If you’re a professional bookkeeper, you know how important it is to know the basics. Even if you do not currently run the bookkeeping services for your office, having a basic knowledge of how they works can help you out in the long run, both in saving money and helping recognize errors. We’ll run you through a few of the most common accounts you’ll encounter!
Cash, Accounts Receivable and Accounts Payable
The most straight-forward and basic type of account, cash is exactly what it sounds like. All transactions are done with cash, and it is even more important that you are very dedicated in your services as a bookkeeper, as there is many times no paper trail to help you out. Make sure you keep two seperate ledgers – cash receipts and cash disbursement – to help keep track. Also, if a business sells products or services and doesn’t immediately take payment, you may encounter Accounts Receivable. This basically means money that is due to your business from the customer/other business receiving your goods or services. It is important to keep accurate accounts as a bookkeeper to make sure you are getting paid appropriately and on time. The flip side of that is Accounts Payable, which is one of the less fun things a bookkeeper does! This is money leaving the business, which no one likes! Keeping accurate records of who you owe, how much and when saves you money in potential late fees.
Inventory, Sales and Purchases
As a bookkeeper, these types of accounts are also very common ones to encounter in the course of doing business. For instance, with an inventory account, you treat these products like their cash value would imply. It’s important to also do frequent checks of inventory on the shelf versus the inventory kept in your log – they should always match up. Related to this are Sales and Purchases accounts. Sales tracks revenue coming in from the sale of your inventory items. Purchases is the account uses to help track any raw goods or services. These two help you, as a bookkeeper, calculate your “Cost of Goods Sold (or COGS)” and help you calculate your profit.
Payroll Expenses, Owners’ Equity and Retained Earnings
Payroll expenses are often one of the biggest expenses for a business, and one that you should watch most carefully as a bookkeeper. Payroll expense is the money you are paying your employees for their work. Besides not wanting to anger employees, you also don’t want to accrue any fines or late fees for late or non-payment. Owner’s equity, however, is money each owner is putting back into the business (tracked with Capital and Drawing accounts – depending on if it’s going out or in!). The last type of account bookkeeper’s deal with is Retained Earnings. This type of account tracks the money that is being reinvested in the business. This is a cumulative type of account.
All of the above discussed types of accounts are ones you should be familiar with as a bookkeeper. Take some time to become familiar with them! Please visit bookkeeperco.com.au for more information.