Are you planning to start a business? If yes, then you should know this: knowing your product will only give you half the success you wanted. The other half? It depends on the way you manage and account your business. That’s why knowledge of accounting is very important for every business, whether big or small. Firms that offer accounting service Singapore are thriving because this country is full of aspiring entrepreneurs.
Nevertheless, you don’t have to know everything; whether now or in the future. All you have to know are some basics of accounting. Don’t reason out that you’ll use accounting software anyway! Whether computerized or manual, accounting will always be needed to be understood by owners and managers.
Basic accounting is composed of three items:
These are the books of original entry, meaning it is where an accountant records the figures found in source documents. Source documents include invoices, official receipts or any other documents which proves the existence of a purchase or sale. Thus, keeping all source documents is important.
You might already have heard of debit and credit. These concepts are used in journalizing transactions. Debit entries increase the balance of assets and expenses, and reduce balance of liabilities, equities and income in general. Credit entries have the reverse effects.
Ledgers collect the information from the journals in order to summarize them. In journals, you can see all accounts mixed together. For example, your journals will include all transactions for a certain month, let’s say July. Ledgers will summarize those per account. Account titles could be Accounts Receivable, Accounts Payable, Cash, Inventories, Sales, Interest Income or Interest Expense. Thus, you can see the ending balance of each account through the ledgers.
Ledgers could be general or subsidiary. Subsidiary ledgers summarize sub-accounts of general ledgers. For example, if the General ledger is Accounts Receivable, then the subsidiary ledgers are the customer accounts with corresponding receivable from each of them.
Financial statements are the end products of the accounting process. Income statement, or the Statement of Recognized Income or Loss shows income or loss for the period. Balance sheets or the Statement of Financial Position enumerates the entity’s assets, liabilities and equity. Statement of Cash Flows shows the movement of cash within the accounting period. Statement of Changes in Equity show how the owner’s equity has changed throughout the period.
Knowing these three should provide you a broader outlook of your business. Though it won’t make you an accounting expert, at least you know the foundations. If you need help, there are a lot of accounting firms offering accounting services in Singapore.