What is Accounting and what is it for?
The word "accounting" can give us the idea of being a complex and obscure concept. It's actually less complicated than we think. In simple terms it is the recording and control of our money or that of someone else or a company. By "transactions" or "registrations" we mean the income and outgoings, i.e. the money that comes in and the money that is spent.
The control of income and expenses is fundamental in the management of a company, which aims to maximize revenues while reducing costs. Through accounting you have immediate information about the economic trend, which allows you to make timely strategies to correct or improve the management of the company with a view to future achievements.
Accounting also makes it easier to fill out the tax return because you have an immediate view of your income and expenses, where your income comes from, how you spent the money and the status of your balance.
In addition to large companies and small businesses, accounting also helps individuals in their everyday life, for example to keep track of family expenses or for small or important plans, such as buying a house.
In a nutshell, accounting will enable each of us to become a real entrepreneur.
Here is a list of accounting terms that will help you if you are a beginner.
Keep accounting records
Bookkeeping means recording all kinds of economic changes, such as income and expenses. The accounting can be kept manually on paper or digitally, as with Banana, which will make everything easier and faster.
If you decide to record your accounting digitally, you will have the ability to record all your data in a single file. Typically, you keep one file for one accounting year. In Banana Accounting you will be able to save your file comfortably on your computer or in cloud.
Holder / Subject of the accounting
One of the first things you will do when you create your accounting file will be to put a header, i.e. the name of the person, company or entity to whom the accounting relates. Usually you will enter the name of the company and then the accounting year.
The accounting period represents the beginning and end of your records. As soon as you create the file, enter the start date, also called the opening date, and the end date, i.e. the closing date.
Another important data to set is the currency, i.e. the type of coin. In Banana Accounting you can choose the currency according to your accounting by entering the abbreviation (CHF, EUR, etc...).
The accounting recording or transaction is made when there is any financial and economic change in the company. The following items are noted in the transactions:
When accounting is recorded, you need documents to prove the operations of the account, i.e. the money you spend and receive. Examples of supporting documents can be invoices, receipts and bills.
The date indicates the exact day on which the transaction took place.
In the description cell you can enter some details of the movement, for example "rent August".
Entry Income Amount
In case we receive money, we will register it under income column.
If we have to record expenses, we will record them under expenses.
The account in which a transaction takes place is also specified in the records.
The category indicates the type of expense (e.g. rent, health insurance, etc.).
Category / Account
The accounting categories are used to catalogue the types of income and expenses. Some examples of categories are: salary, rent, health insurance, gas/light/water invoices, etc... Similarly as for the accounts, we can have the category tab that will allow us to see what were the expenses or income for a certain category and on what date.
The categories are essential to identify the nature of the accounting movements and to have a control over one's own expenses.
The account represents all the items concerning the mutation and the amount of money of a certain object. For example, the "Cash" account, which is the object of the account, will indicate the expenses incurred or receipts received and their respective dates when the transactions took place. All transactions with dates are recorded in the account card, where their nature is described (e.g. payment of electricity bill or work salary).
Other types of accounts can be postal and bank accounts.
Each account is assigned a number, a code or a word. This will be used at the time of registration to immediately identify the source of the transaction.
Each account, as well as each category, has its own description in which the main information is entered. For example, in Banana Accounting, we will have an "account" column where we will insert the account number, while in the "Description" column we will write what type of account it is, for example "Cash", "Postal current account", "Customers", etc.).
The balance indicates the current financial or economic availability.
Before you start your accounting, you can enter the opening balance, i.e. the available estate before your accounting entries.
Groupings/ Total accounts
In order to be able to add up a series of accounts of the same nature or which have the same destination, the totalization groups are created in the accounting plan. Each group therefore is used to report the sum of a given series of accounts. For example, we can have the Liquidity group which sums up all the accounts that refer to liquidity: cash, bank, post account.
Chart of accounts
The set of all the accounts of a company is called the Chart of Accounts. The latter is divided into two sections:
⇒ the financial one, represented by numerical accounts (such as cash, bank, credits), and corresponding to the balance sheet.
⇒ the economic one, represented by income accounts, i.e. costs and revenues.
The Journal is a list of records of accounting transactions in chronological order. The income and expense amounts and the type of category are entered. It allows you to keep track of the evolution of the balance.
The account statement is a document that provides all information about the account status and the operations that have taken place
The balance sheet is equivalent to the value of the assets and capital available to a company at a given time. It includes assets and liabilities.
The report contains the balances of all costs and revenues of an activity in a certain period. It represents a final summary of the management of your business or company. It also provides the economic result, that is, the difference between revenues and costs that represents the profit or loss for the year.
Result of the accounting period
The result of the accounting period is the result of the economic activity of a company.
Previous year values
In accounting, the values of the previous year represent the balances of the same accounts but referred to the previous year. They are very useful for example in the various balance sheets and reports, created with Banana Accounting, where the values of the previous year can be displayed in columns next to the columns of the current year's values to see the differences.
Comparison of the previous year
When the balances of the current year and those of the previous year are compared in the financial statements and in the various reports of Banana Accounting, it is possible to compare them between one year and another.
In the financial and economic sphere liquidity is equivalent to the immediate disposal of money in cash. It corresponds to the total balance of the bank's accounts, cash, mail, cheques.
Importing bank statements
It is the function that allows you to import all bank account movements into the accounting file.
Paper bills, invoices and receipts are replaced by digital files.
Banana Accounting offers you the possibility to insert for each registration a link to digital documents saved on your computer. They allow you to have proof of an economic and financial movement with all its details.