Accounting Management

By Eli Jr

Do you yearn to understand the financial language of business? Do you dream of making data-driven decisions that propel your business forward? Accounting Management: My Managerial Accounting Oracle is your key to unlocking the mysteries of accounting and transforming you into an accounting guru.

This book lays a sturdy foundation in essential accounting principles, equipping you with the tools to navigate the intricacies of bookkeeping, financial statements, and the accounting cycle. With crystal-clear explanations and practical examples, you'll master debits and credits, decipher general ledgers, and gain the confidence to analyze your company's financial health.

Accounting Management unveils the secrets behind these critical areas:

Fundamental Accounting Principles: Grasp the core tenets of accounting and establish a solid understanding of the language of business.

The Accounting Cycle: Navigate the systematic process of recording, summarizing, and reporting financial transactions.

Financial Statements: Learn to decipher the Income Statement and Balance Sheet, the cornerstones of financial reporting.

Management Accounting: Discover how accounting empowers you to make informed business decisions and optimize your company's performance.

Accounting Management is your one-stop resource for mastering accounting for managerial success. Whether you're a business student, an aspiring entrepreneur, or a seasoned professional, this book equips you with the knowledge and skills you need to unlock the power of financial data and propel your business to new heights.

• Language: English
• Publisher: Eli Jr
• Release date: Apr 15, 2024
• ISBN: 9798224311491

Eli Jr

Elias Zeferino Manhiça Junior, known simply as Eli Jr is a force to be reckoned with due to his multifaceted talents and entrepreneurial spirit. Born in the beautiful landscapes of Mozambique, Africa in 2001, Eli Jr wears many hats and is committed to using his gifts to generate wealth and eradicate poverty. He is a gifted wordsmith whose soulful vocals earned him a contract with Platinum City Music Group, and a skilled composer crafting musical tales that have captivated hearts across borders. Eli Jr's melodic journey began in 2010, sparking a fervor that would soon enchant listeners worldwide. Raised amid the bustling rhythm of Maputo and culturally flourishing in Lichinga, his music displays the richness of his experiences. He currently has two acclaimed albums available - International Baby and Genesis - both produced in partnership with Platinum City Music Group. Beyond his artistic success, Eli Jr has unveiled his brilliance as an author focused on academic and business topics. His published titles to date include Wealth Management Skills Guide, A Treasure Of Ideas, The Excellence Blueprint, Information Technology For Business, Social Media Management, Business Affairs Management, Business Communication Management, Family Management, Facilities Management, Customer Relationships Management, Change Management, Health Management, Human Resources Management, Innovation Management, Investments Management, Knowledge Management and Environmental Management. Eli Jr is dedicated to using his multifaceted talents and businesses to generate wealth and alleviate poverty through knowledge and inspiration. He is sure to continue accomplishing great things.

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Posting & T Accounts

The word posting is derived from a computerized version of T accounts. Journal entries are written in a way that could be understood by anyone who knows which accounts are affected. For example, a sale on credit of $500 might be recorded as:

Accounts Receivable $500 Sales $500

If this transaction was the only one affecting the sales and the accounts receivable accounts, it would be easy to figure out what is going on from these two lines in the journal. However, if sales and accounts receivable were affected often by many transactions, it could get complicated to figure out the balances in these accounts.

One could go through the lines in the journal, find every instance where sales or accounts receivable were affected, and adjust the balances in these accounts for each transaction.

This would take a very long time, and there would be a lot of erasing. The better way to do this would be to make T accounts for sales and accounts receivable. Then, for each transaction, find the accounts in the journal, and copy the amounts to the appropriate T accounts.

This process of copying the information from the journal to the accounts is called posting. At the end of this posting, the balances in the T accounts should be equal to the balances in the accounts in the ledger.

Now it's easy to see if the T accounts are accurate by comparing them to the accounts in the ledger, and the financial information for these few accounts is in a much clearer and more organized form than it is in the journal.

Posting may be defined as the process of transferring entries of original entry books into the ledger. Up to this stage, we have learnt how to record business transactions in the general journal. Hence, it is necessary to know how to transfer these entries from the journal to the respective accounts in the ledger. This process is called posting.

