The accounting process as we know it today evolved from the work of an Italian friar, Luca Pacioli, who, in 1494 had a book, Summa de arithmetica, geometria, proportioni et proportionalita, published that set out the details of the double-entry bookkeeping system. While he was not the first to use this system, his book described most of the accounting process as it is still used today, including such familiar concepts as journals and ledgers, assets and liabilities, capital, income and expense accounts. He demonstrated in his book year-end closing entries and the method of proving a balanced ledger by using a trial balance.
Since then, through the work of professional bodies, development of guidance tools such as the accounting standards, and recognized and reputable courses of study, the process of bookkeeping has consolidated into the system it is known as today. Essentially, the original concepts documented by Friar Luca are still valid and the rule that for every debit there must be a corresponding credit still applies. However, the advent of accounting software has made this process easier than ever.
Accounting software is one of the most valuable resources available to small business. Prior to its invention, small and one-person businesses relied on taking source documents such as receipts, invoices, cheque butts and bank statements to their accountant or bookkeeper for processing. They then had to wait for income statements that were often not available for weeks after the fact to know how the business was doing. Now, they are able to enter this data into the software daily and run regular reports that give them up to the minute information. Some of this is even done automatically so that business owners don’t even have to enter the data.
One of the benefits of having good accounting software is that it removes much of the guesswork around compliance, provided the data is entered correctly. Taking GST as an example, Australian compliant software will calculate the GST, add it to the invoice and make the correct journal entries behind the transaction. It will generate a GST report that pinpoints the amounts to be included in the Business Activity Statement (BAS) and where they should be placed.
The BAS is also used for reporting other business activity such as PAYG, FBT and provisional tax obligations. All of this information is captured and contained within the accounting software. However, this technology is only as good as the support it is given. The information that enters the system must be correct at point of entry and funnelled into the right places. Historical records must also be kept for several years as required by taxation legislation. Most small business owners have neither the time nor the training to know the fundamentals of bookkeeping or how to set up and operate accounting software. Their bookkeeper should be able to provide support including recommending the most suitable system, installation of the software, staff training, ongoing processing and producing reports as needed. With this support, a business owner can get on with running their business without knowing anything about the history of double-entry bookkeeping and Friar Luca’s contribution.
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