WHAT IS BOOKKEEPING ?
Bookkeeping, often called record keeping, is the part of accounting that records transactions and business events in the form of journal entries in the accounting system. It is primarily concerned with recording & classification of financial transactions related to business operations regularly in a systematic manner.
It is the first and the most important step in the accounting process. Proper book keeping allows the companies to track all the information recorded in their books which helps them in making better investment and financing decisions.
OBJECTIVES OF BOOKKEEPING
Following are the main objectives of bookkeeping –
- One of the basic objectives of bookkeeping is identification of business transactions. . It only identifies those transactions which are related to the business and are financial in nature. All the other transactions which are not concerned with business or are not financial in nature will be ignored .
- To provide financial information to both internal and external users, which will be beneficial in making future plans.
- To detect the potential errors which may have occurred while recording the information .
- To disclose factors responsible for earning profit or suffering loss on a given period.
- To ascertain the combined effect of all the transactions on the financial position of the business on a particular date.
FUNCTIONS OF BOOKKEEPING
Book-keeping comprises of a lot of functions and activities bundled together. Some such activities are –
- Recording all financial transactions
- Posting debit and credits in the respective ledgers.
- Producing and organizing all source documents such as invoices.
- Payroll accounting and upkeep may also be clubbed in with book-keeping.
TYPES OF BOOKKEEPING SYSTEM
There are two types of bookkeeping system which are commonly used , namely –
- SINGLE ENTRY BOOKKEEPING SYSTEM :
An accounting system which does not record two aspects of a transaction is called Single entry bookkeeping system. It is regarded as an incomplete system of recording transactions. Under this system transactions are recorded in books only when either cash is received for sales made or cash is paid for expenses incurred. Hence, it is not suitable for businesses having accounts payables, accounts receivables, and many capital transactions.
- DOUBLE ENTRY BOOKKEEPING SYSTEM :
An accounting system that records the dual aspect of a transaction is known as double entry bookkeeping system. Under this system, transactions are always recorded in terms of debit and credit. One account will be debited and the corresponding credit effect will be given in another account for the same amount. This means for every debit there will be an equal and opposite credit.
This system is more suitable for larger organization having complex and huge transaction volumes.
Thus, in a nutshell, Book-keeping is a part of accounting that is concerned with the recording of financial transactions and events in the books of accounts & includes tasks such as posting business transactions in the journal and the ledger, totaling them and obtaining the balances.