Whether you do the accounting yourself or hire someone to do it, certain elements are fundamental to good bookkeeping. Some of these items are done more regularly than others to ensure the books are always up to date. Other items are completed at certain time periods necessary to complete a business task.
Recording of transactions
Accountants use journal entries to record debits and credits. Every financial transaction should have a line in the general ledger, which tracks everything in one place. The ledger notes the account number to which the debit or credit is applied. The best accounting software automates much of the process in journal entries for regular debits and credits to help eliminate possible errors in data entry.
If this is not done at the time of the transaction, the accountant will create and send invoices for the funds that need to be collected by the business. The accountant enters relevant data such as date, price, quantity, and sales tax (if applicable). When this is done in the accounting software, the invoice is created and a journal entry is made, debiting the cash or accounts receivable account while crediting the sales account.
Preparation of basic financial statements
Since the information gathered in accounting is used by accountants and business owners, it forms the basis of all financial statements generated. Most accounting software allows you to automatically run common financial statements such as an income and expense statement, balance sheet, and cash flow statement. Business owners or accountants can then use these statements to gain insight into the financial health of the business.
At the end of each pay period, the accountant will accumulate employee pay details, including hours worked and rates. From there, the total salary is determined with applicable taxes and deductions. Pay checks are completed and issued. In the accounting software, the primary journal entry for total payroll is a debit to the compensation account and a cash credit.