Bookkeeping

What is Bookkeeping in Accounting?

Bookkeeping or account bookkeeping is a process which 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 is bookkeeping and accounting, let us move onto the types of bookkeeping.  

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Types of Bookkeeping 

There are two different types of bookkeeping.

  1. Single-entry 

  2. 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. 

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.


Introduction to Bookkeeping and Accounting

Bookkeeping and accounting are two extensive factors which are exceedingly required for any growing industry. Bookkeeping and accounting are often believed to be the same. However, both bookkeeping and accounting concerns 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 highly 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. 


Introduction to the Bookkeeping Process

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

1. Analyzing financial transactions. 

2. Writing the original entries. 

3. Preparation of the ledger accounts. 

4. Adjusting the entries at the end of every accounting.


Process of Accounting

The process of accounting consists of 8 different steps and they are as follows.

1. Identification of financial transactions

2. Recording of transactions in the journal 

3. Preparation of the ledger accounts

4. Preparation of the trial balance

5. Making a worksheet of the financial statements

6. Adjusting the entries

7. Verifying the Financial statements

8. Advising on taxation matters

9. 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 a splendid artist. Hence, bookkeeping and accounting have always been considered as an important role in society.

FAQ (Frequently Asked Questions)

1.  What is the Role of a Professional Bookkeeper?

Answer: A professional bookkeeper is someone who provides an out-sourced service of bookkeeping to those companies who could not afford an in-house bookkeeper on their payroll, or not having 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 the 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- keeper's 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.

Answer: Bookkeeping is an excellent tool to visualize how each penny is spent. Account Bookkeeping is often concerned with identification, measurement, and recording of the 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.