Understanding Bookkeeping

Earlier articles have discussed almost all concepts/principles, however there is yet another very important one which is Substance Over Form concept which basically is to ensure that the financial statements reflects the complete, relevant and accurate picture of the transactions and events.

So why do we need to appreciate/understand this Substance Over Form Concept? (more…)

Along the way, when we keep the books of account, there is a certain bookkeeping term called Contra account. Do we know what is this? In simple term, contra account is actually an opposite account to another account.

The following are some of the examples of using a contra account: (more…)

As bookkeepers, we need to at least understand the following:

ACCOUNTING ASSUMPTIONS:

• Economic Entity concept:- also known as Separate Business Entity Principle where a business is accounted SEPARATELY from other business entities, including its owner. The business records should be separated and distinct from personal records of business owner.
• For example, Mr A is the owner of a limited company XYZ Co. Mr X owned many personal assets like bungalows, exotic cars,etc. Assuming the limited company XYZ Co is being liquidated by the creditors, the personal assets of Mr X will not be touched by the creditors. Due to this business entity principle/concept, only the company is being affected. (more…)

Earlier, the accrual concept has been illustrated in details. It is very vital that in order to keep proper books of accounts, we need to know how to differentiate between the cash basis accounting method and the accrual method.

Append below, in tabulated form, the characteristic of both methods and some salient points to understand the importance of the different methods. (more…)

Earlier, the accounting period has been mentioned. Besides this concept, there is yet another equally important concept which is called the: (more…)

Accounting cycle is the basically the processes where the bookkeepers will strive to complete within each accounting period’s deadline/timeline. Hence, what’s in the accounting cycle must be fully grasped and executed.
Append below is what we usually called the usual steps involved in the Accounting Cycle. This Accounting cycle is always repeating itself. When we closed an accounting cycle, another cycle is repeating. (more…)

There are some major accounting convention/principles. However, one extremely crucial convention is the Accounting Period Concept. Bookkeepers need to adhere to this accounting period otherwise penalty or fine might be imposed by authorities ( particularly in public listed companies where the books of accounts need to be properly kept and closed consistently and then financial statements are prepared and submitted) (more…)

For those unfamiliar,the term “accounting” and “bookkeeping” are often used interchangeably. However, for those unfamiliar, append below some of the difference: (more…)

As bookkeepers, it is crucial to differentiate Profit and Cash. Failure to understand this simple principle will cause serious repercussion to the financial health of the company.

Don’t just believe that if a high profitable company must always has a lot of cash or is a very liquid company. Remember that Profit and Cash is not synonymous!!

Let’s look at the following basic traits of Profit & Cash: (more…)

As bookkeepers, it is essential to be able to understand the basic difference between Capital and Revenue expenditure.

You might ask what’s so great of understanding same. Well, if we don’t do that capital items will then being charged straight to the Income Statement and Expenditure being suspended as capitalized in the Balance Sheet – this might liken to be creative accounting. (more…)