Bookkeeping means the recording of financial transactions and other details on a day to day basis with the intention to prepare the financial statements from the books of accounts maintained.
Bookkeeping is the first step towards building books of accounts of any company. It involves recognition of transactions, operation and being a source of documents for other similar events.
There are several methods of bookkeeping, most popular being single entry bookkeeping system and double entry bookkeeping system.
Who are bookkeepers?
Bookkeeping is done by bookkeepers, individuals who manage all the transactions for the companies. They are responsible for the accuracy and timeliness of the transactions. Without them, the transaction would not be entered in the books and the very start of building a book of accounts will not be initiated.
Why is bookkeeping important?
Bookkeeping is crucial for businesses of all sizes irrespective of the size, nature of the business, transactions, any specific industry. Bookkeeping quickly becomes more complex with the introduction of tax, assets, loans, and investments.
Accurate bookkeeping practices give companies a reliable source to measure the financial performance. It also provides information on general strategic decisions and a benchmark for its revenue and income goals.
What is the task involved?
In bookkeeping below are the common transactions and task involved:
- Billing for goods sold or services provided to clients
- Recording receipts from customers
- Verifying and recording invoices from suppliers
- Paying suppliers
- Processing employees’ pay and the related governmental reports
- Monitoring individual accounts receivable
- Recording and monitoring asset depreciation and other adjusting entries
- Generating and providing financial reports
- Expense payments to suppliers
- Loan payments
Bookkeeping although means recording and tracking the figures of transactions involved in the financials of the business in a systematic manner. It is essential for businesses but is also useful for individuals and non-profit organizations.
The Accrual vs Cash Basis of Accounting
Definition- Accrual Accounting
When transactions are recorded in the books of accounts as and when they occur irrespective of the receipt of payment for the particular product or service, it is known as accrual-based accounting. This method is appropriate in assessing the financial health of the organization.
Definition- Cash Basis of Accounting
Cash accounting is an accounting method in which revenue is recorded during the period they are received, and expenses are recorded in the period in which they are paid. In other words, revenues and expenses are recorded when cash is received and paid to the other parties. It is exactly opposite to accrual basis of accounting.
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