Contra Accounts, Normal Balances, and Rules of Accounting - 3 Workhorses of Bookkeeping

While the general public and business people are familiar with the general accounts that appear in the financial statements, many owners, executives, and other non-accounting personnel often ignore the lesser known accounts that are called Contra Accounts.

Contra Accounts are accounts that are matched or paired to a related account and subtracted from it. These bookkeeping accounts are included in the company's chart of accounts. Often they might just be called ledger accounts or gl accounts.

If we see in a balance sheet:

Equipment ....................................$120,000

Less:Accumulated depreciation........... 20,000..... 100,000

Accumulated depreciation is the 'contra account,' and 'Equipment,' the related account.

The following are the contra accounts that frequently appear in the balance sheet:

Accumulated depreciation............................ contra-asset

Accumulated depletion................................ contra-asset

Drawing.................................................... contra-capital

Allowance for doubtful accounts................... contra-asset

Discount on bonds payable...........................contra-liability

The following are the contra accounts that frequently appear in the income statement:

Sales returns and allowances...................... contra-revenue

Sales discounts.......................................... contra-revenue

Purchase returns and allowances................. contra-cost

Purchase discounts..................................... contra-cost

All accounts have what is known as a 'Normal Balance.' The normal balance of an account corresponds to the side in which the account is increased. To fully understand this concept, let's have a refresher of the rules of accounting:

Rule of Accounting 1, for assets: increases in assets are recorded by debits to the asset accounts. Decreases in assets are recorded by credits to the assets accounts.

Rule of Accounting 2, for liabilities: increases in liabilities are recorded by credits to the liability accounts. Decreases in liabilities are recorded by debits to the liability accounts.

Rule of Accounting 3, for owner's equity: increases in owner's equity are recorded by credits to the owner's equity accounts. Decreases in owner's equity are recorded by debits to the owner's equity accounts.

According to the above rules, assets are increased by debits; liabilities and owner's equity by credits. It follows then that the normal balance of all assets is debit, and for liabilities and owner's equity accounts the normal balance is credit.

Now, in the case of the contra accounts, they will have a normal balance that is the opposite of their related account. If we focus on the above example where we show Equipment $120,000. We can now say that the normal balance of Accumulated depreciation is credit (the opposite of the related account Equipment).

We are now prepared to give a full definition: A contra account is an account that is matched or paired to a related account and subtracted from it. Therefore, its normal balance is the opposite of the related account.

M. Guerrero
Retired Investment Banker, Corporate Controller, graduate of Columbia University, and Vietnam Vet (1967-1968).

By the way, my personal site contains many articles on accounting, writing, and other interesting subjects.
http://writingtolive.com

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Bookkeeping

So what goes on the accounting and bookkeeping departments? What do these people do on a daily basis?

Well, one thing they do that's terribly important to everyone working there is Payroll. All the salaries and taxes earned and paid by every employee every pay period have to be recorded. The payroll department has to ensure that the appropriate federal, state and local taxes are being deducted. The pay stub attached to your paycheck records these taxes. They usually include income tax, social security taxes pous employment taxes that have to be paid to federal and state government. Other deductions include personal ones, such as for retirement, vacation, sick pay or medical benefits. It's a critical function. Some companies have their own payroll departments; others outsource it to specialists.

The accounting department receives and records any payments or cash received from customers or clients of the business or service. The accounting department has to make sure that the money is sourced accurately and deposited in the appropriate accounts. They also manage where the money goes; how much of it is kept on-hand for areas such as payroll, or how much of it goes out to pay what the company owes its banks, vendors and other obligations. Some should also be invested.

The other side of the receivables business is the payables area, or cash disbursements. A company writes a lot of checks during the course of year to pay for purchases, supplies, salaries, taxes, loans and services. The accounting department prepares all these checks and records to whom they were disbursed, how much and for what. Accounting departments also keep track of purchase orders placed for inventory, such as products that will be sold to customers or clients. They also keep track of assets such as a business's property and equipment. This can include the office building, furniture, computers, even the smallest items such as pencils and pens.

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Bookkeeping Basics

Most people probably think of bookkeeping and accounting as the same thing, but bookkeeping is really one function of accounting, while accounting encompasses many functions involved in managing the financial affairs of a business. Accountants prepare reports based, in part, on the work of bookkeepers.

Bookkeepers perform all manner of record-keeping tasks. Some of them include the following:

-They prepare what are referred to as source documents for all the operations of a business - the buying, selling, transferring, paying and collecting. The documents include papers such as purchase orders, invoices, credit card slips, time cards, time sheets and expense reports. Bookkeepers also determine and enter in the source documents what are called the financial effects of the transactions and other business events. Those include paying the employees, making sales, borrowing money or buying products or raw materials for production.

-Bookkeepers also make entries of the financial effects into journals and accounts. These are two different things. A journal is the record of transactions in chronological order. An accounts is a separate record, or page for each asset and each liability. One transaction can affect several accounts.

