What is Bookkeeping
Bookkeeping is the technique of putting your company’s financial actions into organized accounts on a regular basis. It can also refer to the many recording strategies that corporations might use.
Accurate bookkeeping is also important for external users, such as investors, financial institutions, or the government – individuals or organizations who require trustworthy information to make better investment or lending decisions. Simply, businesses rely on precise and dependable bookkeeping for internal and external users.
Methods of Bookkeeping
Before you begin bookkeeping, your company must pick which system to use. Consider the volume of daily transactions and income generated by your company before making your selection.
A complicated bookkeeping approach meant for corporations may bring unneeded hassles if you own a small firm. Large firms, on the other hand, will require more sophisticated bookkeeping procedures.
With this in mind, let’s break down these methods so you can pick the best one for your company.
Single entry Bookkeeping
Single-entry bookkeeping is a simple system in which one entry is made in your books for each transaction. These transactions are often recorded in a cash book in order to keep track of incoming revenue and outgoing costs. For the single-entry system, no formal accounting training is required.
The single-entry technique is appropriate for small private enterprises and sole proprietorships that do not buy or sell on credit, possess few to no tangible assets, and keep just a limited quantity of inventory.
Double entry Bookkeeping
Double-entry accounting is more precise. It is based on the idea that every transaction impacts at least two accounts and is recorded as a debit or a credit. For example, if you sell anything for $100, your cash account will be debited and your sales account will be credited with the same amount.
The total credits must always match the total debits under the double-entry system. Your books are considered to be “balanced” when this happens. If your company is large, public, or buys and sells on credit, using the double-entry approach for bookkeeping makes more sense.
Because it allows less possibility for error, businesses frequently adopt the double-entry approach. It essentially ‘double-checks’ your books since each transaction is recorded as two matching but opposing accounts.
Cash Vs Accrual Base Accounting
Companies must first decide which accounting basis they will use in order to correctly implement bookkeeping. Companies might opt for one of two main accounting methods: cash basis accounting or accrual basis accounting.
In cash basis accounting, when you receive cash into your firm, you recognize revenue. When expenses are paid for, they are recorded. In other words, whenever cash enters or exits your accounts, it is recorded in the books.
This implies that purchases or transactions done on credit will not be recorded in your records until the cash is exchanged. In accrual basis accounting, revenue is recognized when it is earned under the accrual method.
Similarly, expenses are recorded as they are incurred, generally in association with revenue. For the transaction to be recorded, actual currency does not need to enter or exit. You may immediately mark your credit sales and purchases.
How to Start Bookkeeping?
Transactions are first recorded on source papers such as purchase and sales orders, bills, invoices, and cash register records. Once you’ve gathered these papers, you may use journals, ledgers, and the trial balance to record the transactions.
If you have a tiny business, you may simply require a cash register. The data may subsequently be combined and transformed into financial statements.
What are Bookkeeping Duties?
Essentially, bookkeeping is the systematic recording and tracking of the data involved in the financial aspect of a firm. It is necessary for corporations, but it is also beneficial to people and non-profit organizations.
The person(s) in charge of bookkeeping for a business would record all associated transactions, including but not limited to:
- Supplier remuneration.
- Payments for loans.
- Payments for bills from customers.
- Keeping track of asset depreciation.
- Making financial reports.
Bookkeeping Vs Accounting
Accounting and bookkeeping are both crucial parts of financial management. At first sight, the two may appear to be very similar, but there are a few key distinctions. The recording and arrangement of financial data are what bookkeeping is all about. The evaluation and presentation of data to business owners and investors are known as accounting.
Typically, bookkeeping consists of the following tasks:
- bills and receipts
- keeping track of business transactions
Accounting often consists of the following:
- reports and financial statements
- income tax returns
- examining the performance of businesses
Accounting software for small businesses comes in a variety of flavors, each with its own set of functions and price tags. In general, the kind of industry and the number of employees are two aspects that might assist a small business owner in selecting proper accounting software. For example, a freelancer does not require the same accounting software functionality as a company owner.
The best accounting software for small and large companies are:
- Tally Prime and Tally ERP 9
- Zoho Books
Some Frequently Asked Question (FAQ’s) about Bookkeeping
What does bookkeeping mean?
Bookkeeping is the technique of putting your company’s financial actions into organized accounts on a regular basis.
What does bookkeeping do?
The primary aim of accounting is to track a firm’s financial activity, which allows you to retain an up-to-date record of current incoming and outgoing amounts, amounts owing by customers and the business, and more.
Why is bookkeeping important?
Proper bookkeeping provides businesses with a solid gauge of their success. It also serves as a general strategic decision-making tool and a benchmark for the company’s sales and income targets.
Who is a bookkeeper and What are the duties of a bookkeeper?
Bookkeepers are persons who maintain all financial data for businesses. Companies would not be aware of their current financial condition or the transactions that place within the organization if bookkeepers were not there.
Are Bookkeeping and Accounting the same?
At first sight, the two may appear to be very similar, but there are a few key distinctions. The recording and arrangement of financial data are what bookkeeping is all about. The evaluation and presentation of data to business owners and investors are known as accounting.
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