Page 52 - Budgeting for Managers

The Parts of a Budget
Transaction A single transfer of money from one place or
person to another.
Entry A record of a transaction.
Account A place to record transactions that represents a single 35
source or use of money.
Double-entry bookkeeping A system of bookkeeping in which
every transaction is recorded twice, once in the account the money is
coming from and once in the account the money is going to.
Balance Compare accounts to each other to make sure that all
transactions were recorded correctly.
Reconcile Compare an account with what you actually have or with an
account record from another source (such as a bank or credit card com-
pany), to make sure that records are accurate and nothing is missing.
General ledger A book in which monetary transactions are copied
(posted) from a journal (in the form of debits and credits). It is the
final record from which financial statements are prepared.The general
ledger accounts are often the control accounts that report totals of
details recorded in subsidiary ledgers.
The basics of double-entry bookkeeping are easy to under-
stand. For example, suppose you run a bakery and someone
comes in and buys an éclair for a dollar. You put that dollar bill
in your cash register and you record an increase of one dollar in
the cash account. But where do you record the other side of the
transaction? Charlemagne’s accountants came up with a clever
idea: they created a special category of accounts called income
accounts. All money gets recorded there. So the dollar that
came in shows up at the cash register and also in the income
account. Then, at the end of the day, you check your receipts.
Your total receipts, in the income account, are $500. You
received $350 in cash, $100 in credit card receipts, and $50 in
personal checks. Since your total income of $500 equals the
total of the different categories of receipts, you know that your
accounts balance and all your records are correct.
After you balance the accounts, you can reconcile them.
You add up the money in your cash drawer: $375. You check
your previous day’s records: you had $25 in the drawer when