Accounting Principles: GAAP, Accrual, Matching

• Accounting clerks are crucial to a business's financial operations.
• They maintain financial records, keeping them accurate and up-to-date.
• A solid understanding of accounting principles and practices is key to succeeding in this role.

Core Accounting Principles

• Accounting clerks should know Generally Accepted Accounting Principles (GAAP).
• GAAP consists of accounting rules, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
• GAAP assures financial statements are consistent, reliable, and comparable.
• The accrual basis of accounting recognizes revenue when earned and expenses when incurred, regardless of when cash changes hands.
• The matching principle means expenses should be recognized in the same period as the revenues they helped generate.
• The going concern assumption presumes the business will continue operating in the foreseeable future.
• The economic entity assumption says business transactions are separate from the owners' personal transactions.
• The monetary unit assumption dictates only transactions that can be expressed in monetary terms are recorded.

Financial Statements

• Accounting clerks should understand the main financial statements: balance sheet, income statement, and statement of cash flows.
• The balance sheet shows a company's assets, liabilities, and equity at a specific time.
• The basic accounting equation is Assets = Liabilities + Equity.
• Assets include cash, accounts receivable, inventory, and equipment.
• Liabilities are obligations like accounts payable, salaries payable, and loans.
• Equity represents the owners' stake in the company.
• The income statement reports a company's financial performance over a period, showing revenues, expenses, and net income (or net loss).
• Revenue is income from the company's main business activities.
• Expenses are costs to generate revenue.
• Net income is Revenue - Expenses.
• The statement of cash flows tracks cash movement into and out of a company over time.
• It categorizes cash flows into operating, investing, and financing activities.
• Operating activities relate to daily business operations.
• Investing activities involve buying and selling long-term assets.
• Financing activities concern how the company is funded (e.g., debt, equity).

Journal Entries

• Accounting clerks often prepare journal entries to record financial transactions.
• A journal entry records a business transaction in the general journal.
• Each entry includes a date, accounts to debit and credit, and a description.
• Debits increase asset and expense accounts, and decrease liability, equity, and revenue accounts.
• Credits increase liability, equity, and revenue accounts, and decrease asset and expense accounts.
• Total debits in an entry must equal total credits to balance the accounting equation.
• Common entries record sales, purchases, payments, and receipts.

General Ledger

• The general ledger is a central repository for all of a company's financial transactions.
• It contains individual accounts for assets, liabilities, equity, revenue, and expenses.
• The general ledger is updated with information from journal entries.
• It is used to prepare financial statements and reports.

Accounts Receivable

• Accounts receivable is the money owed to a company by customers for delivered goods or services.
• Accounting clerks may invoice customers, record payments, and follow up on overdue accounts.
• Maintaining accurate accounts receivable records is critical for managing cash flow.
• An aging schedule categorizes accounts receivable by how long they have been outstanding.

Accounts Payable

• Accounts payable is the money a company owes to suppliers for received goods or services.
• Accounting clerks may process invoices, record payments, and reconcile vendor statements.
• Managing accounts payable effectively is essential for maintaining good supplier relationships.

Bank Reconciliations

• A bank reconciliation compares a company's cash balance per its books to the bank's reported balance.
• Discrepancies occur due to outstanding checks, deposits in transit, bank charges, or errors.
• Accounting clerks often perform bank reconciliations to ensure accurate cash balances.

Fixed Assets

• Fixed assets are long-term assets like property, plant, and equipment (PP&E) used in operations.
• Accounting clerks may track fixed assets, record depreciation, and account for disposals.
• Depreciation systematically allocates the cost of a fixed asset over its useful life.
• Common depreciation methods include straight-line, declining balance, and units of production.

Inventory

• Inventory is goods held for sale to customers.
• Accounting clerks may track inventory levels, record purchases and sales, and perform physical counts.
• Common inventory costing methods include FIFO (first-in, first-out), LIFO (last-in, first-out), and weighted-average.

Payroll

• Payroll involves calculating and distributing employee wages and salaries, plus associated taxes and deductions.
• Accounting clerks may assist with payroll processing, calculating gross pay, withholding taxes (e.g., federal, state, Social Security, Medicare), and deducting benefits.
• They must stay informed about payroll tax laws and regulations.

Internal Controls

• Internal controls are policies and procedures to protect a company's assets and ensure the accuracy of its financial records.
• Accounting clerks help maintain and enforce internal controls.
• Internal controls include segregation of duties, authorization limits, and regular reconciliations.

Software and Technology

• Accounting clerks need proficiency in accounting software and other technology.
• Common accounting software includes QuickBooks, Sage, and Xero.
• Spreadsheet software like Microsoft Excel is also used for data analysis and reporting.

Ethics

• Maintaining ethical conduct is crucial for accounting clerks.
• They must adhere to a strict code of ethics and professional standards.
• Essential qualities include confidentiality, integrity, and objectivity.