-Bookkeepers prepare reports at the end of specific period of time, such as daily, weekly, monthly, quarterly or annually. To do this, all the accounts need to be up to date. Inventory records must be updated and the reports checked and double-checked to ensure that they're as error-free as possible.

-The bookkeepers also compile complete listings of all accounts. This is called the adjusted trial balance. While a small business may have a hundred or so accounts, very large businesses can have more than 10,000 accounts.

-The final step is for the bookkeeper to close the books, which means bringing all the bookkeeping for a fiscal year to a close and summarized.

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Control Your Accounting and Bookkeeping Costs

WHY HIRE AN fable ASSISTANT?



When you first started your business, you probably did your possess accounting; and that worked out glowing. You were short on spendable capital and doing most of the vital chores yourself was the only procedure to pick up started. But eventually, you got to a point where you really needed to concentrate on the income-producing aspects of your business and hire others to tend to the details.



Recognizing when this point occurs is the first major challenge for the entrepreneur. Many will pass it lawful by, believing the only arrangement to maintain track of their company is by doing all the accounting for it themselves. This is an easy trap to which almost everyone is susceptible. Don't feel poor if it happened to you, unbiased rectify it!



mediate about what your time is worth. For example, as a lawyer, you could sigh in excess of $300 per hour. Does it really execute sense for you to do your contain accounting, when it could be done objective as well, maybe even better, by someone you could pay $25 per hour? Of course not! You can smooth sustain a halt peer on your business accounting without doing it yourself. It honest takes discipline and a profitable notion of what reports you need to spy and how often. Then set the detail work to someone else!



ACCOUNTING ASSISTANT'S DUTIES



So once you've near to this decision, you need to choose between hiring an employee to hold the books or outsourcing the job to an accounting or bookkeeping firm. Let's peruse first at what you inquire the accounting assistant to do. This may include some or all of the following:



1. preserve up-to-date and apt portray of all the company's financial transactions into physical journals and ledgers or a computer-based system.



2. Periodically, usually monthly, they balance the books and form financial statements and other management reports.



3. Receive narrate, deposit cash and pay the company's bills. They balance bank statements regularly, investigating and correcting any discrepancies.



4. Calculate payroll and divulge payroll checks. They may oversee this function with an outsource payroll company.



5. hold inventory records and calculate product costs.



6. grasp supplies



7. Prepare recall orders



You may also want someone who will accomplish schedules, file bills, sort documents, maintain in at the switchboard and other duties that would require someone in-house. You need to purchase this into consideration.



HIRE AN EMPLOYEE



The kind of job described above can be called different things in different companies. Some typical titles are bookkeeper, accounts payable or receivable clerk or billing clerk. To absorb consistency, we'll call it an accounting assistant.



To hire a competent accounting assistant for your firm you can demand to pay between $15 and $25 per hour, depending on experience. Add to this the additional costs of employees - paid vacations, sick leave, insurance, bonuses, retirement, profit sharing plans, etc. You'll probably win someone who wants to work 40 hours per week more easily than a part-timer, but that's not impossible. At any rate, you'll be locked in to paying for a positive minimum amount of hours no matter how mighty work there actually is.



The advantages, though, are also quite convincing. An employee will be more exact to your company. He will also be more likely to lift a permanent interest and perhaps compose a career with you. He will learn more about your business and therefore be better able to build sterling recommendations for your company.



OUTSOURCE



On the other hand, you can outsource your daily accounting duties. There are several cost savings advantages to taking this route.



You won't be paying for employer payroll tax expense, employee benefits and liability insurance. These costs will, of course, be built into the consultant's fee, so it's a wash at best. But you collected effect money, because you have no recruiting and interviewing costs and no training costs. And should you be unsatisfied with the service, there will be no additional recruiting, interviewing and training costs to replace your accounting assistant.



You will not have to grief about employee lawsuits. You can release an outsourced accounting assistant without raising your unemployment rates.



Most professional accounting assistants will have their contain office residence and will not need their hold office or cubicle at your office, saving you the location and cost of desk, computer, software, office supplies, etc. If you require the convenience of having your computerized accounting records onsite for your review, a miniature cost can connect your system to theirs.



And one of the best parts is that you completely control the amount of money you expend on your bookkeeping. The amount you are charged by the outsourcing firm will be for the amount of time they worked on your accounting records. It will not include answering the phone, dealing with drop-ins, chatting with other employees, etc. You can adjust the amount of hours they work for you month by month. Some months you may wish to give them additional work, some months let them work bare bones hours. You can't do this with an employee. You're tied in.



SUMMARY



Always remember, "You acquire what you pay for". Whether you settle to hire or outsource, the accounting records are the core of your business. Without fine bookkeeping, your business will have a hard time succeeding.

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Importance of Bookkeeping and Accounting Services

Bookkeeping and accounting is an critical task for puny to enormous size financial business. Now a day's most of businesses are being web based and online and that's why the need of online accounting and book keeping increased hastily. If you want online book keeping and accounting services provider for your business then you can gather lots of services provider with various offers and competitive rates. These services include bookkeeping and accounting, financial, taxation, ratio analysis and payroll services.



