Accounting for your small business (Basic introduction)

Most start the business with great ambition to grow. However, in the initial period of the firm, most cannot afford qualified people to all posts. I think a most important post to have is a good accountant.  Many times owner  thinks that he is not bad in maths and he can manage his accounts all by himself without many hitches.
However, in reality, accounting is a lot different from our maths of algebra, trigonometry or calculus. To prove this 
I will give one example
“Mr A started his day with Rs 250/- and went to a dealer and bought four caps each worth Rs 50/- but pays only Rs 100/-  he owes Rs 100/ – to that dealer. 
He sells one cap at Rs 50/- and customer give Rs 100 to Mr A .  
Mr A gives a change of Rs 50/- to the customer. 
After this, Mr A closes his shop his shop and goes to the dealer and pays him that hundred rupee note, which the customer had paid him. Now dealer finds out that 100/- rupees note is fake one so he tears it and collects another note of Rs 100/- from Mr A.
The question is how much Mr A has lost.
If you want to solve this with our routine understanding of math’s the calculation will be no less then deriving E=MC2
In Accounting there are
·       Opening and closing balance ,
·       There are accounts which can be real or abstract
o   Real accounts meaning Cash in hand, bank accounts, creditors, and debtors accounts.
o   Abstract or nominal accounts are sale account purchase account, profit and loss accounts
o   Personal accounts  
Accounting is dual effecting any transaction within the firm or out of firm always affects at least two accounts, sometimes more than two accounts.
·       Vouchers
o   Purchase voucher  
o   Sale voucher 
o   Receipt voucher (do not confuse this with sale voucher after giving sale invoice to your customer. Owner firm need to create receipt voucher for receiving cash or check )
o   Payment voucher is one created for paying for expenses of firm
o   Contra voucher is created for transaction between cash and bank accounts of firm only
o   Credit note is  created for returned goods once sold
o   Debit note to send back to dealer once purchased
·       Journal voucher:- which has to be created before creating a payment voucher.  Booking expenses , booking salary expense , before assets buying assets etc
However small firm you run, it is good practice never delete the created voucher because it spoils your accounting track, for example, you purchased goods and found some fault. Always create a debit note (purchase reversal) take the signature of dealer and do not delete purchase voucher, thus  you secure yourself from dealer wrongly claiming for returned goods.
Same also for sales voucher always create credit note for returned sales as it corrects your cash in hand and stack
·       Voucher reversals
o   Receipt voucher <> payment voucher
o   Sale voucher < >credit voucher (not purchase voucher)
o   Purchase voucher <> debit voucher
Last but not the list computerised accounting are for superior then manual.
Tally, QuickBooks

Free or open source programs:- like Microsoft accounting package 2009 express edition, Gnu Cash 

check this link

Down load them as per your budget

Author: Dr Umesh Bilagi

MBBS, MD, DM (cardiology). I am Interventional cardiologist. Blogging is my passion. Associate professor of cardiology KIMS Hubli. Director and consultant at Tatwadarsha Hospital Hubli. Owner of Jeevan Jyoti Hospital Hubli. Mobile +91 9343403620.

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