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Bookkepping as part of accounting
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In general, accounting and bookkeeping mean identifying, measuring, recording economic information about any business, bookkeeping being considered the preliminary stage and a part of the larger field of an accounting.
Bookkeeping provides the basic accounting data by systematical recording such day-to day financial information as income from the sale of products or services, expenses of business operations, such as the cost of the goods sold and overhead expenses such as a rent, wages, salaries.
Accounting principles determine which financial events and transactions should be recorded in the bookkeeper’s books. The analysis and interpretation of these records is the primary function of accounting. The various financial statements produced by accountants then provide managers with the basis for future financial planning and control, and provide other interested parties (investors, the government) with useful information about the company.
MODERN ACCOUNTING SYSTEM
Modern accounting system is considered to be a seven-step cycle. The first three steps fall under the bookkeeping function, such as:1) the systematic recording of financial transactions; 2) the transferring of the amounts from various journals to general ledger; 3) the drawing up of the trial balance.
Record keeping of companies is based on a double-entry system which doesn’t mean that the same transaction is entered twice, it means that the same amount of money is always debited to one account and credited to another account, each record having its own effect on the whole financial structure of the company.
In the second step in the accounting cycle, the amounts from the various journals are usually monthly transferred to the company’s general ledger – a procedure called posting. Posting data to the ledgers is followed by listing the balances of all the accounts and calculating whether the sum of all the debit balances agrees with the sum of all the credit balances. This procedure known as the drawing up a trial balance and those that follow it usually take place at the end of the fiscal year. By making a trial balance, the record-keeping accuracy can be checked. The trial balance having been successfully prepared, the bookkeeping portion of the accounting cycle is completed.
THE LANGUAGE OF ECONOMICS
In reading about economics and economic problems, you will come across a number of new words and phrases. This is not surprising, since almost every activity has its own vocabulary, which, once you learn it, adds to your enjoyment of the activity. To help you understand the special vocabulary of economics, we shall present a list of each of these new terms at the end of each part.
Goods and services
As an introduction to the language of economics, you will want to meet goods and services. Goods and services are the things that satisfy human wants. They make up “everything” that no one is able to have. Goods are thing that may be seen or felt. Services on the other hand, may not be seen or felt. Both goods and services have value because they satisfy human wants.
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A ball-point pen, a pair of scissors, and a bus are all things of value that can be seen and touched. They are goods.
The care of the doctor when you are sick, a haircut, and the ride on a bus are all things of value. But they cannot be seen or touched. They are services. True, the doctor may use his pen to write a prescription, the barber will use scissors to give you a haircut, and the bus will provide the ride. But the thing you are buying in each of these cases is the service, not the good.
Resources
We cannot have all the goods and services we want because there are not enough resources to go around to produce them. Resources are the things that go into the making of goods and services. They are natural resources, human resources and capital resources. Natural resources are the things provided by nature that go into making of goods and services. Steel rubber and gasoline are all made from resources provided by nature. Without them, there could be no automobiles. Economists must concern themselves with natural resources because no nation has unlimited supply of any of them. Even fresh air, which people used to think of as the one unlimited natural resource, is not always available in some of our nation’s cities.
Human resources are people who put everything together to make the goods and services upon which civilization depends. How much a nation can produce depends to a large extent upon the quality of its human resources/ A healthy, literate (able to read and write) society is likely to produce more, and therefore live better, that one that is sickly and lacking in education.
Capital resources are the machines, tools, and buildings used in the production of goods and services. As societies have advanced, their reliance upon machines, tools and buildings – which economists have named capital – has increased. Indeed, economists frequently describe the wealth of the country in terms of the capital it possesses.
Households
In economics, a household is a group of people who pool their incomes, own property in common, and make economic decisions jointly. People who do not belong to such a group are counted as one-person households.
Households play two major roles in the economy: they supply inputs that are used to produce goods and services, and consume the goods and services that are produced.
The inputs supplied by households are known as factors of production. There are three of these. Labour consists of the productive contributions made by people working with their minds and their muscles. Capital consists of all the productive inputs created by people, including tools, machinery, structures, and intangible items such as computer programs. Natural resources include everything that can be used as a productive input in its natural state, such as farmland, building sites, forests, and mineral deposits. In return for the labour, capital and natural resources they sell to producers, households receive incomes, which they spend on goods and services. Firms buy factors of production from households and use them to produce goods and services. Firms come in many shapes and sizes: from small stores and family farms to huge corporations.
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Markets
Units of government have a major impact on the economic life of firms and households. Their decisions, in turn, are affected by events in the economy. Economists are interested not only in the actions of households, firms and units of government, but also in how those actions are coordinated. In an economy like that of the United States, markets play a key role in coordination.
A market is any arrangement people have for trading with one another. Some markets, like the New York Stock Exchange, are highly visible and organized. Others, like the word-of –mouth networks that put teenage baby-sitters in touch with people who need their services, do their work informally, out of sight. Whether visible or not, markets play a key role in the job of putting scarce resources to their best uses in meeting people’s wants and needs.
In order to put resources to their best possible uses, the people who make decisions must know which resources are scarcest and which uses for them are best. Markets transmit information about scarcity and resource values in the form of prices. If a good becomes scarcer, its price is bid up. The rising price signals buyers to cut back on the amount of that good they buy, and it signals producers to find new sources of supply or substitute less costly resources. If a good becomes more abundant, its price tends to fall. The falling price signals users to favour that good over more costly ones.
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