Bookkeeping in simple words is keeping a record of the financial transactions in a business. The systematic recording and organizing of the financial transactions are essential for the business, its growth and accounting practices. It is very vital that those records are maintained on a day-to-day basis and accurately. To keep bookkeeping you can hire an accountant to keep bookkeeping services like preparation of the financial report, bank reconciliation statement etc.
Financial Transactions in Bookkeeping
Different financial transactions are part of any running business. These may include purchases, sales, receipts, and payments related to the business. The accountant can prepare the income statement and balance sheet only if the transactions and operations, and other events of a business, an organization, individual, etc. The individual who keeps those records is known as the bookkeeper.
The individual who keeps a record of the financial transactions is known as a Bookkeeper. His task is to record the day-to-day financial transactions and keep a record of the sales, purchases, receipts, and payments in a book. Every financial transaction, whether cash or credit has to be documented and in the correct book. There are different books like supplier’s ledger, customer ledger, general ledger, petty cash book, and more. It is his responsibility to bring the books to the trial balance stage.
The bookkeeper needs to be aware of several methods of bookkeeping like the single-entry and double-entry systems. These bookkeeping methods are the most common today and adequate for many businesses.
- Single-Entry System: This is the primary bookkeeping system where the entries are assigned under income and expense accounts. There are separate account records for petty cash and payable and receivable accounts. The single-entry system is more suitable for small businesses.
- Double-Entry System: Under a double-entry bookkeeping system, there are two different nominal ledger accounts made for every transaction to record the financial information. These entries are recorded to the asset, liability, revenue, equity, expense accounts.
There are some common financial transactions that very bookkeeper should be aware of.
Common Financial Transactions in Bookkeeping
The bookkeeper should carry a basic understanding of financial accounting. Bookkeeping includes the balance sheet and income statement along with debits and credits. The financial transactions and tasks that are typically involved in bookkeeping include:
- Billing for services provided and goods sold
- Recording of the receipts from customers
- Verification and recording invoices from suppliers and payments to them
- Processing employees’ pay and governmental reports
- Monitor individual accounts and record depreciation
- Create financial reports and adjust entries
It is essential not to confuse Bookkeeping and accounting, although the two terms are often used interchangeably. While bookkeeping relates to the specific tasks and practices in the financial activities of a business, the accounting is the overall management of the finances of a business. Today there is even software that is used for bookkeeping.
The technological advances have shifted the traditional bookkeeping system to a computer-based system. In the case of Computerized bookkeeping, there is no need for paper books to record the financial transactions. Relational databases are used to enforce the bookkeeping norms including the single-entry and double-entry bookkeeping systems. Computerized bookkeeping systems make the tasks faster and minimize errors when documenting the different business entities and activities. Today, those online applications and records can be backed up in the cloud and enjoy unlimited storage. Some good example of a computerized bookkeeping software package is QuickBooks which is widely used by small businesses.
There is a growing preference towards electronic and computerized bookkeeping system because of the relevance and accuracy of the accounts. Instantaneous posting to relevant accounts gets rid of any delays. Always pick the right service provider for bookkeeping. After all, it is very essential to keep all financial transactions in order and well documented for your business.