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2022-03-25 |
【4 mins Read】OneStart Weekly - Account Basics

Account Basics

Last time we talked about auditing, and today we will focus more on accounting. We usually put them in a pair because their relationship is inseparable. From last blog, you should have also realized that auditing is the examination of the financial reports produced by the process of accounting. So the simplest definition of accounting could be viewed as a management and computation of business records.

Receipts that mark your income and expenditures are the information source of accounting. A good accountant should be able to tell you the financial position of your company through the financial reports. You would be able to know if you are making a profit or not, what is your cash flow, and the current value of the company’s assets and liabilities.

Therefore, just as we have covered in the first blog in this series, bookkeeping is one of the key processes in accounting. What accounting does more, apart from keeping a good financial record, is that there would be analysis, strategy and tax planning involved. An accounting cycle could be put into 6 phases:

l   Bookkeeping 

The first step of accounting starts with the collection and filing of invoices, bank or credit statements, and receipts from your business transactions. Here in OneStart Business Centre, this is the one of the crucial steps that you would take part in, by providing and mailing us the big box of transaction records you have.

l   Ledger and journal entries 

A ledger is an account or record that you use to store the bookkeeping entries for computing balance-sheets and income statement transactions. Accountants would refer to the ledger for gathering any financial information they need. It is basically the raw documents of your financial record.

A journal entry would include information like: when the transaction happened, what it ws for, and how much it was. There are 2 types of accounting entry, single-entry accounting where only the expenses or revenue will be entered; and double-entry accounting where each transaction is recorded in 2 accounts: where the money is from and where it’s going.

l   Unadjusted trial balance 

An unadjusted trial balance is the listing of the general ledger account balances. It is prepared at the end of a reporting period. It serve as the first draft of balances to create the final financial statements, analyzing account balances and making adjusting entries. Simply, put it is the add up and calculations without adjustment.

l   End of period: adjusting entries 

Adjusting entries are new entries that an accountant would add to the ledger, such that to make changes to those journal entries that already have been recorded. It works like the amendment version of the ordinance, always having to list out the part where such amendment is made. Accountants use adjusting entries to make sure the numbers in the record match up to the correct accounting periods.

l   Adjusted trial balance

After entering adjusting entries, the end product would be your adjusted trial balance. It is called a trial balance because such balance has not yet been finalized. This adjusted trial balance would include all the company accounts that will appear on the financial statements.

l   Financial statements 

The final step would be constructing the financial statements. Accountants will summarize all the financial information into a financial statement in the form of a succinct report. Here, at the last step, is usually where clients would receive notice from the accountants, and be ready for the pick-up of the freshly produced financial statements.

 

As you can see, the accounting cycle is a rather complicated process, that requires much documentation of your year-long transaction records, and detailed careful calculation and computation. Therefore, it might require a period of time for accountants to finish the cycle of accounting. Finding a reliable and experienced accountant is, thus, important. Phone-in to our consultants, and see how OneStart Business Centre could help you!

There are mainly 3 types of accounting: Financial accounting, Managerial accounting and Tax accounting.

l   Financial accounting

refers to the preparation of the company’s annual financial statements. The statements would be mainly for people outside of the company to learn more about the profitability of you company.

l   Managerial accounting

refers to the preparation of statements for your company’s internal usage. Usually, the managerial accounting financial statements are prepared more frequently, for example on a quarterly or monthly basis.

l   Tax accounting

is prepared by the accountant for your tax returns. This type of accounting is regulated by the Inland Revenue Department, and is required to adhere to the Inland Revenue Ordinance.

 

OneStart Business Centre is one of the Certified Public Accountant (CPA). We could help you with any business in accounting and auditing, including your tax accounting. Upon request, we could also help you to due with the computation of tax and submission process of your tax returns. CLICK HERE to learn more or call our consultants to know more!

It was explicitly stated under the Companies Ordinance that all Hong Kong Limited Company’s directors must prepare for each financial statements and provide for inspection upon request. The statements would have to be audited by registered auditors in CPA firms, as an act to make sure the accuracy of the financial statements provided.

No matter your company is in business or not, you still have to compute your financial statements. This is required by the Department that such financial statements, should show that your company has not been in business activity and should be stating clearly that the company “has not started to / been conduct(ing) business”.

Accounting is an important process, that for international corporations, they could choose to prepare for the financial statements themselves. However, not every company would have their own team of accountants and CFO. OneStart Business Centre is here to help!

Interested in OneStart Business Centre’s Accounting and Audit Services? Phone in to our hotline 3575 6888 or WhatsApp our helpful consultants!