Basic Accounting Record KeepingOne of the most important accounting practices needed when starting a business consists of keeping accurate records about how the business is doing financially over time. The three primary types of record keeping that are typically used in small businesses consist of:
JournalsThese are the original books of entry that can be updated by just about anyone with basic record keeping skills. Journals can be used to keep track of such things as payroll payments to employees, sales receipts generated when products are sold, bank deposits and withdrawals, and purchases made by the business. Journal totals are posted to the General Ledger, while each entry will be posted to the relevant Subsidiary Ledger.
Subsidiary LedgersThese are books kept for analysis purposes that usually contain account records in greater detail. Subsidiary ledgers might include such information as: accounts receivable, accounts payable, payroll data, and financial information about jobs that are currently in progress or are in the process of being billed for.
The General LedgerThis is the final book of entry that is typically maintained by an experienced accountant or bookkeeper. The General Ledger for a business is maintained from the point that the business is started until it closes its doors. This single key ledger is typically updated on a monthly basis with the totals from each journal into the corresponding General Ledger accounts and is used to create financial statements. A separate page in the General Ledger is kept for each individual account.
The General Ledger Balance SheetAn important end result of effective accounting record keeping using Journals, Subsidiary Ledgers and a General Ledger is commonly known as the company's Balance Sheet. The balance referred to in this key statement of a business's assets and liabilities is achieved in double entry book keeping systems because total debits must equal total credits for the company.
The General Ledger's Balance Sheet has four main sections, and each section in the General Ledger is then totaled as part of a company's basic accounting practices. Specifically, the sections include and keep track of:
- Assets - also known as debits
- Liabilities - also known as credits
- Capital - includes investments and earnings
- Accruals - include depreciation and uncollectable debts
Basically, the Balance Sheet provides very helpful information for any investor or tax authority that wishes to assess the financial success of the business that it pertains to.