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Sage One Accounting for Beginners : Introduction
Sage One must be one of the most user friendly programs around for small and even medium businesses to do their accounting with. Even beginners can master this accounting software easily This year we celebrate the 30th birthday of the internet and how has it not changed the way we work and do business!?
Sage One Accounting is no different. First of all the accounting program is automatically backed up in the cloud meaning that you need not worry about back ups or worry about ugrading your version of your accounting program annually / manually. For qualified / experienced accountants and bookkeepers these must be some of the obvious advantages of using Sage One. Maybe also the fact that you can use the bank feeds function to automatically import your daily bank transactions into your cashbook of your accounting system. Ad to that the fact that you can map (pre-allocate) transactions of a repetitive nature to the specific accounts the transactions need to be allocated.
This blog entry is meant for beginners in accounting. Many, many years ago (psss.... more than 30) I was taught the basic accounting principle of Equity = Assets less Liabilities. For beginner bookkeepers this concept becomes easier to understand by jumping in and studying the changes in a Trial Balance as you process transactions. Like many things in life learning about equations without understanding the application thereoff is very difficult without practical experience. Don't worry as we progress you will understand the principle of Equity = Assets Less Liabilities.
I love drawing T accounts illustrating the debit and credit principle when starting to explain accounting to beginner bookkeepers. (This double entry accounting principle was invented by the early Romans.) . On the left side of T accounts we have debits and on the credit side of T accounts we have credits. Similar to your bank statement or a statement you would receive from someone you owe money. (Your creditors) Accounting is a logic process where certain principles are applied. For every debit entry there has to be a credit entry. In your books you will invoice (debit) a client of yours when you do work for them on credit. In their books your client will credit you in their books. This is not what is meant with the double entry principle of accounting. In your books you will have to credit another account when you debit your customer - normally income. In their books your client will have to credit you and then debit an expense or cost of sales. (For every debit there needs to be a debit in your accounting system.)
To explain this to a student I would show a student either a debtor or a creditor statement which should reflect all invoices and payments as well as a balance. The ideal is that the students / the clients books should reflect a reverse mirror image of the debtor / creditor. This should explain the debit / credit principle properly to a beginner accountant.
It is common practise for companies to do a monthly reconciliation of debtors and creditors, reconciling balances of the creditor with your own accounting records and quering differences in balances by identifying differences in the individual amounts constituting the two balances in the two different sets of books.
This is the first example of doing a monthly reconciliation between your own accounting records and that of an outside party.
Your bank is a very important outside party with whom a daily reconciliation will provide some assurance as to the accuracy of your accounting records. Where monthly reconciliations with debtors and creditors is the norm a daily reconciliation of your bank balance as per your financial institution and your cashbook has become the norm. With the invention of EFT's the daily bank reconciliation has become very easy. In the past you needed to take into account cheques and outstanding deposits before reconciling your bank account. While this may still be applicable in some circumstances with most small businesses the daily reconciliation of your bank account with your accounting cash book has been simplified tremendously.
With this as an introduction:
The aforementioned are the very basics of doing accurate bookkeeping. By adhering to these principles of reconciling you will be taking great leaps in ensuring that you do your job as bookkeeper well.
To more clearly understand the principle of debits and credits you only need to study your bank statements. When you deposit money into your bank account the bank would credit you. When you do the accounting of this transaction however you would debit your bank account. Fortunenately in Sage Accounting you need not worry about debits or credits when p[rocessing your bank account. Sage One Accounting talks of Receipts and Payments. When doing in house training with bookkeepers these basics are easily explained using actual bank statements or statements from creditors or statements to debtors. Debtors are people who owe you money. Creditors are people you owe money to.
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