What is bookkeeping

Bookkeeping

Bookkeeping is the task of recording all business transactions—amounts, dates, and sources of all business revenue, gain, expense, and loss transactions. Bookkeeping is the starting point of the accounting process. Having accurate financial records helps managers and business owners answer important questions. Is the business making money, or losing it? How much? Is the business on sound financial ground, or are troubling trends in cash flow pointing to an instability of some kind? A sound bookkeeping system is the foundation for gathering the information necessary to answer these questions.

Bookkeeping involves keeping track of a business's financial transactions and making entries to specific accounts using the debit and credit system. Each entry represents a different business transaction. Every accounting system has a chart of accounts that lists actual accounts as well as account categories. There is usually at least one account for every item on a company's balance sheet and income statement. In theory, there is no limit to the number of accounts that can be created, although the total number of accounts is usually determined by management's need for information.

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The process of bookkeeping involves four basic steps: 1) analyzing financial transactions and assigning them to specific accounts; 2) writing original journal entries that credit and debit the appropriate accounts; 3) posting entries to ledger accounts; and 4) adjusting entries at the end of each accounting period. Bookkeeping is based on two basic principles. One is that every debit must have an equal credit. The second, that all accounts must balance, follows from the first.

A chronological record of all transactions is kept in a journal used to track all bookkeeping entries. Journal entries are typically made into a computer from paper documents that contain information about the transaction to be recorded. Journal entries can be made from invoices, purchase orders, sales receipts, and similar documents, which are usually kept on file for a specified length of time. For example, the journal entry for a transaction involving a cash payment for a new stapler might debit the cash account by the amount paid and credit the office supplies account for the value of the stapler.

Journal entries assign each transaction to a specific account and record changes in those accounts using debits and credits. Information contained in the journal entries is then posted to ledger accounts. A ledger is a collection of related accounts and may be called an Accounts Payable Ledger, Accounts Receivable Ledger, or a General Ledger, for example. Posting is the process by which account balances in the appropriate ledger are changed. While account balances may be recorded and computed periodically, the only time account balances are changed in the ledger is when a journal entry indicates such a change is necessary. Information that appears chronologically in the journal becomes reclassified and summarized in the ledger on an account-by-account basis.

Bookkeepers may take trial balances occasionally to ensure that the journal entries have been posted accurately to every account. A trial balance simply means that totals are taken of all of the debit balances and credit balances in the ledger accounts. The debit and credit balances should match; if they do not, then one or more errors have been made and must be found.

Reconciling bank statements on a monthly basis, of crucial importance in the management of cash flow, is another important task for the bookkeeper. Other aspects of bookkeeping include making adjusting entries that modify account balances so that they more accurately reflect the actual situation at the end of an accounting period. Adjusting entries usually involves unrecorded costs and revenues associated with continuous transactions, or costs and revenues that must be apportioned among two or more accounting periods.

Another bookkeeping procedure involves closing accounts. Most companies have temporary revenue and expense accounts that are used to provide information for the company's income statement. These accounts are periodically closed to owners' equity to determine the profit or loss associated with all revenue and expense transactions. An account called Income Summary (or Profit and Loss) is created to show the net income or loss for a particular accounting period. Closing entries means reducing the balance of the temporary accounts to zero, while debiting or crediting the income summary account.

Good bookkeeping is an essential part of good business management. Bookkeeping enables the small business owner to support expenditures made for the business in order to claim all available tax credits and deductions. It also provides detailed, accurate, and timely records that can prove invaluable to management decision-making, or in the event of an audit.

This News is reprinted from site http://www.encyclopedia.com/topic/bookkeeping.aspx

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Supermarkets' brave new world

Derided as a haven for duopolies, Australia is in fact the scene of a price war in the crucial $88 billion food and grocery industry.

"There is now a more competitive environment for supermarkets than I've seen since my years in the regulatory environment,"  says Graeme Samuel, who chaired the Australian Competition and Consumer Commission for eight years to 2011.

The nation's No. 1 retailer Woolworths has been cutting prices for years as it seeks to ward off the resurgent supermarket chain Coles. Both giants reported price deflation at their most recent half-year resultsin February.

People really took notice though when Woolworths recently slashed its full-year profit growth guidance to as low as 1.8 per cent.

It did so in favour of investing at least half a billion dollars on improving its supermarkets. The move came with a declaration it "won't be beaten on price".  

Even after years of price crunching this is a seismic moment.

Investment bank UBS analysts responded that the Australian food and liquor market was "entering a period of structural change".

Some note there is room to move – Woolworths is among the highest-margin publicly listed supermarkets worldwide.

Deutsche Bank predicts the "relatively favourable dynamics" in food and liquor – from a supermarket's point of view – might be coming to an end.

Coles and German discounter Aldi will likely retaliate as Woolworths cut its prices, it says in a note to clients.

That could lead to a period of sharp deflation, low sales growth and declining profitability for the industry.

Samuel says the bullets have already been flying for some time in a price war over certain products.

"In the areas of bread, milk, some of the staple products, the price war started with the Coles [advertising] campaign of 'Down Down'," he said.

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Coles' decision to slash unbranded milk prices to $1 a litre in early 2011 led to Woolworths, Aldi and the discount supermarket Franklins – now owned by Metcash – heavily discounting their home-brand milk and other dairy products.