When posting, we open the ledger accounts (if not opened) and transfer (or post) the debit and credit aspects of each and every journal entry to the respective accounts in the ledger. To facilitate posting, it is necessary to know which accounts are to be debited or credited in respect of each journal entry.

From the above, posting may be regarded as the second step in the recording process and it has the following objective:

Objective of Posting: Transferring entries of original entry books from the journal to the respective accounts in the ledger by maintaining the debit and credit aspects of each and every entry.

An account can be illustrated in a number of ways, e.g. one could list all the transactions or could record much of the same information in the form of a ledger account. However, an account is represented, the changes in a particular asset, liability, or owner's equity arising from a business transaction will increase or decrease the value in an account.

This insight provided one of the fundamental insights to the development of double entry, namely that all changes in assets or income can be represented as a debit or credit and that each debit must have a corresponding credit. T accounts are a graphical representation of an account and are format used in the bookkeeping process in which debits are entered on the left side and credits on the right, the totals of each are calculated.

T accounts get their name from the shape they are drawn in, they have a central line that creates a T-like shape which separates the debits from the credits. T accounts are not an account themselves, it's just a way of representing and visualizing changes in an account. They are a simple and efficient way of dealing with transactions because they can be easily altered to correct errors and can be used to check whether the transaction has been entered correctly.

As mentioned earlier, the goal in posting is to transfer the information from the journal entries to the correct accounts in the ledger. This is often done using T accounts for the accounts mentioned in the journal entry because it's an easy way to show how the transaction has affected the account. The date and journal reference can be written at the top of the T account, then each journal entry is represented as a debit or a credit on the left or right side of the T account depending on what the original transaction was. Then the amount is written on the corresponding side and the two amounts are totaled and compared to make sure that the journal entry has been entered correctly and that it's equal to the increase or decrease in the account. If the trial debit and credit equals the journal entry was correct.

The posting process involves identifying transactions, determining the correct accounts, recording entries in T accounts, balancing the accounts, and ensuring accuracy in financial records.

The first step in the posting process is to identify the transactions that need to be recorded in the accounting system. These transactions can include sales, expenses, purchases, and other financial activities.

Once the transactions are identified, the next step is to determine the correct accounts to which the transactions should be posted. Each transaction will have a corresponding account in the chart of accounts, such as asset accounts, liability accounts, and equity accounts.

After identifying the transactions and determining the correct accounts, the entries are recorded in T accounts. T accounts are visual representations of accounts that show the transactions on the debit side and credit side. Debits are recorded on the left side, and credits are recorded on the right side of the account.

Asset T accounts represent assets owned by the business, such as cash, inventory, and equipment. Debits increase assets, while credits decrease assets.

Liability T accounts represent the debts and obligations of the business, such as accounts payable and loans payable. Credits increase liabilities, while debits decrease liabilities.

Equity T accounts represent the owner's equity in the business, including investments and retained earnings. Credits increase equity, while debits decrease equity.

In T accounts, debits must equal credits to ensure that the accounts are balanced. Each transaction must have an equal total of debits and credits to maintain the accounting equation (Assets = Liabilities + Equity).

: To calculate the balance in a T account, the total debits are subtracted from the total credits. If the difference is a positive number, the account has a debit balance, and if it is a negative number, the account has a credit balance.

When a sale is made, the revenue is recorded as a credit in the sales account, while the cash or accounts receivable is recorded as a debit in the corresponding account.

When an expense is incurred, the expense account is debited, and the cash or accounts payable account is credited to record the transaction.

When cash is received, the cash account is debited, and when cash is paid out, the cash account is credited.

Failing to record all transactions can lead to inaccurate financial statements and misrepresentation of the business's financial position.

Posting transactions to the wrong accounts can distort the financial records and make it difficult to analyze the business's performance.

Mistakes in recording debits and credits can result in unbalanced accounts and errors in financial reporting.

Normal Balance

The term normal balance is defined as the side where an account's value is either increased or decreased. The value of an asset account is increased by the value of a credit entry.

