Bookkeeping and Chart of Accounts

What is it?	Bookkeeping is the recording and reporting of financial transactions of the organisation. It is also about storing documentation so it can be easily found.

	A Chart of Accounts is a naming and numbering system used to classify ledger accounts as assets, liabilities, equity, revenue or expenses. This allows the accounting software package to sort information from the ledger accounts into the financial statements.

Definitions	Transactions are exchanges, usually involving money, between one organisation and another organisation or person.

	An accounting software package is a program designed for use on a computer that collects and sorts transaction data and allows you to print out financial reports. Transactions are entered into the computer instead of a Cash Book. Accounting software packages include MYOB and Quick Books.

	An Invoice (also Tax Invoice) is a document sent to you requesting you to pay for a good or service.

	The Authorised Officer is the person in the organisation who is given the job of checking that documentation is correct before payment is made. This person could be someone from the Management Committee or the Manager but is not the bookkeeper.

	Posting is the process of taking the transactions and putting that information into the ledger accounts. It is also called ‘posting to the ledger’.  When posting to the ledger, the ledger account is chosen from a list of ledger accounts called the Chart of Accounts.

	Receipts are monies received by your organisation.

	Payments are monies paid by your organisation.

What a Manager and Committee member needs to know about the Chart of Accounts – Standard Chart of Accounts
•	The Queensland Government in conjunction with the Queensland University of Technology has developed a standard Chart of Accounts, i.e. a numbering system for ledger accounts that is designed specially for Queensland Non-Government Organisations (NGOs). Queensland Government departments which fund NGOs are encouraged to ensure their acquittal requirements are consistent with the Chart of Accounts.
•	Later, it is hoped that all acquittals of Queensland Government funds to NGOs will use a similar format. There are negotiations with two of the major accounting software companies for them to incorporate the new standard Chart of Accounts into their systems and to set up so acquittal reports can be automatically generated.
•	For more information or advice about this project, contact the Strengthening Indigenous Non-Government Organisations (SINGO) project team on (07) 300 88545.
Why is bookkeeping necessary?
•	All incorporated organisations are required under their enacting legislation to ‘keep financial records’. There are also requirements by the Australian Taxation Office to keep financial records. The organisation’s Service Agreement also stipulates that specific financial records are kept.
•	Bookkeeping is needed so that acquittals to funding agencies can be completed and for completing GST returns for the Australian Taxation Office.
•	Financial records help managers with information about the financial position of the organisation. 
Difference between bookkeeping and accounting
•	Bookkeeping usually refers only to the recording of transactions and preparing financial reports, whereas accounting covers additional areas such as preparing budgets and cash flow forecasts, analysing financial reports, preparing tax returns and preparing reports for management. Bookkeeping is one part of accounting.
Recording financial transactions
•	Transactions are recorded manually in a cash book, or entered into a computer installed with an accounting software package.
Documentation
•	Transactions are only recorded when there is evidence to back up the transaction. This evidence is called documentation. Payments are only made when there is an invoice or timesheet signed by the Authorised Officer. 
Double entry accounting
•	Every transaction entered into the books has two effects. For example, when you pay wages, it will increase the amount showing in the Wages Account but reduce the amount in the Bank Account. Every transaction will always have a debit entry and a credit entry. (See Debits and Credits.)
Ledger accounts
•	Similar entries are entered in the same ledger account. It is a way of sorting transactions into the story of the transaction. When the organisation buys a motor vehicle for cash, the organisation has more motor vehicles (one ledger account) but the money has come out of the bank (the other ledger account).
•	The process of sorting transactions into the ledger accounts is called ‘posting’. The ledger accounts (names and account number) are chosen from the Chart of Accounts.  
•	Ledger accounts are the building blocks on which all accounting reports are based.  Each ledger account has two sides, a debit side and a credit side. (See Debits and Credits below.)
Posting to the Ledger
•	When the transaction has been entered into the books or computer, the ledger account numbers must also be entered. This allows the computer (or if it is a manual system, the bookkeeper) to post these transactions to the ledger. 
•	The dollar amounts of like entries are grouped under the one correctly named ledger account. For example, transactions that relate to the bank (receipts and payments) are grouped into the Cash at Bank Account and whichever other account is affected. (See double entry accounting.)
Ledger account balance
•	The balance is calculated by comparing the debit transactions in a ledger account with the credit transactions. The balance is the total of the larger side (debit or credit) less the total of the other side. If you are using an accounting software package, this is automatically done by the software. For example, if credits total $350 and debits total $100, there is a credit balance of $250.
Debits and credits
•	For the purposes of bookkeeping:
•	debit is the left hand side.
•	credit is the right hand side.

Where does bookkeeping fit in?

Your organisation undertakes a transaction as part of its business. This may be writing a cheque to pay an amount owing or receiving some money.

The bookkeeper records that transaction into the books either by entering it into the computer or into the manual books.

The computer (or bookkeeper) will sort the transactions and ‘post to the ledger’.

Related documents
Trial Balance Topic Guide