Accounting is derived from the recording of financial transactions and the accounting term for a business ledger as books. In effect, the accounting function prepares a record of a company’s monetary affairs and stores the information in files called books. Therefore, the term bookkeeping is often misspelled as bookkeeping, which is the function of a librarian, not a bookkeeper.

The difference between bookkeeping services and accounting may not be clear to the uninitiated, while both are vitally important to financial success. Bookkeeping is an important part of the accounting function and is essentially the keeping of records of financial transactions. While accounting incorporates record keeping, it also includes the functions of financial presentation, interpretation, and control, including the interpretation of numbers for the financial health of a business in which taxes can play a significant role.

The financial affairs of a company involve many aspects and begin with the registration of what are called the main documents. The task of an accounting service is to record the main documents, those main documents being sales, purchases and cash/bank transactions. All small businesses keep bookkeeping and the most successful ones use accounting records as the basis for an accounting function to generate a more efficient financial service.

All business involves buying or selling something and the consequent function of receiving or paying money for the value of those transactions. Recording of these transactions in larger business organizations is done by account clerks working under the supervision of the accountant.

Invariably, medium and large companies use a double entry system to record transactions. Double-entry bookkeeping evolves from the fact that every transaction has a double effect on the business, of which these are excellent examples.

A sale is made by creating an income record for the business on which the business is taxed and the other side of the financial transaction, the double entry, is the organization that the goods were sold to and now owes the value of that bill of sale to the business. . That’s the double entry, recording the sales revenue and also recording the debt owed by the customer.

Someone who owes a debt to the business is called a debtor.

A purchase is made creating an expense record for the business that can be deducted from income and reduces taxes and the other side of the financial transaction, the double entry, is the organization that supplied the purchase on credit and is now owed the money. That’s the double entry, recording the purchase and also recording the credit due to the vendor.

Someone who has delivered goods on credit is called a creditor.

The third main type of transaction is the transfer of money between debtors and creditors and the business.

When a debtor pays his bill of sale, the double entry is to add that amount of money to the company’s financial records and the opposite double entry goes to the debtor’s account to reduce the amount owed to the company since it has now received the cash.

When a creditor is paid the amount owed, the money is recorded as a reduction in the company’s cash resources, for example by deducting the money from the bank balance and the double entry reduces the amount the company now owes on the account of the creditor, since it has reduced the credit received.

The accounting function is to record these major transactions. Since every financial transaction has an equal and opposite entry in the books, there must be a mathematical check that both sides of the transactions add up to zero. This verification process is called a trial balance where both sides of the entries must agree and normally the point at which the accounting service is considered to be complete.

Double-entry bookkeeping is required for all businesses that are required to produce a statement of their assets and liabilities. This statement of assets and liabilities is the total of all balances in the trial balance and is called the balance sheet.

Many small businesses do not require a balance sheet. In the UK, the production of a balance sheet is optional for all self-employed companies, as it is not a mandatory requirement of the self-assessment tax return form. A separate accounting system is not required to produce a balance sheet because the business is effectively owned by the owner and is a personal business of the owners.

Limited liability companies must produce a balance sheet under various financial acts and submit the balance sheet to both the Chamber of Commerce and the tax authority each year. The different rules that apply to a limited partnership are because the accounts, including the balance sheet, are public records available to members of that partnership and not necessarily owned by any one person or partnership.

The self-accounting system can be simpler if it is produced from a single-entry bookkeeping style rather than a double-entry one. Single-entry accounting makes a single entry for each financial transaction that is sufficient to produce an income and expense account, a profit and loss account, but it does not make the reciprocal entry that establishes the value of assets and liabilities.

Single entry can be as simple as listing sales revenue and purchase expenses. Such an accounting system is valuable for smaller businesses, as it requires little to no bookkeeping or bookkeeping knowledge. A smaller business can produce its own accounts without the need for a bookkeeper or accountant, especially if it has access to accounting templates through accounting software to produce the accounts in the required accounting format.