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What Exactly Is Bookkeeping?

Companies / Financial Education Jan 29, 2021 - 05:13 PM GMT

By: Submissions

Companies

Bookkeeping is essentially the comprehensive organizing and recording of the financial transactions of a business. These include things such as day to day spendings, as well as recording information that pertains to the business. By having a bookkeeper in place it means that all of the financial records kept by a business are accurate, up to date, and completel. 

Throughout the entire bookkeeping process it is important that accuracy is maintained at all times. This is because this information forms the basis on which the business’s accounts are based. To aid this process there are a number of structures in place known as quality controls that ensure all financial records are accurate and timely.


The Tasks That Are Done

The main responsibilities of a bookkeeper are to keep track of and record all financial transactions. These include activities such as loan payments, financial reports, expenses, customer payments, and asset monitoring.

Where bookkeeping differs from accounting is that it does not involve the entire process of managing a business’s finances. Instead it takes a more focused look at recording financial transactions. 

Why It Is Important 

It is important to have a bookkeeper in your business regardless of how big or small it may be. Although it may seem like a quite simple process, it soon becomes much more complex when investments, loans, assets, and taxation are involved. For this reason you may struggle to do it yourself and instead require the help of a specialist bookkeeper.

By keeping tabs on all of a business’s day to day financial transactions, you will always have a record of current incomings and outgoings that is up to date. If this is something that your business could do with, then check out these Bookkeeping services.

Traditional approach 

Bookkeeping is an important part of the accounting process and involves charts of accounts, double entry, and ledgers. In a chart of accounts, financial transactions are recorded on a daily basis either into a physical booking, or more commonly now, into an electronic accounting system on a computer. For each transaction that is recorded, it must also be described to say what it was for. In lieu of this, a sales receipt, invoice, or bank record is attributed to the individual transaction. This is important for the purposes of an audit trail should you business ever be subject to one.

Double entry bookkeeping works on the basis that each and every financial transaction that a business makes is made up of two separate parts, thus impacting two separate ledger accounts. As a result this means that any transaction that is made includes a debt entry in one ledger and a credit entry in the other ledger. This acts as a means of highlighting any errors that may be present within the ‘books’, as the debt and credit entries must equal one another and if they do not then an error has been made.

Having read through this you should have a good understanding of what exactly bookkeeping is and what tasks are involved in the process.

By Lyle MacLeod

© 2021 Copyright Lyle MacLeod - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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