How do I understand bookkeeping records?
The simplest way is to participate in an introductory accounting class.
You have to understand the very basics of accounting principles to understand it. Every financial transaction should always be balanced (every transaction will always have a debit and credit). We have to understand the actual/ default state of every account (for example, the necessary condition of cash is on debit, so if money increases, it would be on debit, while if cash decreases, it would be on credit). You have to learn more and then ask yourself. How do I understand bookkeeping records?
How do I understand bookkeeping records?
A practical example is: if the company is spending money on salary, then the company’s cash is reduced (credit) while the company’s expenses increase (debit).
An excellent way to start this is to introduce yourself to the basic chart of account of accounting ledger and understand the principle behind it. After you know the code, you can move to the next level by learning the accepted accounting standards.
Chart of accounts
It is a list of accounts used in a company’s accounting system, making the bookkeeper’s work easy. The versions used in the chart of accounts must use consistently to avoid technical errors when preparing the financial statement. The contents in the plan of funds vary from company to company, as it depends on the company’s accounting system.
As shown in the infographic explanation, a chart of accounts contents will be assets, liabilities, equity, income, and the expenses that will be the cost of goods sold—each account given a code to make the organization easier. Other versions can include if required.
A chart of one company’s accounts may not be suitable for another, as it all depends on each company’s needs. In any case, a plan of funds is a valuable tool for bookkeepers to enter transactions.
How do I understand bookkeeping records?
An example of a chart of accounts
Chart of Accounts Example: