use and less expensive. The second type, which is the loose-leaf books of account, refers to the ledgers and journals that are printed before being bound together, where the recording process was completed using the computer. Lastly, the computerised books of accounts are accounting software or programs that enable one to complete the record-keeping tasks efficiently.
Besides, some factors will influence the type of books that a company would keep. Some of the factors include the size and capacity of the company. However, no matter how small or how big the business is, there are some minimum requirements that all companies should achieve. The mandatory books of accounts that a business should maintain include the purchase journal, sales journal, cash receipt journal, cash disbursement journal, general journal, and lastly the general ledger.
The accountants would use a purchase journal to record the purchases that the company has made on credit, while the function of the sales journal is to record all sales on credit. To document all the cash sales and the receivables (Also see What are the Audit Procedures for Accounts Receivable?) that the company has collected, the accountants would use a cash receipt journal. On the other hand, to record the cash payments made for expenses incurred, as well as the company’s accounts payable, they will use the cash disbursement journal instead.
The general journal is also known as the book of original entry. One would use it to record business transactions in chronological order. The general ledger has another name too, which is the book of final entry (Also see The Advantages and Disadvantages of Single-entry Bookkeeping). Its function is to summarise all journal entries of a particular account so that one can get the ending balances of that account. The general ledger is crucial for all companies as the business owners, or the accountants can use it to trace business transactions and for the preparation of financial statements.