The value of a liability is increased by the value of a debit entry. And the value of an expense account is increased by a debit entry. On the other hand, the value of revenues is increased by a credit entry.

As the opposite affects to the value of these accounts decreases, the normal balance of an asset or an expense is a debit entry, while a credit entry increases the value of a liability, capital, or revenue account. The normal balance of an account can be used to determine whether the account's value is increasing or decreasing during the entry of differing debits and credits.

By running through the rules mentioned above, it can become clearer what the expected end balance is for the account.

As we said, normal balance in accounting is the side where increases go. Increases in an asset account are recorded on the debit side, while decreases are recorded on the credit side. In liability, revenue, and owner's equity accounts, increases are recorded on the credit side and decreases are recorded on the debit side. This has no effect on the increase or decrease in a particular account; it is just recording what side of the account the changes are happening.

Not understanding the normal balances can lead to confusion in the accounting process because some accounts increase with a debit while others it is the opposite. If you record an entry putting a revenue as a debit when it should be a credit, you will increase the revenue when you meant to decrease it. You can see how this can lead to problems.

The normal balance is part of the double-entry bookkeeping method, which uses at least two entries for every transaction. In this method, an increase in an asset account is recorded with a debit entry, while an increase in a liability or equity account is recorded with a credit entry.

Debits and credits may also be recorded in the opposite way depending on the type of account and whether there was an increase or decrease.

The normal balance is the side where the balance of the account is normally found. It is not the same as a positive balance (referred to as a debit balance). Whether an account has a debit or credit normal balance is determined by what increases the balance of the account. In the previous example requiring salaries, the Cash account would have a debit normal balance.

This is because the cash account is an asset account and increases to asset accounts are recorded on the debit side. So when paying salaries, the cash account would be credited (decreased), thus opposite to its normal balance. On the same transaction, the salaries account would be debited.

This is because the salaries account is an expense account and an increase to an expense account is recorded on the debit side. This is also opposite to its normal balance.

The concept of normal balance is a crucial element in the maintenance of the accounting equation. This will be explained in detail further on, however, by way of brief explanation, the accounting equation signifies that assets are always equal to liabilities plus owner's equity.

For this reason, it is essential that at all times debits must equal credits. In the event where an incorrect entry is made on the increase side of an account which goes against the normal balance of that account, the effect would be an automatic doubling of the incorrect entry on the increase side of the account.

A similar error can occur via an incorrect entry on the decrease side of an account. This will result in an automatic reversing of the entry.

The doubling or reversing of entries will throw out the balance of the accounting equation and these errors are often difficult to detect and may result in serious errors in preparation of financial reports. By understanding the effect of increases and decreases upon the normal balance of an account, the maintenance of the accounting equation becomes a much simpler task.

In a nominal account, which is a personal account, a receiver's account is to be debited while a giver's account is to be credited. This is because the account is related to an income received by the receiver. But usually, in a nominal account, there is a comparison between expenses or a loss and income or against capital. So the rule of debiting expenses loss and the credit of income is applied.

In the case of a real account, the account which is receiving some amount is debited while the account which is giving the amount is credited. In other words, any increase in assets of an account is debited, and any decrease in amount is credited. But the modern way of learning the rule of a real account is: Debit what comes in, credit what goes out.

In a personal account, there are two accounts involved in a transaction, and as a result, the account which receives an amount is debited while the account which is giving the amount is credited. A receiver's account is always debited, and a giver's account is always credited.

In accounting, a balance or an account is the amount of money for which one is either a debtor or a creditor in another person's account. There are mainly three types of accounts which are maintained by an organization. They are personal accounts, real accounts, and nominal accounts.

Trial Balance

We can say trial balance is a statement prepared to check the arithmetical accuracy of the books of accounts. This is not the final statement which will depict the true financial position of the business, but definitely will help in finding the errors and location of errors which might have occurred during posting of entries into ledger accounts.

It greatly minimizes the time and efforts in checking for the errors in the ledger accounts. Errors would be easier to locate and isolate because the difference between the debit and credit totals would have to equal the amount of the error.

