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Accounting plays a crucial role in businesses of every size. However, it often becomes an afterthought for several small business owners, especially when they're juggling all other responsibilities of managing and maintaining day-to-day activities. Besides, many of them dread the idea of bookkeeping and accounting. But, the actual process of account keeping is easy when you have the right account blocks or books in hand. In this guide, we'll take you through the many options of account books that'll help you sort your finances in a hassle-free manner. So read on.
Before you explore their types, know that there's no need to keep your accounts in a particular way. However, you must make sure that the account-keeping must accurately reflect your business's income and expenses. Moreover, the size of your business and the amount of sales determines the kind of account block you choose. You could also rely on accounting software, but nothing beats the account books when it comes to keeping track of your finances. That said, let's now have a look at a few significant types of account books that you can consider investing in.
Generally, you need to have two major books of accounts – the journal and the ledger. You use the journal to record various economic transactions chronologically. At the same time, ledger helps you classify economic activities according to nature. Moreover, you'll see that the journals easily find their way in large business organisations. That's because they make it convenient for you to journalise every transaction in one journal. Besides, you'll find them divided in such a way that there's the separate book used for each class of transactions. Similarly, you can find many other types of account blocks out there. Below we've compiled a list of few major ones.
Indeed, all the companies need a significant cash book. However, many time companies also tend to maintain a small cash book known as petty cash book. This helps you record the small day-to-day expenditures of the company. In short, it's a type of account book that you can use to record regular minor expenses such as bus fares, teas, newspapers, fuel, pins, cleaning, and causal labour etc. Typically, you enter the cash allocated for petty cash expenditures for a specific purpose on the credit side of the book.
The accounting ledger is an account block used to record bookkeeping entries for balance-sheet and income-statement transactions. The accounting ledger journals include entries like accounts receivable, investments, inventory, accounts payable, accrued expenses, and customer deposits. Besides, you maintain accounting ledger for all types of balance sheets and income transactions. By the way, the accounting ledgers are entirely referred to as general ledgers too. That's because it provides a centralised repository to collect all account data rolled up from various modules.
Usually, the company's internal accountants itemise all the financial expenses with the help of this cash disbursement book. The accounts reconcile these records with the general ledger accounts monthly. Next, they use these to create financial statements for regular accounting periods. Furthermore, these journals contain essential information such as the disbursement amount, check number, transaction type, payee, payer, and memo. However, some businesses also record many other details in them. These details include discounts on bulk items purchased.
The cash receipt journals are special account blocks that you use to record the receipt of cash by the business. In fact, the book is simply a chronological listing of all the receipts including both cash and cheques. Besides, this also helps save time and reduce clutter in the general ledger with too much detail. Above all, they help you easily segregate the duties. Many a time, several businesses tend to merge the cash receipts journals with the cash disbursements journal. You call this as a 'cashbook'. In short, they're a book of prime entry.