Introduction to Odoo 16 Accounting Basics

Accounting can be defined as a procedure of reporting, documenting, illustrating, and summarizing financial data. Accounting is a crucial part of an organization or company. It is the central focus unit for handling all areas of business transactions. Throughout the centuries, accounting has been revived as an enclosed structure for keeping financial records and assisting an accountant's duties. However, in the current scenario, the constantly developing business environment demands that business entrepreneurs and accountants reconsider their functions and responsibilities. Accounting has to do more than mere bookkeeping and generating financial reports.

significance of Accounting

The systematic and comprehensive enrolment of financial transactions of a business - Accounting - plays a vital role in performing a business, including income-expenditure tracking and statutory compliance management. Also, it helps to collect quantitative financial information. The Accounting system will benefit the owners, management, investors, and even the governments. A strong and deep-rooted accounting and bookkeeping system are essential for a smooth business. In this process of keeping track of a business’s financial status, the accounting system initiates with the practice of bookkeeping. It then concludes with reporting data and information as a financial statement at the end of every financial year. Accounting has a pivotal role in successfully evaluating business performance. You can easily compare accounts with previous years. The accounting system also lets you keep a close look at the cash flow by having a robust book of accounts. In addition, the account-keeping system offers you effortless filing and always allows you to stay compliant. Apart from all these benefits, the Accounting data makes it easy to formulate the budget to fulfill a consigned business strategy. So you can efficiently and effectively budget for your future plans. Proper accounting supports the organization by offering it with various financial reports required for handling day-to-day business operations.

One of the most important aspects of an organization, the Budget management tasks will become very simple if the accounting system is robust. The accurate records gained from the financial accounts will help you make the right decision for the business, resulting in effective management and higher profitability.

Double Entry Bookkeeping System

Double-entry bookkeeping in accounting is a system of recording transactions. In this system, the entry is recorded as at least two accounts: debit and credit. In this system, the debit and credit amounts recorded must be balanced. This means the amount of the recorded debits must equal the amount recorded as credits. So the system will help you to record the transaction on two sides. In this system, when a transaction occurs and gets impacted in an account, a matched impact will occur in the other account. The corresponding debit value will be recorded for the credit value. In addition, the credited and debited accounts will be listed in the company chart of accounts.

When considering an example, suppose a sale is confirmed for $ 200. There will be an impact on both the Income Account and the Receivable Account. Since it is a sale for the organization, the income increases. So the income increases and the income account credits $200. As Assets increase and as result, the receivable account debits $200. The nature of the account will decide whether an account should be credited or debited.

The hierarchy of Accounting

Finance is the fundamental element for future success. So as a business leader, you must be bothered about the accounting hierarchy of your business or organization. The accounting hierarchy is very important without considering the size and type of business. In the general accounting system, all of the transaction details are properly entered into the equivalent ledgers. The way transaction details are registered on both sides ( the credit and debit side of accounts) is decided by its nature. For general accounting, there follows a hierarchy.

Natures

The four types of nature include Asset, Liability, Income, and Expense.