Bookkeeping means systematic recording of day-to-day activities such as financial transactions and expense accrual for a business. The company needs to track such details for making well operational decisions.
It does not take auditing, taxes into account as it only manages the processing and evaluation of all kinds of financial information. Being a subfield of accounting includes:
- Posting debits and credits.
- Maintaining and balancing previous and current accounts.
- General ledger.
- Accomplishing payroll to bring stability into business.
A bookkeeper is a professional who deals with a business’s financial transactions and recording. A company can avail correct recording with managing its financial assets and liabilities by placing an efficient bookkeeper.
This will benefit in various areas, namely internal business decisions, where one decides to allocate a surplus of revenue, including external decisions like investor’s preference to fund the business’s tasks.
The bookkeeping complexity is constituted based on the size and demand of the business. Decades back, people created ledgers with fundamental tools such as pen and paper. However, as technology and industries have developed, they are made with an equipped software that can be automated and tailored to one’s business to fulfil the requirements.
One should not neglect the bookkeeping factor when starting a new business, as a proper record of transactions helps in knowing the company’s performance better. But, unfortunately, various small companies don’t hire full-time accountants to work for them because of the enormous costs involved. Instead, they usually hire a bookkeeper or outsource the job to a professional firm.
For executing bookkeeping, one needs to establish their computerized accounting systems when they do bookkeeping for their businesses. They should keep in mind the basics of accounting, which are cash basis and accrual basis. On a cash basis, there is registration of transactions only when cash is received or paid, while on the accrual basis, transactions get recorded when it takes place, irrespective of the money received or paid.
What are the methods of bookkeeping?
- Single-Entry Bookkeeping: In this, one entry is created for each transaction in the books. These transactions are generally assessed in a cash book to know the incoming revenue and outgoing expenses. One does not require formal accounting training for the single-entry system. This method is appropriate for small private companies and sole proprietorships that do not make any purchases or sell on credit, own little to no physical assets and contain small inventory amounts. It is not used for large, complex companies and does not track accounts such as inventory, accounts payable and accounts receivable.
- Double-Entry bookkeeping: It has the way of every transaction affecting at least two accounts, and they get registered as debits and credits. Each account has two columns, and each transaction is done in two accounts. There are fewer errors as it ‘double-checks’ the book. For instance, if someone makes a sale for $20, then the cash account will be debited for $20, and the same amount will credit the owner’s sales account. In this system, the total credits should be equal to the total debits. When this matches, the books are called “balanced.” There is accurate reporting and development of a unified accounting system.