Journey Plan of Real-World software development-1

Dear Software developers

Good day. Hope You are doing well. 

I know very well that there are many talented and outstanding programmers in this world. Maybe some of them are reading this.  It is a great honor for me. We need your contribution to this journey.

Let me introduce myself. I am Saroware Mahmud. I have been working as a developer for decades. I will share my experience and learning on real-world software development on this platform. First, we will understand the process and then will develop software based on our understanding.  This is a long journey to learn and build. Hope you will be accompanying us. We will share our GitHub repository with you.  It will be API-based software. No matter which programming language you choose. If you understand the logic you can develop it in your way.

First of all, we will understand the Accounting process.

Why is the Accounting process to understand?

The Accounting process can be difficult to understand for its technical terms, rules, and procedure. Here are some reasons why the accounting process is challenging to comprehend 

• Technical Language:
   There are lots of specialized terms and concepts that can be confusing to a non-accounting person. For example, terms like "debits" and "credits" may seem counterintuitive to someone who has never studied accounting. But as software developers, we have to overcome this challenge.
• Complex Rules:
   Accounting is governed by some sets of complex rules and principles that can be difficult to grasp. These rules are designed to ensure that financial statements are accurate and reliable, but they can be hard to understand without proper training.
• Mathematical concepts:
  Accounting involves a lot of mathematical calculations and formulas, which can be challenging for people who are not comfortable with numbers.
• Subjectivity:
  Although accounting is based on rules and principles, there is also a degree of subjectivity involved with the process.  For example, different accountants may interpret the rules differently, leading to variations in the financial statement.

Despite these challenges, it is very important to understand a software developer's accounting process (at least in the basic label) if he/she wants to develop accounting software effectively. With patience and practice anyone can learn the basics of accounting.

How an organization operates its financial activities? 

An organization operates its financial activities through a process called financial management. Financial management involves activities and practices designed to ensure the efficient and effective use of an organization's financial resources. here are some key components of financial management.

• Financial planning : 
• An organization must have a plan for how it will use its financial resource. This involves setting financial goals, creating budgets, and forecasting future financial needs.
• Financial Reporting:
  An organization must keep accurate records of its financial transactions and report this information to stakeholders. this includes preparing financial statements such as income statements and balance sheets.
• Cash management:
  An Organization must manage its cash flow effectively to ensure that it has sufficient funds to pay bills and meet its financial obligations. this involves managing account receivable and accounts payable, as well as monitoring cash balances and investing excess cash.
• Risk management:
  An organization must identify and manage financial risks such as credit risks, market risks, and operational risks.

Accounting basic idea.

The process of recording, classifying, and summarizing financial transactions to provide information that is useful for making business decisions is called the accounting process. Here are some basic ideas that are important to understand accounting.

• Double-Entry Accounting:
  Accounting is based on the principle of double entry. It means that every financial transaction has two equal and opposite effects on financial statements. For example, if a company receives cash from a customer the cash amount will increase (debit) and the revenue account will increase (credit).
• Financial Statement:
  The financial statements are primary are the primary output of the accounting process. The income statement, balance sheet, and cash-flow statement are the main three statements. These three statements provide information about financial performance and the position of an organization.
• Assets, liabilities, and Equity: 
  The balance sheet is based on the accounting equation. Which is
  
                                  Assets = Liabilities + Equity
  
  Assets are resources that the organization owns, such as cash, inventories, and properties. The organization's liabilities are obligations, such as loans, and accounts payable. Equity represents the residual interest in the assets of an organization after deducting liabilities.
  
  
• Accrual Accounting:
  
  In accrual accounting, revenues/expenses are recognized when earned/incurred, regardless of when cash is received or paid, this allowed a more accurate reflection of an organization's financial performance over time.
  
  
• Auditing:
  An independent examination of an organization's financial statement to ensure that they are accurate and reliable is called auditing. it is an important part of the accounting process, as it helps ensure financial information's integrity.

 

These basic ideas are just the understanding of accounting. many more concepts and principles are important to grasp to become proficient in accounting.

Basic Accounting Terms

Here are some basic accounting terms which we will know in following

 

• Asset: - a resource that an organization owns and control, such as cash, Inventory, Equipment, and properties.
• Liability: - Obligations that a business owes to others, such as loans, accounts payable, or taxes.
• Equity: - The residual interest in the asset of a business after deducting liabilities. Often represented as the owner's or shareholder's equity.
• Revenue:-  Income earned by a business from its operation, such as sales of a product or service
• Expenses: - The cost of goods or services consumed or used by a business in its operation, such as rent, salaries, and utilities.
• Income Statements: - A financial statement that provides information on revenue, expenses, and net income or loss for a specific period of a business.
• Balance Sheet: - A financial statement that shows a business's assets, liabilities, and equity at a specific point in time.
• Cash flow statement: - A financial statement that represents a business's cash inflows and outflows during a specific period.
• General Ledger: - A record of all financial transactions of a business, organized by accounts.
• Journal Entry: - A record of a single financial transaction of a business. Usually consisting of a debit and a credit to different accounts.

