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Things about What is Bookkeeping Your Teachers Wouldn’t Tell You

What is Bookkeeping?

Bookkeeping is the process of recording, analyzing and reading the financial transactions of a business organization or individual person.

Bookkeeping is created to provide the primary information needed to create accounting statements. Each transaction must be recorded in the books, and any and all changes must be updated on a regular basis.

Importance of bookkeeping

The most important aspect of bookkeeping is to keep an accurate account of all records and keep them up to date. Correctness is the most important part of the bookkeeping process.

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What is bookkeeping duties?

A bookkeeper’s duty is to arrangement financial statements so that an accountant can easily complete legal and tax management in a timely manner.

  • Setup manual or computerized bookkeeping system using different books of account or software
  • File tracking system manual or computerized
  • Enter transaction in book/ software
  • Perform check of transaction
  • Reconcile balances
  • Fast and accurate reports generation manual or computerized
  • bookkeeper produce financial records
  • Give accurate information about financial transactions.
  • Provide administrative support to an accountant or any other person who required financial information.

Basic Bookkeeping Principles 

            A bookkeeping system is the only method of tracking income and expenses so that you can readily tell how your business is progressing.
            Bookkeeping systems can be simple or difficult, manual or computerized. But, there are certain basic bookkeeping principles that apply to all standard methods of accounting for your business activities.

a) Financial Statements

A business can prepare differed kinds of reports, the Profit & Loss statement and Balance Sheet is the most important and basic report for any business.

The profit & loss statement shows the all the expenses and revenue while balance sheet shows all the Assets and Liabilities of the business.

b) Basic Accounts:

            A bookkeeper needs to prepare the basic accounts are;

For your income statement;

·         Sales

·         Expenses

·         Payroll and retained earnings

For your balance sheet;

·         Cash

·         Accounts receivable

·         Accounts payable

·         Notes payable

·         Inventory

·         Owner’s equity

C) Negative and Positive Balances

          Some types of accounts normally transfer negative balances, but others normally show positive balances. This can be puzzling to a beginner bookkeeper.

           On the profit loss statement, your revenue accounts, such as sales, normally transfer a negative balance even still they are a good activity for your business. Expenses and cost of goods sold should have positive balances.

           On the balance sheet, accounts that represent favorable activity for your business have positive balances. Cash , accounts receivable and inventory is examples of accounts with positive balances. Negative balance accounts are those that are less favorable. Accrued liabilities and accounts payable are examples.

If you examine a transaction, it might be easier to understand.

For example, when you sell an item, you credit sales, a negative balance account.
You must debit another account, either cash or accounts receivable, which both normally carry positive balances.

Who Really Uses Bookkeeping;

Every business needs to use bookkeeping to keep their business transaction record.

  • Merchant
  • Businessman
  • Govt offices
  • Private Organizations
  • Services Organizations

How Bookkeeping Can Help You

Bookkeeping can help you in different manners. It is used to extract accurate financial information of your business or to track record of your transaction.

  • Shows accurate financial position of a business
  • Timely information
  • Any sort of report generation.
  • You can keep an eye on your inventory through bookkeeping and made timely purchase orders.
  • Timely payments of expenditures.

Types of bookkeeping System:

There are two types of bookkeeping system, which are discussed below.

  1. Single entry bookkeeping

Single entry bookkeeping refers to that bookkeeping where no accounting standard is followed, for example, a sole proprietor with small business/shop can record his transaction in his book where no Dr or Cr rule followed.

He just writes what he purchases on the particular date, in a single row.

For example:

DateDescriptionAmount (Rs.)
27 July-16 Dalda Oil Purchase Rs.890 * 1210680

2. Double entry bookkeeping

This bookkeeping system refers to a set of rules to record financial information where every transaction must impact at least two different accounts. 

This is done using debits and credits and is used as a type of error-detection system. If, at any point, the total sum of debits does not equal the sum of credits.

For example:

DateParticularDrCr
27 July-16Dalda Oil Purchase

 

             To Salman & Co

 

Dalda Oil Purchase from Salman & Co on cash at Rs.890 *12

10680

10680

About the author

Salman Qureshi

Salman Qureshi is an Accountant by profession & he loves to write on Commerce & Management Sciences Subject to assist Students. Hope you guys will like his effort.

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