Trial balance definition may be stated as a statement prepared by the organization at the end of any financial period to display the ending balances of all the ledger accounts on debit or credit side which can be asset, liability, capital, revenue or expense. If prepared in a proper format, the total of all the debit balances and credit balances would be equal.

The trial balance is a list of all the nominal ledger (general ledger) accounts contained in the ledger of a business. At the end of the financial period, the total of the balances on the current accounts within the nominal ledger should theoretically equal the amount that has been spent on the items.

The act of creating the trial balance is to total up all the debit balances and then total up all the credit balances. Once both columns have been added up, they should be equal. This shows that the data is correct and that there are no errors in the ledger.

As stated earlier, the main purpose of preparing the 'Trial Balance' is to test the arithmetical accuracy of the accounts which have been maintained in the various books of original entry and posted in the ledgers. Any arithmetical mistakes can be located and rectified by preparing the trial balance. The trial balance can be prepared at any time, if the accounts happen to be maintained up-to-date.

Usually, it is prepared at the end of the accounting period, which can be a month, quarter, half-year or a year. By preparing the trial balance, one can ensure that the total of all debits does equal the total of all credits. In the trial balance, the various ledger-accounts are closed and balanced.

The arithmetical accuracy of the ledger can be proved by showing that the total of all debit balances does equal the total of all credit balances. On the basis of these trial balances, the final accounts can be prepared.

The accounts are prepared mainly for decision making purposes. But the information presented in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. The real significance of the financial statements can be judged only when these are analyzed and interpreted. Analysis means establishing meaningful relationship between various items of the two financial statements.

Interpretation refers to the drawing of inferences regarding the financial position and performance of a business. In order to carry out the analysis and interpretation of financial statements, we require certain techniques and tools. These devices help in a deep and convenient understanding of the financial statements. The technique of preparing 'Trial Balance' is one such tool of accounting analysis without which the preparation of the financial statements is incomplete.

If the total of debit balances does not agree with the total of credit balances, it is a clear indication of some errors in the accounting work. The discrepancies can be located and rectified easily and the arithmetical accuracy of the books of accounts can be ascertained.

For this purpose, it is necessary to prepare a trial balance to disclose the arithmetical accuracy of the books of accounts. If the totals of both the columns agree, it will serve as a significant evidence that the arithmetical work and the posting into ledger accounts have been done effectively. But if the totals of both the columns do not agree or if there is an apparent excess of debit or credit balance, it indicates that there is some mistake in the accounting work.

The trial balance provides a summary of ledger balances at a particular time. It does not present the real picture of the financial position of the business. But since it is a statement derived from primary accounting records, it is the source for preparing the final accounts. It is very useful to both accountants as well as auditors in locating the errors. They may be in the form of errors of commission, errors of omission, errors of principle, or compensating errors.

The trial balance can facilitate the work of preparing final accounts and financial statements. With this statement, it is easy to prepare trading and profit and loss account because it shows all expenses and revenue incomes having a debit or credit balance respectively and also the balances of assets and liabilities.

Final accounts cannot be prepared if there is no agreement in the trial balance. If the trial balance contains only those accounts having closing balances, it serves as rough draft for the balance sheet.

It is assumed that all ledger accounts are complete at the time of preparing the trial balance. But if some ledger accounts have not been balanced off, it will not be possible to take the balances of those accounts.

In such a situation, statement of account will have to be prepared for such incomplete ledgers, so as to classify the various debits and credits to the concerned account.

A trial balance treats all debit balances and credit balances as equal, which may not be correct in all the cases. For example, a debit balance of MZN 100.000.000 in the building account represents the asset of building, whereas a debit balance of MZN 100.000.000 in the income statement account represents an expense.

Obviously, the latter is not an asset. So both MZN 100.000.000 are not the same, and therefore cannot offset each other. But trial balance will show the total of both the debit and credit balances as equal in this case. Again, if a transaction is not recorded in the books of accounts, it will not appear in the trial balance.

Preparation of trial balance is the last stage of recording process. It does not show the complete errors and frauds in the books of accounts. A trial balance may agree even though the underlying transactions contain the errors of commission, errors of principle, compensating errors or complete omission of a transaction. Thus at times it may not be possible to locate the exact position of the error just by looking at the trial balance.

