Accounting and Bookkeeping: Essential Concepts

What is Accounting and Bookkeeping

Accounting is not just about how much money is in the account. It is performed on an „accrual“ basis, meaning it records all transactions, even if the money hasn’t yet arrived or been withdrawn. Have you ever had the feeling of „profit but no money“ or the opposite—“money but no profit“? This is where financial management comes into play.Bookkeeping, which is the process of recording financial transactions, plays a crucial role in ensuring that all financial data is accurate and up to date.

Chart of Accounts and Its Use

The chart of accounts must be strictly followed in accordance with its instructions. You cannot use accounts that are not provided for in it; this is a mistake. The chart of accounts includes synthetic accounts (main accounts) and sub-accounts (additional accounts) that are necessary for more detailed accounting, as well as off-balance-sheet accounts.

Accounting Accounts and Transactions

An accounting entry is a record that reflects a specific event or business fact. When we talk about wiring, we often remember terms like account correspondence and turnover. Account correspondence refers to the connection between two accounts that arises when they are used in the same transaction. Accounting entries are closely linked to the concept of “double-entry bookkeeping.” Luca Pacioli is credited with inventing double-entry accounting, although the idea of accounting in this form appeared much earlier. It is believed that in ancient times, tablets were used for accounting: one side for recording cash receipts, the other for expenses. The principle was simple: if something arrived, it had to be recorded somewhere. Thus, receiving property (an asset) began to be called „debit“ or income, and the expense or source of funds – „credit“ or liability.

Over time, the entry was simplified to a single line that we use today: Debit Account A – Credit Account B. This entry is called account correspondence or an accounting entry. There are several accounts numbered from 01 to 99, although some are missing or not used. The chart of accounts and the instructions for its application are approved by the Ministry of Finance.

Common Accounting Accounts

Account Type	Description	Examples
Liability Accounts	Account for the sources of financing such as equity and loans.	Shareholder equity, loans
Active Accounts	Account for assets the company uses, like cash or equipment.	Cash, property, machinery
Off-Balance Sheet Accounts	Used for recording assets temporarily owned by the company, like leased property.	Leased property

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