The Purpose of Accounting
The purpose of accounting is to systematically record, classify, and summarise financial transactions to provide clear and accurate financial information. This allows businesses to assess their financial performance, make informed decisions, and ensure compliance with legal and regulatory requirements.
Double Entry Bookkeeping
Double entry bookkeeping is a method where every transaction affects two accounts: one account is debited, and another is credited. This system ensures the accounting equation (Assets = Liabilities + Equity) always balances, providing an accurate and reliable financial record.
Nominal Ledgers
Nominal ledgers, also known as general ledgers, are used to record all financial transactions of a business. They contain accounts for income, expenses, assets, liabilities, and equity, providing a comprehensive overview of the company's financial position.
Petty Cash
Petty cash refers to small amounts of cash kept on hand for minor business expenses such as office supplies or transport costs. Proper tracking and reconciliation of petty cash ensure that the funds are used appropriately and accurately recorded in the books.
Sales
Sales refer to the income a business generates from selling goods or services. In bookkeeping, sales transactions are recorded in the sales ledger, and they must be tracked accurately to ensure that revenue is correctly reported for financial statements and tax filings.
Purchases
Purchases refer to the acquisition of goods or services necessary for business operations. These transactions are recorded in the purchase ledger, allowing businesses to track expenses and manage vendor relationships, and to ensure accurate accounting for cost of goods sold.
Trial Balance
A trial balance is a statement that lists all the balances of the nominal ledger accounts at a specific point in time. It ensures that the total debits equal total credits, helping to detect errors in the accounting records before preparing final financial statements.
VAT
Value Added Tax (VAT) is a consumption tax added to goods and services in the UK. Businesses are required to collect VAT from customers and remit it to HMRC. Proper VAT accounting ensures that businesses remain compliant with tax laws and avoid penalties.
Bank Reconciliation
Bank reconciliation is the process of matching the company’s accounting records with its bank statement to ensure accuracy. This helps identify discrepancies such as errors, unauthorized transactions, or missed payments, providing a clear picture of the business’s cash position.
Introduction to Payroll
Payroll involves the calculation and distribution of wages to employees. It includes deductions for taxes, National Insurance, and pension contributions. Accurate payroll management is essential for legal compliance and maintaining good employee relations.
The UK Banking System
The UK banking system consists of commercial banks, building societies, and other financial institutions. It facilitates the movement of money, supports businesses with loans and credit, and plays a crucial role in the country's economy through effective payment processing and financial services.