What Is Bookkeeping? Bookkeeping is part of the procedure of accounting in most organizations’ and business, and is a crucial component of the financial management process. It entails preparing financial documentation for all activities, operations, and events of an organisation. Such financial records include invoices/claims; sales; accounts payable and receivable; bank deposits; current assets; long-term assets; inventory; and liabilities.
Bookkeeping can be handled by various professionals, including accountants, bookkeepers, auditors, and finance managers. In small businesses, the owner/manager keeps the books. Business firms are generally run by a group of proprietors or owners. They keep the books of their firms and hire accountants and bookkeepers to handle the bookkeeping process. The method of record keeping depends on the type of business: a small business firm usually uses different methods than a large business firm.
Every financial transaction is recorded in the books of the firm, called ledgers. The purpose of this recording is to facilitate smooth accounting processes. A bookkeeper’s job is to create the accounts that will represent the financial transactions of his or her employer/employee. Bookkeepers record the financial transactions of the employers/employees by entering specific items into the books.
An accountant is an expert in making financial transactions and interpreting the results of those transactions. He can prepare statements of accounts (or statement schedules) on a daily, weekly, or monthly basis, depending upon the client. Accountants help to manage the funds of his or her employer/employee. An accountant’s work is usually affected by the rules of his employer/employee as well as by the laws of the country where he or she works. An accountant’s job description and responsibilities are very broad and can include any number of functions.
The balance sheet, which summarizes the income statement and other related financial records, is the first thing an accountant will produce each day. It shows the current value of all outstanding cash flows and also the difference between that balance sheet and the income statement. The accountant will determine the financial position, if any, and then make adjustments to the balance sheet to show the results of that evaluation.
The next thing an accountant does is produce the income statement, which details the net income or profit of the business firm. The bookkeeper will compare the net income statement to the financial statements to determine the extent to which the company is profiting or losing money. Generally speaking, the accountant’s reports reflect the results of a regular analysis process. The basic steps of the bookkeeping process are as follows:
* Recording transactions in ledgers. This part of the accounting process involves drawing up ledgers for each transaction, keeping track of the events that led up to the transaction and making sure those events were recorded accurately. This step is very important to ensure accurate reporting. It is also the basis for preparing the financial reports.
* Valuing the financial transactions. This is another integral aspect of accounting. The value of a transaction is derived from the amount of cash paid or received plus the interest and net operating profit at the time it is recorded, less any debt or other charges.
* Accounting for the results of business activities. When an accountant prepares financial transactions, he or she also prepares the report that summarizes the results of those transactions, called the statement of accounts. This includes a statement listing the financial transactions performed for the day of the transaction, the assets purchased or sold, the cash received or paid, and other relevant financial information. The purpose of this report is to provide a complete accounting of the business activities for the period that ended on the day of the transaction. It also provides an overview of the year-end numbers.
* Valuing the accounts receivable. Similar to the records of sales and purchases, a company’s accounts receivable represents the money that a customer has made or received from its purchases. Accounts receivable is a daily basis while accounts payable represent an inventory that must be paid on a regular basis. The valuing process involves computing the receivable balance and the cost base of the accounts receivable.
* Proper recording of the transactions. Accounting records are accurate records that allow managers to determine the value of their assets, liabilities, and taxes. If these transactions are not recorded properly, the results of these transactions may be incorrect. A bookkeeper is the person who creates, maintains, and checks the bookkeeping records of a business. An accountant is responsible for the maintenance of the accounting system.
* Maintain financial transactions. The bookkeeping system not only maintains the accounting transactions, but also records the payment of the agreed upon transaction and other related financial transactions. This ensures that all of the business transactions are recorded accurately.