Accounting & Finance (AF)




What is Accounting or accountancy? 

It is the measurement, processing, and communication of financial information about economic entities such as businesses and corporations. The modern field was established by the Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used as synonyms. Accounting can be divided into several fields including financial accounting, management accounting, external auditing, tax accounting, and cost accounting. 


Accounting information systems (AIS) are designed to support accounting functions and related activities. Financial accounting focuses on the reporting of an organization's financial information, including the preparation of financial statements, to external users of the information, such as investors, regulators, and suppliers; and management accounting focuses on the measurement, analysis, and reporting of information for internal use by management.

The recording of financial transactions, so that summaries of the financials may be presented in financial reports, is known as bookkeeping, of which double-entry bookkeeping is the most common system. 


Management information systems (MIS) are methods of using technology to help organizations better manage people and make decisions. Managers use management information systems to gather and analyze information about various aspects of the organization, such as personnel, sales, inventory, production or other applicable factors. Management information systems can be used to evaluate the performance of the organization as a whole, certain departments or even individuals. Other management systems, such as supply chain management and project management, are often included under the label of management information systems. ERP2ALL is the synonymous of MIS as it contains all the elements MIS requires 

 

The Accounting & Finance (AF) module is the backbone of business which covers book-keeping to the preparation of financial statements. It's integrated with all the business functions made the software as a complete business management software popularly known as ERP (Enterprise Resource Planning). At the end of the sales and purchase cycle comes billing and payments. You may have an accountant in your team, or you may be doing accounting yourself, or you may have outsourced your accounting. 



What is Double-entry bookkeeping?

Double-entry bookkeeping is a system in which each financial transaction of a company is recorded with an entry into at least two of its general ledger accounts.

 For example, if a director of a company lends BDT.10,000 in cash, the company's asset account Cash is increased with a debit entry of BDT.10,000 and the company's liability account Director's Loans Payable is increased with a credit entry of BDT.10,000. If the company repays BDT.3,000 the company will decrease the amount in its Cash account with a credit entry of BDT.3,000 and will reduce the balance in its Director's Loan Payable account with a debit entry of BDT.3,000.

 

When the company pays its monthly office rent of BDT.1,000, a credit entry of BDT.1,000 will be made in its Cash account and a BDT.1,000 debit entry will be made in its Office Rent Expense account. If a company collects BDT.1,500 from a customer who had previously purchased goods on credit, the company will make a debit entry of BDT1,500 in its Cash account and will make a credit entry of BDT1,500 in its asset account Accounts Receivable.


Double-entry bookkeeping requires that the debit amounts must always equal the credit amounts. Today's sophisticated bookkeeping software will have the double-entry requirements written into its code. This will prevent many of the errors that occurred in the past when bookkeeping was done manually.

 

What is the bookkeeping equation?

 

The bookkeeping equation is also referred to as the accounting equation is assets = liabilities +  stockholders'/Owner's equity.


In the bookkeeping equation:

 

·         Assets are the resources owned by the business.

·         Liabilities are the amounts the business owes.

·         owner's equity is the amount the owner invested plus the net income of the business minus the amounts the owner withdrew for personal use (all since the business began)

 

Often it is said that the liabilities and owner's equity are the claims against the assets. It can also be said that the liabilities and the owner's equity are the sources of the assets/funds. The bookkeeping equation should always be in balance because of double-entry bookkeeping.

 

What Is An Account?

 

To keep a company's financial data organized, accountants developed a system that sorts transactions into records called accounts. When a company's accounting system is set up, the accounts most likely to be affected by the company's transactions are identified and listed out. This list is referred to as the company's chart of accounts. Depending on the size of a company and the complexity of its business operations, the chart of accounts may list thirty accounts to as many as thousands. A company has the flexibility of tailoring its chart of accounts to best meet its needs.

Within the chart of accounts, the balance sheet accounts are listed first, followed by the income statement accounts. In other words, the accounts are organized in the chart of accounts as follows:

  • Application of Funds (Assets)
  • Sources of Funds (Liabilities & Owner's Equity)
  • Income (Revenue)
  • Expenses (Expenditures)



Types of accounts



  1. Asset accounts (Application of Funds): the different types of economic resources owned or controlled by an entity. Common examples of asset accounts are cash on hand, cash in the bank, real estate, inventory, prepaid expenses, goodwill, and accounts receivable.
  2. Liability accounts (Sources of Funds): represent the different types of economic obligations of an entity, such as accounts payable, bank loans, bonds payable, and accrued expenses
  3. Equity accounts (Sources of Funds): represent the residual equity of an entity (the value of assets after deducting the value of all liabilities). Equity accounts include common stock, paid-in capital, and retained earnings. The type and captions used for equity accounts are dependent on the type of entity.
  4. Revenue or income accounts: represent the company's earnings and common examples include sales, service revenue, and interest income.
  5. Expense accounts: represent the company's expenditures. Common examples are utilities, rents, depreciation, interest, and insurance. 


There are other types of accounts exists in the name of contra accounts which are accounts with negative balances that offset other balance sheet accounts. Examples are accumulated depreciation (offset against fixed assets), and the allowance for bad debts (offset against accounts receivable).

 


Control Accounts


In accounting, the controlling account (also known as an adjustment or control account) is an account in the general ledger for which a corresponding subsidiary ledger has been created. For example, "accounts receivable" is the controlling account for the accounts receivable subsidiary ledger.

 

In Erp2all, the following accounts are made control accounts. However, a user can change the controlling accounts as per their need. Direct journal entry normally is prohibited to Debtors or Creditors control accounts the other types of accounts are as follows

  • Debtors Control Account/ Accounts receivables
  • Suppliers Control: Accounts / Accounts Payables
  • Cash/Bank Accounts.
  • Purchase or Sales Tax.
  • Purchase or sales discount.
  • Retained earnings.
  • Default Sales.
  • Default Purchase.
  • Accrual.
  • Prepaid.
  • Bad debt.
  • Mis-posting.

  1. Chart of Accounts
  2. Master Data
  3. Transactions
  4. A&F Reports
  5. Config
  6. Configuring & using TDS
  7. Configuring & using VDS