A small business may be carried out for trading or manufacturing or for providing services. Your objective must have been to make a good margin of profit. If you don't have any bookkeeping provisions, you will be now at a loss to know whether your business is running in a profit or a loss. Here is everything that you need to know about bookkeeping.
Concisely, bookkeeping implies recording all business transactions, in monetary form, in the assigned books of accounts. The basic books of accounts are Journal book, cash book, and ledgers. You can make a separate bank book, or if the transactions are not many, you can have a bank column in the cash book and make contra entries.
All other transactions are recorded through the journal book by debiting a particular head of accounts and simultaneously; crediting another account. Thus double entry is essential in proper bookkeeping.
Recording concept of Debit (Dr) and Credit (Cr)
All financial transactions are of three categories. Accordingly, the following concepts are followed and may be termed as the golden rules of accounting
The real account is further categorized as tangible like land, building, furniture, etc., and intangible like goodwill, patent, copyright, etc.: Debit what comes in and credit what goes out.
Personal includes specific persons such as suppliers, purchasers: Debit the receiver and credit the giver.
Nominal account: Debit all expenses and loss, credit all incomes, and profit.
Accounting Heads
1: Assets are the cash equivalence of your business resources that generate income. Usually, their utility values are not exhausted within one financial year. Their liquid includes cash and bank balances, accounts receivable (sundry debtors), fixed and security deposits, furniture fixtures, and fixed assets.
2: Liabilities include the amounts payable on account of secured or unsecured loans, credit purchases, your original investment in your business, and your cumulative profit or loss.
As the fundamental rule of accounting, your business's total assets must be the same as your total liabilities. This is exhibited in the financial statement, known as a Balance sheet.