These are just a few basic accounting terms. but there are many more that are important to know to understand accounting and develop accounting software.

How to plan a Chart of Accounting (COA)

This is the most challenging part for a developer and user. Any wrong setup will be unbearable for any organization. If an organization has multiple businesses, but it wants to maintain a single   COA, it can be possible. One other way if that organization wants to create multiple COA is also possible. Need proper planning for COA setup. Here are some steps to plan COA

• Understand business operations:-
  Before creating a COA, one needs to understand business operations well, including the type of transaction that will be made and the financial information needed to track.
• Determine the accounts categories:-
  Next need to determine categories of accounts that will need to track financial information. These categories may include assets, liability, equity, revenues, and expenses.
• Create a Numbering System:-
  After the determination of account categories, A numbering system to assign to each account is very help full in long run. This system should be logical and easy to use, with a consistent numbering scheme across all accounts. 
• Define accounts name and description:-
  For each account, need to define a name and a proper description that accurately reflects the financial transactions that will be recorded in that account. It will be more transparent and helpful to future planning.
• Customize the COA:-
  Depending on business needs, users need to customize COA. They may add additional account categories or remove unnecessary accounts.

It is important to note that creating COA is a customized process and should be tailored to meet the specific needs of a business. It is recommended to consult with an accountant or financial advisor to help with planning and creating COA.

What is Budget?

In Accounting, a budget is a financial plan that outlines an organization’s projected revenues and expenses for a specific period of time. It is an important tool for planning, controlling, and evaluating the financial performance of a business.

A budget typically includes the following component.

·       Revenue Budget:-
It includes the projected sales, fees, and other revenue source for the period.

·       Expense Budget:-
This includes projected costs and expenses for the period, including salaries, rent, utilities, and other operating expenses.

·       Cash flow budget:-
This includes projected cash inflows and outflows for the period, taking into account any loan and investment.

·       Capital expenditure budget:-
this includes projected expenses for purchasing fixed assets such as land, building, and equipment.

 

A budget allows a business to set financial goals, measure performance, and make adjustments to ensure that the organization is on track, to meet its objective. By comparing actual results and budgets, businesses can identify areas of success and areas where improvements need to be made.

Budgeting is an essential part of financial planning and management, and businesses of all sizes need to develop and use budgets as part of their overall financial strategy.

What is the difference between budget and accounting?

Budget and accounting are two distinct financial processes that are essential for businesses to manage their finance effectively. Here are some key differences between budgeting and accounting.

·       Purpose:-
The purpose of budgeting is to plan and project future income and expenses, while the purpose of accounting is to record and track actual income and expenses.

·       Timeframe:-
Budgeting is typically done for a specific period, such as a year or a quarter while accounting records and reports on financial transactions over a period of time, usually on a monthly, or quarterly basis.

·       Focus:-
Budgeting focuses on future financial performances, while accounting focuses on current and past financial performance.

·       Preparation:-
Budgets are prepared by projecting future income and expenses based on historical data and assumptions about future events while accounting records are prepared by actual transactions that have already occurred.

·       Use:-
Budgets are used to guide and control financial decisions to measure performance against goals while accounting records are used to prepare financial statements, tax returns, and other reports to external stakeholders.

In summary, budgeting and accounting are both important financial processes, but they serve different purposes and focus on different aspects of a business’s finance.

Accounting voucher type

An accounting voucher is a document or electronic record used to record financial transactions in an accounting system. Several types of accounting vouchers are commonly used in accounting, including:

·       Payment Voucher:-
it is used to record payments made by organizations, such as salaries, rents, utilities, and other operative expenses.

·       Receipt Voucher:-
It is used to record all incoming funds, such as sales receipts, customer payments, and other sources of income.

·       Journal voucher:-
It is used to record accounting entries for transactions that do not involve cash, such as adjustment entries, accrual, or depreciation entries.

·       Sales Voucher:-
It is used to record sales transactions, including the detail of the sale, the amount sold, and any applicable taxes or discounts.

·       Purchase Voucher:-
this voucher is used to record purchases made by the organization including details of products or services purchased and the amount of purchase.

·       Debit Note Voucher:-
It is used to record a debit note issued by the organization, such as a request for a credit or refund from a supplier.

·       Credit Note Voucher:-
It is used to record a credit note issued by the organization, such as a request for a credit or refund to a customer for a return or discount.

Each voucher type has its own unique format and information requirements, depending on the nature of the transaction being recorded. Accounting software can automate the process of creating and recording vouchers, making the accounting process more efficient and accurate.

As software developers, we can say that we are lucky that we can learn a lot of things that are related to our daily life and real-world process and make them automated by developing those processes in software. What an opportunity we have! What we learned today is the surface. We will learn more during the development. Our first goal I developing accounting software, next we will add multiple modules which will be synchronized with accounting software.

Our next topic will on our Development process. We will set milestones for multiple phases of the development process. 

Thanks For your time. Stay with us, and Support us. let's grow together!