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Developing Stronger Accounting Skills
Understand the difference between bookkeeping and accounting. Bookkeeping and accounting are terms often used interchangeably. However, the skills and responsibilities required of each are somewhat different. Bookkeepers generally keep records of sales and record them in the books directly. They do the day-to-day work of making sure every dollar the business makes and spends gets recorded. An accountant, on the other hand, creates and analyzes financial statements, and can also audit the business's books to ensure accuracy and proper reporting.
- Bookkeepers and Accountants may works in tandem to provide a full level of service to a business.
- In many cases, the distinction between the two is formalized by a professional degree, state certification, or industry organization
Be familier with Online Accounting Tools
Become familiar with creating spreadsheets. Microsoft Excel or other spreadsheet software are invaluable to accountants, as they help you track numbers in a graph or conduct calculations to create a finance spreadsheet. Even if you know the basics, you can always brush up and learn intermediate or advanced skills for creating spreadsheets, charts, and graphs.
Practicing Accounting Basics
Understand dual-entry bookkeeping. Accountants make two or more entries for each transaction recorded by the business. These can be thought of as an increase in one or more accounts and an identical decrease in one or more other accounts. For example, a payment made for a sale previously made on credit would result in an increase in the cash account and a decrease in Accounts Receivable (money owed to the business by customers who have purchased items on credit but not yet paid). These entries would be made for the same amount (the amount of the sale)
Practice recording debits and credits
Practice recording debits and credits. When dual-entry records are made, they are done in the form of debits and credits. These represent whether or not certain accounts are increased or decreased by a transaction. Using them is relatively if you remember two things:
- Debit means the record goes in the left side of the t-account and credit means you should use the right side. This refers to a standard t-account journal in which records are made on either side of the vertical portion of the "T".
- Assets=Liabilities+Owner's Equity. This is the accounting equation. Memorize this above all else. It works as a sort of guide to debits and credits. For the portion left of the "=," debits increase the account and credits decrease it. For the right side, the opposite is true.
- This means that when asset accounts, like cash, are debited, they are increased. However, when liability accounts, like accounts payable, are debited, they decrease.[4]
- Practice by working out how you would enter different common transactions, like paying your electric bill or receiving a cash payment from a customer.
Practice recording debits and credits
Set up and maintain a general ledger. The general ledger is where the dual-entry transaction are recorded. Each individual record (the various debits and credits in the transaction) is made in the relevant account within the ledger. So, for a cash bill payment, an entry would be made in the cash account and another, separate entry made in the accrued expenses account. This process is greatly simplified when you use accounting software, but can also be done by hand relatively simply
Practice recording debits and credits
Distinguish between cash and accruals. A cash transaction is the type of trade that occurs when a customer buys a pack of gum from the store and you receive the payment on the spot, and then give them the gum in exchange. Accruals, on the other hand, take into account things like credit, invoices, and billing, rather than direct payment at the time of business, as well intangible assets like goodwill.[6]