LESSON 6: In essence your accounting system is nothi Articles

LESSON 6: In essence your accounting system is nothing more than an elaborate process for classifying monetary transactions

 Your accounting software will most likely be capable of performing numerous functions and tracking a variety of information. However above all else the one thing it really must be able to do is to provide you with the overall big picture of your financial position – including your profitability, the cash you have, how much […]

6.1 How your nominal ledger uses account codes to build a precise picture of your finances, no matter how many thousands of transactions you throw at it

 Your nominal ledger is the core of your accounting system. Quite simply, it exists to collect similar financial transactions together and report them back in summary form. For example, you might issue 200 sales invoices in a month, or have 10,000 transactions at a till. You will want to determine the total value of all […]

6.2 Which account codes should you have?

 I remember being confused when I first started in accountancy about which codes should be present in an accounting system. No one told me there was no such thing as a standard list of codes. Eventually I figured out that while all accounting systems had certain aspects in common there was also a great deal […]

6.3 The crucial distinction between profit-and-loss-type accounts, and balance-sheet-type accounts

 Your nominal ledger contains two fundamentally different types of account which record two fundamentally different types of transaction. These in turn give rise to the two keystone reports making up a set of accounts. These two reports are your Profit and Loss Account, and your Balance Sheet. One type of account records transactions contributing to […]