With an accounting system in place, a simple push of a button gets answers to many critical questions:
• Are sales increasing or decreasing?
• Are profits increasing or decreasing?
• Are receivables being collected on a timely basis?
• Is there enough cash to pay bills?
• What’s the bottom line at the end of the month?
The accounting system’s balance sheets, cash statements, income statements, and others give the owner and managers control over the day-to-day financial status of the company. It also serves to pinpoint items that need immediate attention.
The accounting system has five primary segments:
1. Company forms—source documentation for every transaction
2. General journal—record of every transaction
3. Account classification—list of all accounts (codes are used for detail)
4. General ledger—categorized transactions
5. Financial reports—profit and loss statements, balance sheets, and cash statements
These segments help the financial team:
• Track revenues and expenses
• Determine portion of sales still uncollected, as well as payment history
• Maintain all bank accounts
• Determine company debts, including period of repayment
• Provide reports for legal and tax purposes
• Track job profit/loss
• Record the cost of every item
• Show if the company is making or losing money
• Assess cash flow
1. Gather a copy of each form and place it in the new binders you are developing. Examples of forms include; sales reports, contracts, estimates, requests, payroll, inventory, check lists, change orders, job profit analysis, etc.
2. Print out your General Journal or Ledger and review with the company president and anyone else indicated by the president.
3. Print out and review Chart of Accounts.
4. Review Chart of Accounts vs Ledger
5. Print out P/Ls, Balance Sheet and Cash Statement, review and place in binder.