Accounting Data means all the financial data including ledgers, journals, calculations and spreadsheets that support a financial statement.
Big data can help accountants understand the holistic view by predicting shifts in consumer behavior, identifying red flags for fraud and anticipate economic trends. When accountants can identify these risks, they are able to help clients mitigate risks and protect financial performance.
The process of bookkeeping involves four basic steps:
- Analysing financial transactions and assigning them to specific accounts.
- Writing original journal entries that credit and debit the appropriate accounts.
- Posting entries to ledger accounts.
- Adjusting entries at the end of each accounting period.
Debits and credits are used in bookkeeping in order for the books to balance. Debits increase asset or expense accounts and decrease liability, revenue or equity accounts. When recording a transaction, every debit entry must have a corresponding credit entry.
There are two types of bookkeeping systems used in recording business transactions: single-entry bookkeeping system and double-entry bookkeeping system.
- Single-Entry Bookkeeping System
This system is commonly used for small businesses with very little or minimal transactions. Usually, it only maintains a record of cash disbursement, cash receipts, sales and purchases.
The books or records maintained in a single-entry bookkeeping system are daily summary of cash receipts, as well as monthly summary of cash receipts and disbursements, which represents the revenue and expense, respectively.
Unlike the double-entry bookkeeping system wherein one transaction affects two accounts, in single-entry bookkeeping system, a transaction only affects one account. Example, a cash sale is recorded only as increase in cash receipts or deposits with no corresponding sales account.
However, the simplicity of single-entry bookkeeping system is prone to error and incompleteness because it lacks a detailed recording system compared to double-entry bookkeeping system. Although for tax purposes, it is an acceptable method of record keeping for small and simple businesses, however, it may not provide a fair valuation of the relevant financial information of a business.
- Double-Entry Bookkeeping System
This is the standard method of record keeping normally used by most businesses, bookkeepers and accountants.
The procedure of double-entry bookkeeping system is more detailed and complex than single-entry bookkeeping system. It introduces the concept of debit and credit, which means that for every transaction there is something received (debit) and given up (credit), as such, recorded transaction affects two or more accounts.
The benefit of double-entry bookkeeping system is that it has a process to ensure accurate and complete recording of business transactions. It is a reliable source of financial information and fair valuation the condition or performance of a business.
Our topic on bookkeeping will be based on double-entry method system, you will learn more about it in the next articles.