Necessary corrections by the trial balance ensure the arithmetical accuracy of the books of accounts. However, there are some limitations that may be noted. These arise due to the fact that trial balance is only a statement and not an account.

Accounting Cycle

Accounting is frequently termed as the communication art. It facilitates communication in addition to grasping economic information. The principal product that a corporation has to present is its financial status, conveyed through sales, earnings, and balance sheet.

The data in the financial statements is regularly used to assess a company's performance and make decisions concerning shares, credit positioning, and investing. It can also be used to evaluate associations in the sale of one corporation to another. In order to provide a clear understanding of the situation, one must review the data in a method that is logical to interpret. This can be accomplished through accounting.

An accounting system is a systematic procedure for organizing financial information in such a way that the information can be used to facilitate decision making. Accounting information is typically in the form of financial statements, which demonstrate success achieved during the company and its fiscal difference at a specific period or over a sequence of time.

In order to be helpful, information must both carefully mirror the transactions to which it applies and be simple for users to recognize. The standard-setting procedure by rule-creating bodies and the determined attempts of expert accountants have attempted to ensure that financial statements meet these two prime attributes.

Unfortunately, the complexity of most companies' financial transactions can present a clear challenge. An accounting system that collects and manages exchange information in a clear and exact manner is accordingly a precious tool, for both preparing the financial statement and analyzing them.

A corporation's financial transactions are entered into from the commencement of action. It is generally best to record an action with an accepted set of balances known as accounts. An account records money changes about a specific item by investment, salary, or loss.

An accounting of the total changes in each of these accounts would provide an exact image of the rise of resolve the makeover of concern and the finishing location of each. Complete information on financial transactions through the gathering of source documents is identified as journal receipt.

The journal is then summarized on the basis of accounts into a document known as a broadsheet. The report is then used to create a sample of financial statements. It can be observed that the creation of the statement involves noting, organizing, and representing information in addition to the element.

Both the effort to analyze the data and the information itself can be made easier if the terms and interaction between steps comprise a smooth system. This is the aim of the accounting cycle.

With different theorists expressing different views. There is, however, general agreement on the basic objectives and purposes of accounting. The purpose of the accounting cycle is to produce financial statements that accurately portray the financial position of the company.

These statements, such as the income statement or balance sheet, are used for purposes of making investment decisions, securing funds or loans, projecting future earnings potential, and a host of other business decisions. The accuracy of these statements is central to all of these possible uses.

The more accurate the statement, the more confident the decision maker can be in knowing his decision is based on a true representation of the financial situation of the company, rather than one which may be misleading due to errors or inaccuracies.

This is done by following the steps of the accounting cycle. A secondary purpose of the cycle is to catch and correct any errors that occur in the initial recording of an event. Any transaction recorded incorrectly in the primary stages of the cycle can be traced back to its origin and be corrected. The steps in the cycle provide a well-defined roadmap to trace any error, and the error may be discovered either intentionally or accidentally.

Due to the recent introduction of expensive accounting information systems, error correction may be considered the primary purpose of some accountants. An accurate portrayal of a statement is impossible if errors are present.

Comparing the completed statements to similar statements from previous periods or similar companies can also provide valuable analytical information, and each complete cycle provides a new set of statements to analyze. Since the accounting cycle spans every fiscal period, it can be viewed as an ongoing process. When the initial set of statements is produced, it is time to start a new cycle.

A company can choose the way it views its accounting cycle, and adjust it to best serve its informational needs. Both repetitive and non-repetitive events can be recorded in the cycle. At the completion of the cycle, the intention is that everything has been recorded in some manner.

Another reason why the accounting cycle is so heavily stressed is that the preparation of financial statements is just one use of accounting; the skills learned from the accounting cycle can help anyone in the management of their personal finances to analyze a company's data and make decisions for the betterment of the company.

The accounting cycle provides a solid knowledge base by showing how each step directly affects the preparation of financial statements. This may not seem important to everyone, but in this day and age where it is common to work with multiple streams of data, the ability to analyze data effectively has become a prized