Bookkeeping System, Essay Example

The information contained in the books for a period of three months is fully complete, what you need to do is to continue recording the remaining months for the accounting period. During recording, these are the procedures you need to follow in order to maintain complete records similar to those I have done for you.

Receipt all the cash collected from fees charged and invoice all fees not yet received but earned, this keeps track of all income in the business. Journalize by debiting cash/ bank account and credit income account (fees charged). Ensure all business expenses incurred are recorded in the petty cash vouchers; this will include any expense incurred but not paid, for this case journalize by debiting the expense A/C and create a creditors account where you credit all the unpaid expenses. For cash expenses, debit the expense account and credit the cash account. When you purchase some fixed assets, create an account for each fixed asset and debit it with the value of the item, depending with the payment method credit cash or bank. After journalizing post all these journals to the respective accounts and close them by balancing the two sides. The closing balance are then transferred to the final accounts, these are the balance sheet for all assets and liabilities, and profit and loss for income and expenses (Lee, 1977).

To maintain the books of accounts the accrual concept is very vital, this is where you record all the transaction for the period. All income for the period should be recorded whether received or no yet received, here we record income when earned but not when it is received. The accrual concept helps us to know the total income for the period. Basing on this concept, all expenses paid for or not paid for in a specific period should be recorded. The accrual concepts require us to match expenses and incomes of a specific period of a business, by this way we are able to get the correct profit for the business. The major reason for this concept is to give a true picture of the financial position of the business; it is helpful to you as a proprietor in knowing the success or failure of the business and, also assists in decision making (William et al, 2008).

There are adjustments to be made to your records in order to have the correct information this include debtors, creditors, prepaid expenses. For debtors account, e.g. Joe charged Jack $200 for the service on 1/2/2009, on the very day he paid $70 and he became a debtor to Joe $ for the remaining balance of $ 130. On April jack paid the balance on 26/6/2009, to record this transaction an adjustment need to be done in the debtors account in order to eliminate Jack from the debtors’ record. The adjusting entry will be, debit cash account with the amount received and credit debtors account (jack) with the amount he paid. This adjustment reduces the debtors figure and increases the cash account. Adjustment for expenses e.g. Joe paid office rent in advance, he paid rent for 13 months in January 2009 and his year ends 31/12/2009. When closing the year the rent expense have been overpaid by 1 month, therefore Joe needs to make an adjustment at the close of the year to ensure rent expense belongs to the correct period. If the total rent paid was $1300, then $100 belong to the next period, to make this adjustment, debit rent account with total rent for twelve months and credit the prepaid rent account with the same. The balance will be the rent in advance belonging to year 2010. The correct figure of rent expense will be transferred to profit and loss account. The adjustments are very important in every bookkeeping system, since it aids in making corrections for errors, adjusting the ledgers in order to give the accurate figures.

The book keeping system if fully followed, it gives the correct information to the business person in terms of his/her business position. Mr. Joe once this books are correctly recorded you can make good decision concerning your business based on the records.

Reference

Lee, G. A. (1977). The Coming of Age of Double Entry: The Giovanni Farolfi Ledger of 1299-1300. Accounting Historians Journal, 4(2): 79-95.

Mario, l. (2002). The Golden Ratio. New York: Broadway Books.

William, W., Valerie, W., Suellen, F. & John, F. (2008). Accounting: A Practical Approach. 2^nd Ed. New York:  Pearson Education.