Bookkeeping services are related to financial data of your business and it also includes accounting work and narrate keeping function. For each and every organization perfect bookkeeping department is required and it should be best in managing the data. One should have enough knowledge to do wonderful accounting work and that's why most of companies are selecting outsourcing option for these types of services. Outsourcing firms are expert in this type of work with their experienced staff. They have the ability to content cost-effective services faster and better.



If you are choosing online services provider then you can rep,



o genuine data
o High quality work
o Well planned records
o Cost efficiency
o Complete accuracy
o You can effect your famous time and money
o Highly genuine accountants
o You can believe grand order and file system for all records
o You can focus to grow your business



So, if you want to build time for main processes of your business then outsource your accounting and bookkeeping services is the best option. After outsourcing these services, you can also focus on other well-known processes of your business without any tension. So, now you unprejudiced have to decide the best service provider who can relieve you the just services.

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Outsourcing Accounting and Bookkeeping - Key Advantages

Effective bookkeeping is the backbone of a company's success, and miscalculations can really tax your business. It is notable that your bookkeeping is efficient and chronological, to avoid costly mistakes and inefficiencies. To avoid hiring a professional bookkeeper can be uncertain. To try and do this, in addition to other administrative or sales tasks, is fraught with anxiety - data entry errors, oversights, and the deplorable stroke of a key can be costly. bear certain and well defined accounts, so that all records are up-to-date, just and available when you ask for it.



When you outsource bookkeeping, you can concentrate on your marketing and sales strategies and focus on your core business requirements without hiring additional staff. With coarse staff in the office, business owners can carve costs and eliminate the need to provide additional employee benefits such as bonus, insurance, general liability insurance and many more which would have to be provided to the accounting and bookkeeping staff, if hired otherwise. With outsourcing bookkeeping, you can deftly allocate the profits and other finances to ensure business expansions while all accounting is with a professional online outsourcing provider.



This can only be done when you know that your accounts and bookkeeping are in ample and professional hands. Another advantage is that with an outsourcing accountant you can rest assured that a team of experienced bookkeepers and accountants are working to ensure that your financial data is up to date and complete whenever required. Your books will be reconciled on a monthly basis with the bank statements, ensuring efficiency and productivity.



dinky business owners can also achieve on the cost of computer maintenance, stationary and training costs as these are piece of the benefits offered at nominal rates by online bookkeeping outsourcing. Apart from regular and staunch bookkeeping records, you can be assured that all accounts will be delivered as and when required. Outsourcing providers have a customer great customer aid staff to ensure that all requests are met on time.
Should there be any errors or discrepancies, you can be confident that one of our bookkeepers will bring them to your attention for correction as required. What if your computer crashes? Our outsourcing bookkeepers beget a backup, so in the event of technical problems at the business owner's destroy and a paper stride can fast be traced, keeping your business functioning on track. Outsourcing bookkeeping is the perfect solution. rapid access to all accounts, legal bookkeeping at obscene costs ensures that you speed your business without hassles.



Costs of outsourcing bookkeepers are noteworthy lower, with the advantage and confidence of the same level of experience and qualifications as you are familiar with. This, of course, all leads to... more profits!

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Advantages of Online Bookkeeping Accounting Services

Bookkeeping is a vital work for all shrimp as well as broad business and require extra concern and care. Bookkeeping is one of the most indispensable features of any company. For a perfect maintenance of business accounts in an organization, bookkeeping and the legend books maintenance is of highest importance. For the reason that the market circumstance is for all time variable and you do not know which procedure it will turn. It is responsible for organization and tracking financial operations and assists to choose financial conclusions. Bookkeeping is inclined to name a task that is to halt records of transactions that go through every day.



Now a days bookkeeping and financial accounting is primary to all runt size and also immense size organization. However, bookkeeping must be complete carefully. In fact, online bookkeeping is the reference through which one can know regarding the put a question to for the company. In general, an online bookkeeping service task includes recording business assets, liabilities, income and expenses in the day-books, journals, and ledgers chronologically. No matter your business is miniature or spacious, you necessitate professional and expert bookkeeping service to manage records.



Online Bookkeeping Accounting Services:



o Accounting Reconciliation
o Budgeting
o Cash slide Management
o Credit Card and Bank Reconciliation
o General Ledger Maintenance
o Inventory Reconciliation
o Payroll Processing
o Payroll Administration
o Taxation Services
o VAT Services



Outsourcing bookkeeping service providers are an experienced and able to handle all type of bookkeeping and financial accounting software available in market. Therefore, it is a wise understanding to outsource the bookkeeping. By online bookkeeping outsourcing, you will devour profits like reduced cost of labor, more flexibility, and improved quality of work.



Taking the wait on of bookkeeping outsourcing is possibly one of the smartest moves by any business owner. It is always a marvelous thing to come by the befriend of this service, because it provides the most qualified solutions and assists to increase business in the legal method.

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