Most times, when we hear a beep on our phones especially towards the end of the month, we get excited and rush to check. We already know our salaries are guaranteed, but the excitement feels different. But do we feel the same way about debit alerts?
Have we taken a moment to know how these transactions are treated? Do we even understand the kind of transaction they are? Are we aware of what a transaction is? Do we know credit alerts are debited to our account and the debit alerts are credits to our account as well?
The only language that can answer all these questions is accounting; the language of business. So, let’s fill this knowledge gap by talking a little bit about Financial Accounting.
Principle of Double Entry.
For every giver, there must be a receiver
For every debit, there must be a corresponding credit.
Debit the receiver, credit the giver.
This principle is the basic foundational knowledge anyone who wants to become an accountant needs to master. Once we understand this, the rest of the journey becomes very easy. But sadly, most of the accountants we have these days do not understand these basic principles anymore because of the several accounting software that have made life easy.
Back to the issue of bank alerts, the credit alerts we get are often reflective of what the bank does in their books. The bank in this situation is the giver, they are giving you a portion of the cash they have in their vault, hence the money is leaving the bank’s account and coming to your account. You are the receiver in this situation and the bank is a giver.
I am sure you would also ask, what if it’s a transfer from a friend, so why is it a credit alert too. The same principle would apply, the alert is reflective of what the bank does in your friend’s books/account.
Hence at the end of the day, all transactions in your books would always have two sides which must be equal to each other at the end of the day.
Accounting requires one to be meticulous, analytical, and diligent because we do not want to find ourselves becoming certified chefs at cooking the books. In account, one needs to record transactions real-time (as they occur) to avoid series of issues during the close of the period, which mostly occur at month-end, quarterly, or year-end. This is usually the busiest period for accountants, some stay up all night to ensure the accounts have been prepared with utmost care and diligence else a simple mistake somewhere can cause devastating decisions to be made which can kick the organization out of business.
Now, what are the documents that guide these entries, in accounting, we refer to them as source documents. They are the evidence we have to prove these transactions occurred; bank alerts are also source documents – electronic receipts. They serve as the first point of call when we have issues balancing our account which might mean that one side of the transaction has not been reported or has been misclassified.
Before I even delve into the technicalities of accounting, let’s briefly define Financial Accounting.
What is Financial Accounting:
In summary, it is the process of preparing a summarized report of all the financial activities that have occurred over some time within a business entity. For a transaction/activity to be included in this report, it must have a financial implication that is it must be measurable in monetary terms.
WATCH OUT FOR PART TWO
Financial Statements in accounting