What is bookkeeping?

Bookkeeping includes the recording, storing and retrieving of monetary transactions for a business, nonprofit organization, individual, etc.

Examples of Bookkeeping Tasks

  1. Recording receipts from customers
  2. Verifying and recording invoices received from suppliers
  3. Paying suppliers
  4. Processing employees' pay and therefore the related governmental reports
  5. Monitoring individual assets
  6. Recording depreciation and other adjusting entries
  7. Providing financial reports

Today bookkeeping is completed with the utilization of computer software. for instance, QuickBooks (from Intuit) may be a low-cost bookkeeping and accounting software package that's widely employed by small businesses within the U.S. Bookkeeping requires knowledge of debits and credits and a basic understanding of monetary accounting, which incorporates the record and earnings report.

The purpose of bookkeeping is to

  1. Enter the financial transactions resulting from business activities accurately and in accordance with good bookkeeping practices
  2. And to speak the financial results of these activities.
  3. Entering Financial Transactions

This is done by identifying and organizing business transactions under consideration categories.

  1. Say I sell a hat for $10.00.
  2. The transaction is identified as a purchase.
  3. The transaction is “measured” by the quantity involved, which is established as $10.00.
  4. This is then recorded into the Bookkeeping system to the acceptable Account Category, for this sale it'll be an Income account.

Activities and Transactions

Here are a couple of samples of business activities that end in financial transactions.

Transactions: Sales invoices and depositing a check or cash payments or receiving MasterCard and bank payments.

  • Activity: Purchasing goods and services

Transactions: Purchase invoices and paying bills with a check, bank card, MasterCard or cash

  • Activity: Returns

Transactions: Entering credit notes for goods returned or services not completed

  • Activity: Employing people

Transactions: Payment of wages and salaries

A transaction that has no currency value attached thereto shouldn't be recorded within the system.

For example, phoning the director - this is often not a financial transaction so it doesn't get entered into the books.

  • Communicating Results

Once all the transactions are entered, useful reports are often created to speak what has occurred with the business money.

The main reports are the earnings report and therefore the record.

These reports should be easy to read and understand in order that anyone in business can devour one up and quickly interpret how well or not the business is doing, hence the necessity for national accounting standards (more on this below) in order that every report features a similar layout with equivalent sorts of accounts.

The Difference between Bookkeeping and Accounting

In addition bookkeeping focuses on the day to day financial activities of a business. A sole proprietor or bookkeeper must skills to enter all the day to day financial transactions into the bookkeeping system.

Accounting is that the pulling together of the bookkeeping results by an Accountant into standardized annual financial statements. These aren't usually required for sole proprietorships or sole traders unless you would like to borrow money - the lender might want to ascertain a correct set of accounts.

These year-end financial statements must align with national accounting standards governed by the accounting standards boards within each country.

Experienced Accountants are well trained and knowledgeable within the country’s tax laws and accounting standards and may tweak the business accounts prepared by the bookkeeper to urge the simplest tax advantages within a legal framework.

Accountants can analyze the statements and advise the business owner on ways to enhance business trading, and that they can perform audits to double-check the accuracy and transparency of the financial activities of a business.

What Is Bookkeeping: Types

There are two main sorts of bookkeeping:

Single Entry

This is an easy and straightforward bookkeeping solution for very small, start-up businesses or sole traders using printed papers or Excel type spreadsheets. The minimum requirement that a business must have may be a cash book (which reflects the checking account activities of receipts and payments) and lots of small businesses can persist with just a cashbook to try to to their bookkeeping. The most basic of bookkeeping records should enable people to ascertain all the income earned and every one the expenses paid leading to a difference (income minus expenses) for a period of your time like one month or the entire year. This type of basic bookkeeping is suitable for sole proprietors to handle. Cash books are typically just for the accounting of accounting.

Double Entry

Double-entry bookkeeping was developed within the mercantile period of Europe to assist rationalize commercial transactions and make trade more efficient.  Some thinkers have argued that double-entry accounting was a key calculative technology liable for the birth of capitalism. The accounting equation forms the inspiration of the double-entry accounting and may be a concise representation of an idea that expands into the complex, expanded and multi-item display of the record. The record is predicated on the double-entry accounting where total assets of a corporation are adequate to the entire of liabilities and shareholder equity.