Samuel himself was involved in the Australian Competition and Consumer Commission's 2008 inquiry into grocery prices, which found the market was "workably competitive" but not as competitive as it could be.

The report said this was due to struggles at Coles, constraints on the expansion of the then new player Aldi, and a lack of price competition from IGA supermarkets, which are supplied by the wholesaler Metcash.

Six years later, Samuel says competition is healthier.

For a start Coles has got its mojo back, so much so that Woolworths has been lashed for increasing margins over the past few years and pouring money into its struggling hardware chain Masters rather than squeezing Coles when it was vulnerable.

Metcash says it is "making a significant investment to match competitors' prices on thousands of everyday products".

Samuel said to his knowledge IGA stores were still not price competitive but do offer competition in the form of convenience.

At last count, Aldi has 366 stores and says it could reach 15 per cent market share nationwide as it opens in Western Australia and South Australia and adds 20 stores a year in eastern Australia.

And then there is the new entrant in the market – membership-only warehouse company Costco. Its US parent has invested almost half a billion dollars into the local operations, and racking up accumulated losses of more than $44.5 million since the first store opened in 2009.

On Citigroup's analysis, Coles and Woolworths have lost market share recently, with Aldi and Costco's market-share gains "accelerating". Macquarie said Aldi "remains a headwind to Coles and Woolworths, gradually taking share".

Costco Wholesale Australia's last accounts show total revenue surged in 2014 to $878.5 million, but it swung to a loss because of the costs of opening three new warehouses and accounting changes.

Costco Australia managing director Patrick Noone tells Fairfax Media that Australia has "been competitive ever since we opened but we haven't seen anything extraordinary yet on grocery prices".

"I'm sure that now that sales are down, retailers will be out there trying get more sales, and more sales often means that you get better prices to the consumer," he says.

Noone said Australians paid more for imported items due to overheads such as GST, foreign exchange, duties and logistics, but Costco was bringing products to the market as efficiently as possible and was "certainly within its worldwide criteria for margins".

Noone says some products were becoming more expensive even as others were falling in price.

"Petrol certainly is deflationary right now ... [and] if you look at the beef sector, that's been inflationary because of the worldwide demand for more beef and protein products," he says.

And Samuel says it is complex comparing Australian grocery prices with prices charged overseas.

"People look at a tin of coffee and say, 'Is this more expensive or cheaper than the US or wherever it might be?' " he says.

"And I think that's when you've got to start applying the Big Mac Index [which seeks to measure the relative value of currencies]."

It's politic in many ways for Woolworths and Coles to talk up competition in the grocery industry given the power the duopoly has wielded for so  long.

If Aldi, Costco or others gain critical mass there could be more price cutting, earnings and share-price falls for the incumbents. That is certainly the experience overseas.

It could be a brave new world for the big chains.

Read more: http://www.smh.com.au/business/retail/supermarkets-brave-new-world-20150306-13u48v.html#ixzz3TgTzjIph

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Australian Dollar Dips In Anticipation Of RBA Rate Call

The Australian dollar was trading in a holding pattern on Monday afternoon ahead of Tuesday’s interest rate decision by the Reserve Bank of Australia, with odds jumping in favour of a cut.

Better-than-expected Chinese manufacturing PMI data pushed the Australian dollar up to US78.3¢ at the start of trade, but that soon dropped. The dollar was trading around US77.65¢ in late afternoon trade.

“It’s down a bit today, it’s down about half a cent,” said Commonwealth Bank of Australia currency strategist Joseph Capurso.

“We initially got a bump up with the Chinese PMI data, but that was largely ignored and now people are positioning ahead of the Reserve Bank’s decision.”

If the cash rate was cut the dollar would fall about half a cent, he said. If they stayed the same, they would rise half a cent.

“We think they will cut,” he said. “But even if they don’t cut on Tuesday, we think they’ll cut again in the next few months.”

Mr Capurso said odds had recently lifted from 39 per cent to 56 per cent that the bank would cut rates.

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“I think part of it is commodity prices, which are still pretty soft,” said Mr Capurso. “The going-ons in Europe are still not resolved; China’s economy is still softening; and Australian economic data here is OK but still not good. The capital expenditure data we got last week was pretty hopeless and that’s what’s got people thinking they’ll have to cut again, if not on Tuesday then soon enough.”

OzForex Foreign Exchange dealer Michael Judge said the dollar could go above US79¢ on Tuesday should the Reserve Bank cut the cash rate, which is currently at 2.25 per cent.

“While we are favouring a hold result over a cut, we acknowledge a follow up cut may remain just around the corner,” he said.

“The Reserve Bank last month did not signal a quick follow up cut, while previously it has been keen to cut rates in quick succession,” he said. “It must be remembered that rates pre-February were already at record lows with the most recent adjustment coming off the back of a downgrade to its economic outlook.”

If rates were cut, he said, the Aussie would be within range of an eight-year low of US76.2¢.

Capital Economics economist Paul Dales said a rate cut was quite likely. Gross domestic product growth in Australia in 2015 would slow to just 1.8 per cent, he said.

“We believe this will prompt the Reserve Bank to reduce interest rates by more than is widely expected. By the end of the year, we expect that the Reserve Bank will have cut interest rates to 1.5 per cent.”

This news story is reprinted from www.smh.com.au

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