Numbers People in Action: Accountants & Bookkeepers
August 10, 2009, 12:05 pm
Copyright © 2009 Integrated Profitability TM
A continuation of the suggestion that came in to “…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…” The first article set up the simple scenario.
With the business model articulated, Accountants step in. Their job is to determine what all the different transactions mentioned or extrapolated from the Business Plan are–from a financial, general ledger perspective. This determination automatically dictates, in the accounting world, how these transactions need to be booked. The accountant will lay out treatment for both the Income Statement (revenue and expense) and the Balance Sheet (assets, liabilities and capital).
For example,
● buying the snacks is an expense
● selling the snacks to harried hungry people is revenue
● if you pay for the snacks with cash, the warehouse trip will decrease cash (an asset) and increase inventory (also an asset)
● if you pay with a credit card, the warehouse trip will increase your credit card debt (a liability) and increase inventory (an asset)
Isn’t double-entry accounting awe-inspiring?
With the accounting rules laid down, the business starts with trips to the warehouse store and to wherever the customers with bad cases of the munchies exist. As soon as the transactions begin taking place, the Bookkeepers move to center stage. Their first step is to get paperwork and whatever other shred of evidence is available from the Business People about the transactions they are doing.
For example,
● Purchases will be evidenced by receipts (these are expenses)
● Sales will come in as cash or, for the truly famished, credit card slips (these are revenues)
The Bookkeepers post the figures for each transaction into the general ledger, according to the rules provided by the Accountants.
The frequency of the posting depends upon the size of your business. To be most current, you would post every day. Daily posting may seem like overkill, but if you do it, you also have the best view of your Cash Flow which is a significant benefit.
Throughout the month (or whatever frequency has been agreed upon), Bookkeepers post the business transactions to the general ledger accounting lines.
At the end of the month, after all entries are posted, the Accountants re-enter the stage to make sure the books of the business are accurately closed. “Closing” means that all the entries are reviewed for completeness, accuracy and regulatory compliance. That all general ledger accounts are “in-balance”: if they are, this means that double-entry accounting has been adhered to.
At the end of the close, the Accountants and Bookkeepers are finished for the month—unless there are follow up questions from the Finance People.
Next: what Finance does.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 37
Copyright © 2009 Integrated Profitability TM
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Good! Finally all of this is coming together for me. How about more on capital? What is it? where does it come from, is it actual & stored somewhere physically and separately or virtual like the net or sum of two or more numbers?
[...] first article set up the simple scenario, the second dealt with Accountants & Bookkeepers. And then Finance: basic, financial analysis and financial planning. This article [...]