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 someone who 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. Since now we know what bookkeeping and accounting are, let us move on to the types of bookkeeping.
Types of Bookkeeping
There are two different types of bookkeeping.
Single-entry
Double-entry
Single entry bookkeeping is precisely done for small businesses that do not entail arduous transactions. Payment details are recorded accurately, and notes on bookkeeping and accountancy are made from time to time. Individuals' entries ought to settle down with bank account details. For penny accounts, or where transactions do not happen on a regular basis, the single entry system of recording is considered to be the best.
The double-entry bookkeeping process is way too tedious as it jots down account details of complex and big-budget companies. In this process of bookkeeping, there are endless debits and credits taking place so spontaneous recording might be indispensable. Therefore, for big companies where numerous entries are made per day, the double-entry system is the perfect fit.
What Does Single-Entry and Double Entry System Means?
Single-Entry System: As the name itself suggests, a single entry system means a single entry for all business transactions should be included in the accounting records. Generally speaking, a single accounting system works better for small businesses with less revenue. In addition to this under the single-entry bookkeeping system, one will not find records of assets and liabilities. But will find records of cash disbursements and cash receipts
Double-Entry System: Double-Entry Bookkeeping System is the quality method of record-keeping normally used by businesses, bookkeepers, and accountants. The plan of executing the double-entry bookkeeping system is more lengthy and complex than the single-entry bookkeeping system. It provides the concept of debit and credit which means that for every transaction there is something received and given up.
Introduction to Bookkeeping and Accounting
Bookkeeping and accounting are two extensive factors that are exceedingly required for any growing industry. Bookkeeping and accounting are often believed to be the same. However, both bookkeeping and accounting are concerned with the handling of financial data. Accounting is something much broader than bookkeeping. Bookkeeping is one of the phenomena mandatory in accounting. Otherwise stated, bookkeeping mainly concerns the preparatory part of the accounting process.
Accounting provides a whole lot of data that bookkeepers utilize for preparing income-tax statements, audits, financial statements, and cost studies. Furthermore, accountants prepare records based on that information. Simply put, an accountant has to be more skilled than a bookkeeper. Moreover, accounting is a more advanced and detailed form of bookkeeping.
Bookkeeping vs Accounting or the Difference between Bookkeeping and Accounting
To know how bookkeeping differs from accounting, let us now understand the main differences between the two. There are several differences between bookkeeping and accounting.
Account Bookkeeping often ensures that the financial documents are correctly and systematically recorded, whereas the task of accounting is more likely done to evaluate the financial well-being of any given organization. Accounting focuses more on the analytic side of the data.
Bookkeepers do not necessarily require any exceptional skills, but accountants are expected to have extensive skills since the data analysis and preparation of financial statements are not only complex but also tend to be extremely analytical.
The bookkeeping process may be of single entry or double entry, but in accounting, several processes, namely financial, social responsibility, inventory, are obliged. In the case of accounting, sufficient academic qualification is needed, whereas bookkeeping is all about the ability to understand financial subjects accurately.
The account bookkeeping process involves four simple steps that 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.
Process of Accounting
The eight steps of the accounting process include the following points:
Identify Transactions
Record Transactions in a Journal
Posting
Unadjusted Trial Balance
Worksheet
Adjusting Journal Entries
Financial Statements
Closing the Books
Identification of financial transactions
Recording of transactions in the journal
Preparation of the ledger accounts
Preparation of the trial balance
Making a worksheet of the financial statements
Adjusting the entries
Verifying the financial statements
Advising on taxation matters
Closing of the books
Fun Facts
Just by looking into the word, it's crystal clear that bookkeeping holds one special characteristic in the English language, embodying back to back duplicating three sets of double letters combined concurrently. When you go back in time, individuals can easily pinpoint that bookkeepers have made a great deal of history. For instance, chewing gum was primarily fabricated by an accountant. Most of the women residing in the US are either accountants or bookkeepers. Surprisingly several superstars, including Mick Jagger, practiced being a bookkeeper but ended up becoming splendid artists Hence, bookkeeping and accounting have always been considered as important roles in society.
FAQs on Bookkeeping: Meaning and Basics Explained
1. What is the Role of a Professional Bookkeeper?
A professional bookkeeper is someone who provides an outsourced service of bookkeeping to those companies who could not afford an in-house bookkeeper on their payroll or do not have the volume of justification of a perfect staff member in performing the bookkeeping tasks. This bookkeeping firstly comes into the office of the client on a previously determined basis to open a mail, maintain a perfect track of bills, preparation of bills for payment, and the mailing process. It also overlooks the process of payroll, receiving the payments from the customers.
Therefore both the accounting and bookkeeping could be handled from the business keepers office. And mainly, the location of the work to be performed depends totally on the preference of the client.
2. Differentiate Between Bookkeeping and Accounting.
Bookkeeping is an excellent tool to visualize how each penny is spent. Account Bookkeeping is often concerned with the identification, measurement, and recording of financial data. Bookkeeping is perfect for small businesses. But authorities wouldn't be able to rely completely on the data provided by the bookkeeping process. This does not act as the platform for the preparation of financial statements.
Accounting summarizes and interprets data provided by bookkeeping. It is far more reliable and plays a critical role in decision-making. Accounting can also aid in planning loan proposals. From an accounting statement, important decisions can be taken as accounting determines a company's financial position.
3. What are the other methods of Bookkeeping apart from the Single Entry System and Double Entry System?
Other Bookkeeping methods are manual methods of bookkeeping and computerized methods of bookkeeping. Manual bookkeeping is the ancient form of bookkeeping where a bookkeeper will use a journal book or a ledger book to record the different accounting entries related to business transactions. Whereas; Computerized bookkeeping is an advanced technology for bookkeeping that will help bookkeepers to perform bookkeeping of complex business transactions in the easiest manner as well as will increase the speed of work.
4. Is bookkeeping easy to learn?
You need to understand the basics of bookkeeping, accounting, and even have some tax knowledge to be able to serve a client properly. You need to undergo proper training for handling and understanding the concept of Bookkeeping as bookkeeping can be difficult.
5. What is the importance of Bookkeeping?
Proper bookkeeping gives companies a reliable measure of their performance. Bookkeeping helps the businessman to study the budget for his business, helps to prepare for tax returns, supports to keep the business organized, and so on. In short, it will help in running the business smoothly.
6. What is the history of Bookkeeping?
The Italian Luca Pacioli, recognized as The Father of accounting and bookkeeping discovered and published a work on double-entry bookkeeping and pioneered it in Italy. After that, the modern profession of the chartered accountant originated in Scotland in the nineteenth century.
7. What does a bookkeeper do?
Bookkeepers are the persons who are given the responsibility of providing accurate, up-to-date financial information about a business. They always keep track of a business which helps business owners and managers to make important decisions. They also work as a team with the accountant in preparing annual financial reports and tax returns.
