Set a good foundation to not be afraid of accounting anymore!
What Is the Accounting Cycle?
The accounting cycle includes all the steps to complete your accounting.
On a regular basis, you will:
- Record transactions (revenue and expenses)
- Determine the cash inflow and outflow
- Fill out deposit slips
- Validate financial statements
- Close a fiscal period with a bank reconciliation
You accomplish these tasks on a daily, weekly, or monthly basis. You record your income and expenses, make your deposits, and fill out your deposit slips. Then, you record it all in the General Ledger.
On the basis of the accounting cycle, you and your accountant would:
- Identify the transactions
- Record the journal entries in the general journal
- Post the journal entries in the General Ledger
- Adjust the trial balance
- Create the financial statements
- Close the fiscal year
When you manage your accounting on a regular basis, you will usually do the first three tasks. When your accountant does your year-end accounting, they will do a trial balance to determine the irregularities and make the necessary adjustments to correct them. Your accountant can then create your financial statements and close your fiscal year.
What Is Double Entry Bookkeeping?
Cash basis accounting is the basis of accounting where the revenue is reported only when the cash is received and where the expenses are reported only when they are paid out. This method does not take into account the moment when the revenue and expenses apply.
Accrual accounting, also known as double entry bookkeeping, is the basis of accounting where revenue and expenses are reported when they are engaged or incurred, not when they are received or disbursed. Accrual accounting is used to compile a company’s balance of payments.
Generally speaking, in Canada, the recognized accounting method is the double entry bookkeeping system. Thus, every transaction is written twice (as a debit and a credit) in your General Ledger. This method makes it easier to verify your accounting because the debits and credits must correspond (during the trial balance).
What Is the Debit and the Credit?
Crediting or debiting an account means that you increase or decrease its book value.
- You debit an asset account when you acquire a new asset, but you credit it when you get rid of said asset.
- You debit an operating costs account when you pay these costs, but you credit it when you do an adjustment to reimburse some of the account.
- You credit a liability account when you take out a loan (account payable, credit card plan account, or loan), and you debit it when you reimburse the loan or a part of it.
Example: when you buy office furniture, your “furniture” asset increases, which is a credit, and your bank account decreases, which is a debit (or your credit card plan account increases because you owe the sum to the supplier).
What Are Financial Statements?
They include three reports that provide an overall picture of your fiscal year.
- The balance sheet: It determines your revenue and expenses, so you can clearly see your net income or your net loss.
- The income statement: It provides a picture of your company during a particular period. It will tell you about your assets (what you own), your liabilities (what you owe), and the capital (the owner’s equity).
- The cash flow statement: It tells you about your cash assets, and the real cash inflows and outflows.
If you use Proprio Expert, do not worry! We offer an accounting training course. And if you still struggle, we can come to your home, or you can come to our office for in-person training! Hiring a professional accountant or knowing someone with accounting experience is always a good thing!