Friday, August 27, 2010

Basic Accounting Principles

Accounts, Bookkeeping and Payroll can be a burden to small business. This new series of blogs from Nottingham Accounting Solutions aims at making Accounts, Bookkeeping and Payroll a little clearer.

Basic Accounting Principles

Accounting has been defined as, by Professor of Accounting at the University of Michigan William A Paton as having one basic function: "facilitating the administration of economic activity. This function has two closely related phases: 1) measuring and arraying economic data; and 2) communicating the results of this process to interested parties."

As an example, a company's accountants periodically measure the profit and loss for a month, a quarter or a fiscal year and publish these results in a statement of Profit and Loss. These statements include elements such as accounts receivable (what's owed to the company) and accounts payable (what the company owes). It can also get pretty complicated with subjects like retained earnings and accelerated depreciation. This at the higher levels of accounting in an organization so lets not bother with them here.

Much of accounting though, is also concerned with basic bookkeeping. This is the process that records every transaction, every bill paid, every penny owed and every pound and penny spent and accumulated.

But the owners of the company, which can be individual owners or millions of shareholders are most concerned with the summaries of these transactions, contained in financial statements. The Balance Sheet summarizes a company's assets. A value of an asset is what it cost when it was first acquired. The fBalance Sheet also records what the sources of the assets were. Some assets are in the form of loans that have to be paid back. Profits are also an asset of the business.
In what's called double-entry bookkeeping, the liabilities are also summarized. Obviously, a company wants to show a higher amount of assets to offset the liabilities and show a profit. The management of these two elements is the essence of accounting.

There is a standardised system for doing this; not every company or individual can devise their own systems for accounting; the result would be chaos!

Nottingham Accounting Solutions Ltd offer accounts, bookkeeping and payroll services in the Nottingham and Mansfield area as well as Sage sales, set-up and 1 - to - 1 training on Sage accounts and Sage payroll. So why not take a look at www.nottingham-accounting-solutions.co.uk