ACCOUNTING RECORDS

ACCOUNTING RECORDS:

Accounting records are all of the documentation concerning the financial life of a business or individual. Records include the accounting system used to record and track financial transactions, prepared financial statements, and supporting documents, such as checks and invoices.

Records can be kept on paper, using a spreadsheet program, or using specialized accounting software. Record keeping for an individual or small-to-medium sized business may be relatively simple and straightforward, while a large corporation, as would be expected, has complex and involved records.

Basic Record Keeping in Accounting

A basic record keeping system for a business generally consists of:

• A basic journal for recording transactions, such as revenues and expenses
• Accounts receivable and accounts payable records
• Inventory records
• Payroll records
• Petty cash records
• Records also include tracking of assets and liabilities.

Records and the Accounting Process

Although an individual or small-to-medium sized business might operate on a cash basis, simply recording cash transactions, most businesses use double entry accounting. Transactions are first recorded in a general journal by date of transaction. Every transaction affects at least two accounts, one with a credit and the other with a debit.

Debits and credits to each account in the general journal are then posted (transferred) to the chart of accounts in the general ledger. A general journal is just a list of transactions by date, while the general ledger is a collection of all of the company’s accounts.

Journalizing and posting are done throughout the accounting period. At the end of the accounting period, these records are then used to prepare financial reports and statements.

The Importance of Good Accounting Records

Well-organized and thorough records provide quick and easy access to important information, such as cash flow, expenses, money owed, accounts receivable, inventory turnover, and profit.

The survival of a business can depend on accurate and timely accounting records. For a publicly traded company, good records are needed to produce the financial statements required by law. For every business, good records provide essential information needed by management or owners to increase profits and grow the business.

Then there are taxes; lack of good tax records can bring down the wrath of the Internal Revenue Service. This is the prime reason most individuals and small organizations make every effort to maintain sound accounting records.