Accounting
What is accounting and what do we need it for?
Accountancy is the activity of registering each and every economic operation that an entity (association in our case) goes through. This activity allows us to know the origin of what we have, how much we indeed have, and how we are expending it. It allows us to be transparent, and to reflect the true image of our economic activity so that it can be known to our Network.
In this section we will analyze a few accounting terms we will use in our daily tasks, starting from a very basic approach we can all understand.
Basic terms
Net worth
This is the whole set of assets, rights, and liabilities of the legal entity in a concrete moment. For explanatory purposes, this whole set of assets can be represented in relation to the value of its different elements according to the following scheme:
Assets: resources with economic value, rights, and other economically relevant resources controlled by the association, resulting from past events and from which it is expected to obtain benefits or economic returns in the future. For example, fees contributed by partners, receivables, inventory, cash or cash equivalents...
Liabilities: Current obligations, arising as a result of past events, for which the association hopes to dispose of resources or economic returns in the future. As an example debts, payment obligations, overheads, etc.
Net worth: It constitutes the residual part of the assets, once the liabilities have been deducted. It includes contributions made, either at the time of their incorporation or later, that is not considered liabilities, as well as accumulated results, we can take as practical the result of the previous year, capital or reserves.
Bookkeeping
The bookkeeping process, therefore, uses the account as an instrument to represent the assets, noting all the changes (increases or decreases) that occur in them. This bookkeeping system is complemented by the systematic recording of each of the accounting events following the following scheme: each accounting event implies the realization of an entry that represents the increases or decreases of the assets affected. The registration of entries is systematic and chronological and is called the Book.
Another instrument we use together with our bookkeeping is the general ledger. The Ledger collects the movements and balances of each account in the company's accounting (assets, liabilities, income, and expenses). The movements of each account are collected in debit (left part of the account) or credit (right part) according to the type of account.
Income and Expenses
Income
An income is an increase in the net worth from the sale of an asset or the provision of a service and is accounted for in the income statement.
Expenses
An expense is a decrease in equity due to the purchase of a good or the demand for a service. It is posted to the income statement
Income statement
This tool summarizes all the revenues, expenses and costs incurred during a specific period of time, in our case, it would cover our financial year. It informs us about the association’s ability to generate a profit during the year, or the contrary.
Balance sheet
The Balance Sheet is an accounting statement that reflects the net worth situation of the association's accounting at a specific given time. It is structured in assets, liabilities and net worth in order to provide a true image of the assets and the financial situation. To do this, it presents the inventory of the different elements, valued in the same monetary unit
Tools
In order to help you with your daily tasks as a treasurer, and be able to provide your network with the information given in this section, you can access our officer’s portal, where you can find an integrated template containing accounting books, as well as some sections destined to the balance sheet and the income statement.