Accounting Equation

What is bookkeeping?

“Bookkeeping” this word is quite common in the field of accounting. It is the practice of documenting or recording financial transactions and affairs into organized accounts on a daily basis. So now we’re aware of the definition of bookkeeping, then the question on the row will be how to get started with bookkeeping. In order to start it, you should be aware of the basics of bookkeeping. So this is to inform and detail you about, what are the basics and methods of bookkeeping. Why is it important in the business sphere?  

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Importance

What is the importance of bookkeeping?

Accounting and bookkeeping are different, as the records kept by bookkeeping are utilized by the accounting process to prepare the end-of-the-year accounting statements and accounts. Internal controls are essential in bookkeeping because all financial records must be complete and accurate.  Furthermore, they must be recorded in a timely manner in order to be accurate and make sense. It is also known as recordkeeping.

For several reasons, de bookkeeping is a crucial part of your accounting procedure and it allows you to produce precise financial reports that assist in assessing firm performance when transaction records are regularly updated. Additionally, thorough records will be useful in the event of a tax audit. Proper bookkeeping provides companies with a reliable measure of their performance. It also serves as a benchmark for the company’s revenue and income targets. In short, once a business is up and running, it is critical to invest extra time and money in keeping proper records. Because of the expense, many small businesses do not hire full-time accountants.

Instead, small businesses usually hire a bookkeeper or outsource the task to a professional firm. It requires you to possess knowledge about debits and credits along with financial accounting. 

One thing to keep in mind is that many people who want to start a new business overlook details like keeping track of every penny spent.  Bookkeepers tend to develop a good understanding of how a business works because they work closely with raw data.

As mentioned, these firms hire bookkeepers for this purpose, so this asks the question, who is a bookkeeper and a detailing of his/her task? 

Bookkeepers are people who manage all financial data for businesses.

A bookkeeper’s primary responsibility is to ensure that all bills are paid on time, transactions are recorded correctly, payroll is run on time, and taxes are filed correctly. And a bookkeeper is also in charge of recording daily financial transactions, keeping a general ledger updated, and preparing trial balances for accountants to review. They keep track of cash flow and generate financial reports to help managers make strategic decisions.

Bookkeepers tend to develop a good understanding of how a business works because they work closely with raw data. Bookkeepers are critical to the success of any business. A bookkeeper plays an important role in the data collection and data input phases of a company’s accounting cycle. When a proper system is in place to prevent issues like skimming fraud, the recorded financial data can provide valuable, actionable insight.

What is a general ledger?

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A general ledger serves as the mechanism for maintaining a company’s financial records, with a trial balance used to verify debit and credit account information. It offers a record of every financial transaction that occurs throughout the course of an operational firm’s existence and contains account information required to create the financial statements for the company. The accounts for assets, liabilities, owners’ equity, revenues, and expenses are where transaction data is separated by kind.

TYPES OF BOOKKEEPING SYSTEMS

The two most common bookkeeping systems are single-entry and double-entry. While each has advantages and disadvantages, the business must choose the one that is best for them.

  1. SINGLE-ENTRY BOOKKEEPING:

The single-entry bookkeeping system necessitates recording one entry for each financial activity or transaction. A single entry bookkeeping system is a basic system that a company may use to record daily receipts or generate a daily or weekly cash flow report. Financial fraud is possible with this type of recordkeeping. For companies that don’t deal with a lot of sophisticated or intricate transactions, a single-entry bookkeeping system is a good option. This method keeps track of cash sales as well as expenses for the firm that are paid at the time they are incurred.

  1. DOUBLE-ENTRY BOOKKEEPING:

           The double-entry system of bookkeeping requires a double entry for each financial transaction. The double entry system provides for checks and balances by recording a corresponding credit entry for each debit entry. The double-entry system of bookkeeping is not cash-based. Transactions are entered when a debt is incurred or revenue is earned. Financial fraud can be prevented or reduced by double-entry bookkeeping. Businesses that regularly conduct more complicated transactions often use bookkeeping systems with two entries per transaction. This tactic performs best for companies that buy goods and inventory on credit and generate revenue from accounts receivable.

This system records each transaction separately as an item of income or expense before creating a second entry to associate each with the relevant account. For instance, if you received income from a customer, the income would be reported as income and linked to the customer’s account.

BOOKKEEPING PROCESS

BOOKKEEPING PROCESS

Bookkeeping is the process of collecting records of expenses and revenues and posting them to a general ledger. For recording the financial transactions of the business, bookkeepers use either a single-entry or a double-entry bookkeeping system.

The process consists of four basic steps: 

1) Analyzing financial transactions and categorizing them.

2) Creating original journal entries that credit and debit the appropriate accounts. 

3) Posting entries to ledger accounts.

4) Adjust entries at the end of each accounting period. 

It is founded on two fundamental principles. One requirement is that every debit is matched by an equal credit. The second implication is that all accounts must balance.

BOOKKEEPING SERVICES

The development and upkeep of your company’s comprehensive financial procedures and administration are provided by a bookkeeping service in a three-tiered manner. The expert in accounting software develops the initial prong. To provide accurate operational and financial information, bookkeeping services are required for all firms. Management, authorities, and investors all demand this information. In order to guarantee that all applicable taxes are paid and tax filings are filed on time, it is also a legal need for any business to have an accurate book of accounts.

In this article, the basic concepts of bookkeeping are discussed and elaborated on. This article gives you an idea about the basics you need to know before starting with bookkeeping.  These are just basic information that can help you get started and there is more to know about how to manage everything, how it is handy for small-scale businesses etc. More information on these concepts will be detailed in the next article, until then stay tuned.

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