Understanding Business Accounting For Dummies, 2nd Edition (16 page)

The term
general ledger
refers to the complete set of accounts established and maintained by a business. The
chart of accounts
is a term used to describe a formal index of these accounts - the complete listing and classification of the accounts used by the business to record its transactions.
General ledger
usually refers to the actual accounts and often to the balances in these accounts at some particular time.

The chart of accounts, even for a relatively small business, normally contains 100 or more accounts. Larger business organisations need thousands of accounts. The larger the number, the more likely that the accounts are given number codes according to some scheme - all assets may be in the 100-300 range, all liabilities in the 400-500 range, and so on.

As a business manager, you should make sure that the person in charge of accounting (or perhaps an outside chartered accountant) reviews the chart of accounts periodically to determine whether the accounts are up-to-date and adequate for the business's needs. Over time, income tax rules change, the company may go into new lines of business, the company could decide to offer additional employee benefits and so on. Most businesses are in constant flux, and the chart of accounts has to keep up with these changes.

Standardise source document forms and procedures

Businesses move on paperwork. Whether placing an order to buy products, selling a product to a customer, or determining the earnings of an employee for the month - virtually every business transaction needs paperwork, known as
source documents.
Source documents serve as evidence of the terms and conditions agreed upon by the business and the other person or organisation that it's dealing with. Both parties receive some kind of source document. For example, for a sale at a cash register, the customer gets a sales receipt, and the business keeps a running record of all transactions in the register.

Clearly, an accounting system needs to standardise the forms and procedures for processing and recording all normal, repetitive transactions and should control the generation and handling of these source documents.

From the bookkeeping point of view, these business forms and documents are very important because they provide the input information needed for recording transactions in the business's accounts. Sloppy paperwork leads to sloppy accounting records, and sloppy accounting records just won't do when the time comes to prepare tax returns and financial statements.

Check out a business office-supply store to see the kinds of forms that you can buy right off the shelf. You can find many - maybe all - of the basic forms and documents that you need for recording business transactions, although most firms have to design at least some of their own forms. Also, personal computer accounting software packages (see Appendix B for more detail) provide templates for common business forms.

Don't be penny-wise and pound-foolish: The need for competent, trained personnel

What good is meticulously collecting source documents if the information on those documents isn't entered into your system correctly? You shouldn't try to save a few pounds by hiring the lowest-paid people you can find. Bookkeepers and accountants, like all other employees in a business, should have the skills and knowledge needed to perform their functions. No-brainer, right? Well, determining what that level is
can
be difficult. Here are some guidelines for choosing the right people to enter and manipulate your business's data and for making sure that those people
remain
the right people:

University degree:
Many accountants in business organisations have a degree in accounting. However, as you move down the accounting department you find that more and more employees do not have a degree and perhaps even haven't taken any courses in accounting.

ACA, ACCA, or CIMA:
The main professional accounting credentials are: ACA sponsored by the Association of Chartered Accountants; ACCA sponsored by the Association of Chartered Certified Accountants; and CIMA sponsored by the Chartered Institute of Management Accountants. All of these qualifications are evidence that the person has passed tough exams and has a good understanding of business accounting and income tax. The Association of Chartered Certified Accountants (
www.accaglobal.com
, click on ‘Public Interest' and then on ‘Find an Accountant') and the Institute of Chartered Accountants (
www.icaewfirms.co.uk
) have online directories of qualified accountants. You can search these directories by name (useful if you have a personal recommendation from a colleague you respect), location (handy if you just want someone nearby), the business sector you're in (helpful for tapping into specialist skills), or any specific accountancy skills or knowledge you're looking for.

Accounting technicians:
These people assist chartered accountants in their work, or can join a chartered institute themselves after further study. The Association of Accounting Technicians' Web site (
www.aat.org.uk
, then click on ‘Employers' and ‘Recruitment') provides guidance on pay structures and tips on how to find an accountant.

Bookkeepers:
These are the lowest-cost players in this game. They perform the basic entry work covering anything from simply recording the transactions in your books through to producing accounts, preparing the VAT return, or doing the Payroll. The International Association of Book-keepers (
www.iab.org.uk
) and the Institute of Certified Bookkeepers (
www.book-keepers.org
) offer free matching services to help small businesses find a bookkeeper to suit their particular needs.