Bookkeeping & Write-up

Generally, cash, petty cash, supplies, prepaid expenses, accounts and notes receivable, inventories and any other item that can be converted into cash within one year are classified as current assets. Cash is any medium of exchange that a bank will accept at face value. Notes Receivables are claims against debtors evidenced by a written promise to pay a certain sum of money at a definite time to the order of a specified person. Accounts receivable are claims against debtors which are less formal than note receivables that arise from sales of services or merchandise on account.

Generally, tangible assets used in business that are relatively fixed or of a permanent nature are termed fixed assets. Examples are land, buildings, equipment, machinery, fixtures, furniture, office equipment, and tools. The cost of the fixed asset is recorded in one account and the associated accumulated depreciation is recorded in another account.

A company's health or financial position is shown on a balance sheet. The balance sheet reflects a business' financial position at a particular date in time. The typical balance sheet displays the business' assets, liabilities and stockholders' equity. Assets and liabilities are classified into current and non-current categories. Assets are normally debit balances and includes what a business owns. Current assets generally relates to anything that can be converted into cash within one year. Fixed assets are more permanent, referred to as long term,(more than 1 year) which includes such assets as buildings, land, and equipment. Liabilities are normally credit balances and what the business owes. Current liabilities generally means anything which is owed within one year. Long term liabilities are debts expected to be paid back after one year, such as mortgages and loans. The difference between assets and liabilities is called stockholders' equity or net worth. Therefore the basic balance sheet equation is - Assets minus Liabilities = Stockholders' Equity or Assets = Liabilities plus Stockholders' Equity. Most audited financial statements are comparitive in nature illustrating a period verses a prior year period. Footnotes to the balance sheet are used to achieve adequate, informative disclosure when more detail is required.

Depreciation is the systematic charging of a portion of the costs of fixed assets against annual revenues over a period of time.

The income statement is the profit and loss statement of a business. It shows the performance of a business over a period of time such as a month or quarter or year. The income statement is preferable prepared in comparitive form to show changes from the preceeding year. Extraordinary gains and losses of material amount should be shown seperately. Also for public companies earnings per share should be presented on the income statement. The basic accounting formula is Sales Revenues minus Expenses = Income or Loss.

Every business transaction affects a minimum of two accounts. The sum of the debit and credit for each transaction is inherent in the basic accounting balance sheet equation, Assets = Liabilities plus Capital. It is because of this duality that the bookkeeping system is known as the double-entry bookkeeping system. The rules of debit and credit posting to the balance sheet accounts are that debits signify increases in asset accounts, and decreases in liability and capital accounts. The credits signify decreases in asset accounts, and increases in liability and capital accounts.

The process of recording a transaction into a journal is termed journalizing. In a two column journal, it should include the date, the debit (including the title of the account and the amount), the credit (including the title of the account and the amount), followed by an brief explanation for the not obvious entries. Note that the amount of the debit and credit entries must always be equal. Also, it is recommended that the title of the entries should be the same as the accounts used in the journal.

From time to time the equality of debits and credits in the ledger should be verified. Generally this verification is done at the end of an accounting period such as monthly, quarterly, semiannually or annually. This verification is termed a trial balance. The trial balance does not provide complete proof of the accuracy of the ledger. It indicates that the debits and credits are equal. In some automated write up systems you can go back to the original entry and make a change that will be reposted to get a corrected trial balance. Other systems require a correcting or adjusting entry to correct a misposting. There are also required entries at the end of a period to record internal transactions which are called adjusting entries. An example of this is the periodic debit and credit to depreciation expense and accumulated depreciation. All automated write-up packages will display and/or print this report at the user's request.

Generally, payments of $600 or more to workers not treated as your employee, rent payments of $600 or more per year, prizes and awards of $600 or more, and Royalty payments of $10 or more per year.