Book-Keeping Introduction

Bookkeeping or account bookkeeping is a process that involves systematic organizing and recording of any financial transactions taking place in a company; so that it could be totally reliable while tracking information at any time later. The term ‘accuracy’ plays a notable role in bookkeeping. Proper account bookkeeping could assist you with tracking key operations, financial decisions, and good investments.

Prior to this electronic era, account bookkeeping for any business was usually handwritten. A bookkeeper is employed by a company, whose job is to essentially record any payments (say, loan payments, payments to suppliers, etc.), monitor asset depreciation, and generation of financial reports.

IMPORTANCE OF BOOKKEEPING

- Records the source of the transaction.

Bookkeeping acts as a source of all the financial transactions of a business since it records all the financial transactions from the source of the transaction, like receipts, invoices, payment notes, etc.

Bookkeeping keeps track of payments, receipts, purchases, and sales and records every transaction made by and by the business. All businesses irrespective of their size, need to have proper bookkeeping in place.

Gives information to prepare financial statements.

- Helps in decision making.

A correct and proper bookkeeping process provides companies with an accurate measure of their performance. It also provides information for making general strategic decisions and a benchmark for its income and revenue goals. Bookkeeping is a reliable source for companies to measure their financial performance.

- Legal requirement.

The maintenance of financial statements and books of accounts is a legal requirement under many acts. In the case of banks or companies or insurance companies, the acts that regulate them require such firms to maintain and keep financial records. Thus, bookkeeping becomes necessary for such companies.

OBJECTIVES OF BOOK – KEEPING

To record the transactions

The first objective of bookkeeping is to maintain accurate and complete records of all financial transactions in an orderly manner. It systematically records all transactions and ensures that all financial transactions recorded are reflected in the books of accounts. These transactions can be used for future reference.

To detect errors and frauds.

Bookkeeping helps to identify the transactions and summarize them chronologically in a systematic manner. It ensures that the books of accounts are correct, up to date, chronological and complete. Thus, it helps to detect any errors or frauds in the business.

To show the correct position

Bookkeeping helps to ascertain the overall impact of all financial transactions of a company. It reflects the financial effect of all business transactions that have taken place in a financial year. It provides financial information to the shareholders and management of the company, thus helping them formulate future policies and plans.

TYPES OF BOOKKEEPING SYSTEM

The single-entry and double-entry bookkeeping systems are the two methods commonly used. While each has its own advantage and disadvantage, the business must choose the one which is most suitable for their business.

Single Entry Bookkeeping System.	Double Entry Bookkeeping System.
The single-entry system of bookkeeping requires recording one entry for each financial activity or transaction.	The double-entry system of bookkeeping requires a double entry for each financial transaction.
Single entry bookkeeping system is a basic system that a company might use to record daily receipts or generate a daily or weekly report of cash flow.	The double entry system provides for checks and balances by recording a corresponding credit entry for each debit entry. The double-entry system of bookkeeping is not cash-based. Transactions are entered when a debt is incurred, or revenue is earned.

METHODS OF BOOKKEEPING

Manual methodology of Bookkeeping	It is a paper-based and traditional way of Bookkeeping. Transactions are recorded manually by hand using a paper book of accounts such as journal-register, ledger books, etc. Widely used by small businesses with less complex business transactions. Cheaper and easier to maintain but requires a lot of skill and time, sometimes turns out to be a tedious task at hand.
Computerized methodology of Bookkeeping	A new innovative way of recording business transactions. Uses accounting and bookkeeping software such as Tally. ERP 9 for recording transactions. An easier, faster, and more convenient way of recording business transactions. Eliminates the tedious tasks involved in manual bookkeeping. Reliable and accurate financial reports possible.

BENEFITS OF BOOKKEEPING

There are multiple benefits to having a good bookkeeper, and with all the changes happening in the financial world, every business will want to have such a person on staff.

Detailed Recording

A thorough, dedicated bookkeeper will always keep detailed records up to date. This complete recording will not only assist you in supervising your business accounts but will also be of great assistance once you need your financial statements — or once your company is audited — as this process will be much faster and much cheaper.

It Is Easier to Plan

Once you have a detailed recording and a better overview of the company's accounts, it is much easier to plan and predict the future. When you are confident in your data, you can solve issues quickly and you can grab any opportunities that present themselves, without having to fear miscalculations in the accessible data.

Faster Financial Analysis

As bookkeeping tends to be less expensive than accounting, it’s helpful to know that by having detailed records you will shorten the length of time an accountant will spend on analyzing your accounts and creating financial statements.

Always Compliant with the Law

A good bookkeeper will always comply with the latest legal regulations and will make sure all your accounts and books are up to date with any recent legal changes. Because the bookkeeper holds himself or herself accountable for any work that they do, you can rely on them to clear any mistakes. This saves time and effort for the bookkeeper, which in turn saves money for the company.

Instant Reporting

Even though you will need to wait for the accountant or the auditor to finish their reports to conclude official financial statements, you will always have an updated balance sheet to inquire about the current state of the accounts. You will be able to present these data to any interested party, providing additional confidence both in your work as a manager and in the company's health.

Faster Business Response Time

When you have real-time information about the state of your accounts, you will be able to react quickly to any changes that happen to the market or to your business. You will know the extent of your resources and current expenses, providing you with accurate insight: is it the right time to act?

PROCESS OF BOOKKEEPING

The account bookkeeping process involves four simple steps which are as follows.

Analyzing financial transactions.
Writing the original entries.
Preparation of the ledger accounts.
Adjust the entries at the end of every accounting.

Bookkeeping is generally termed as a task of recording financial transactions and is a part of accounts in business and other organizations. This plays a vital role in keeping track of documents related to transactions, operations, and other events of a business. Transactions include purchases, sales, receipts, and payments by a person or an organization/corporation. The person in an organization who is employed to perform bookkeeping functions is usually called the bookkeeper (or bookkeeper). The bookkeeper brings the books to the trial balance stage, from which an accountant may prepare financial reports for the organization, such as the income statement and balance sheet.