Keep your company's accounting records and comply with your obligations.

All companies must keep accounting records of the transactions affecting their assets and activities.

Each record, or accounting entry, is necessary to chart the flow of activity, but also to draw up a true picture of the company's financial situation.

Whether it is part of your day-to-day life or you are taking your first steps in the world of accounting, this article will help you find some of the answers you are looking for: What is an accounting record and what is its function? How are they classified, what data should they reflect, and so on? It's time to clear up those doubts!

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Accounting record: definition

An accounting record (also known as an accounting entry or journal entry) consists of recording every incoming or outgoing movement involving a company's financial statements and/or assets.

The set of accounting records is then used as the basis for calculating the profit or loss for the year and the balance sheet.

Furthermore, the accounting records not only serve to keep track of the financial status of the company, but also serve as support before the relevant bodies that the company complies with the laws in case of audit.

💡 There is no legal obligation as to who must make the accounting entries. Although it is not necessary to be a professional accountant or to have any kind of accreditation, it is very useful to handle some accounting notions.

Types of accounting records

1. Accounting and record-keeping obligations

Article 25 of the Commercial Code establishes that the following accounting records are mandatory:

• Journal: In which all financial transactions are recorded in chronological order with their respective vouchers.
• Inventory book and balance sheets - among which the following stand out:

• • The balance sheet of the company's initial situation.
  • The balance sheets of sums and balances.
  • Closing inventory of the fiscal year.
  • Annual accounts: composed of the Balance Sheet, Profit and Loss Account and Annual Report.

Likewise, there are a series of records that are not required by law, but that allow the company to keep a better follow-up and administration of the transactions according to the activities it performs, such as, for example:

• The income statement,
• the Statement of Cash Flows.

2. PGC Classification

The General Chart of Accounts provides two classifications for the types of journal entries according to the different transactions to be recorded:

1. Journal entries by subject matter:

• Purchases: acquisition and payment of products and services.
• Sales: sale and collection of products and services (customer advances, cash discounts, returns, etc.).
• Payroll: operations related to the Human Resources Department (payment of payrolls, accounting of self-employed workers' fees and settlement of social insurance).
• Financial operations: contracting and maintenance of financial operations (foreign currency operations, contracting of financing operations, payment of financing operations installments).
• Taxes and levies: settlement of taxes and levies (VAT, accounting of corporate taxes).
• Depreciation and provisions: allocation and application of depreciation and provisions for fixed assets and current assets.
• Fixed assets: acquisition and maintenance of fixed assets (expense entries, subsidies, additions and improvements to fixed assets).
• Supplies: here are recorded the entries that do not correspond to the other groups, such as exchanges and the recording of invoices issued and received with supplies.

2. Entries by account:

• Group 1: Basic financing - Accounts related to long-term financing (members' contributions, share capital, retained earnings, reserves, etc).
• Group 2: Fixed assets - Structural assets (the possible depreciation over time is highlighted).
• Group 3: Inventories - Raw materials and other components of the company's production process.
• Group 4: Creditors and debtors - Obligations and rights of the company as a result of its commercial activity or social obligations.
• Group 5: Financial accounts - Accounts related to the company's cash flow (financial rights and obligations).
• Group 6: Purchases and expenses - Accounts resulting from impairment of fixed assets, provisions and foreseeable expenses.
• Group 7: Sales and income - Income from commercial activity, extraordinary income and financial profits.

Data in an accounting record

In order to correctly classify and identify each of the transactions, it is necessary that the accounting entries have the following information:

• Date of the entry.
• Transaction number: to chronologically record each transaction.
• Accounts involved: code and corresponding denomination in accordance with the aforementioned PGC classification.
• Amounts associated with each account.
• Description of the transaction.

Benefits of keeping accounting records

Beyond the mandatory nature of some of the records, there are a number of advantages for the company as a result of keeping all accounting records correctly, such as:

• Verify profitability,
• serve as a backup before third parties,
• control cash flow,
• helping to make decisions in order to promote the growth of the company.

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Automate accounting records

All this information may seem difficult to handle manually if you have a significant volume of invoicing and, as we have seen, there is a degree of complexity regarding the classification of each of the transactions.

So why not use accounting software to make this tedious task easier?

By automating your processes:

• You save time (and therefore money),
• You reduce errors,
• you facilitate the work of verification and control.

In summary, accounting records are of great benefit to keep the accounting of your company, since they allow you to have a broad and clear picture of the state of your finances because numbers do not lie! So make the most of them and make your business grow.