Bookkeeping Defined
Bookkeeping
is the process of recording and classifying business financial transactions. In
simple language, maintaining the records of the financial activities of a
business or an individual. Objectives of Bookkeeping are simply record and
summarize financial transactions into a working form which delivers an
individual or a business the financial information. Accountant normally plan
and set up the accounting and
bookkeeping system for a business and turn over the day to day record keeping
to the owner or one of his/her employees. In this age of computers, more and
more of the daily bookkeeping is being done using bookkeeping software and
computer although some businesses still maintain manual records. Due to the
reasonable cost of computers and software, I recommend an automated (computer)
bookkeeping system.
Types of bookkeeping System
A business also needs to determine the
type of bookkeeping system that will be used for recording their business
transactions. Many small businesses start out using the single-entry
system.
Single Entry System
The single-entry system is an informal
bookkeeping system in accounting, where an individual of this system makes only
one entry to enter a business financial transaction. Cash receipt of daily
summary and a monthly record of disbursement and receipt have been included in
this system.
A
checkbook, for example, is a single entry bookkeeping
system where one entry made for each deposit or check written. Receipts are
entered as a deposit and a source of revenue. Checks and withdrawals are
entered as expenses.
In manual system, for determining the
revenues and expenses, you have to prepare worksheets to summarize your income
and then classify and summarize your different types of expenses. There are a
lot of software’s for bookkeeping and spreadsheets available.
The emphasis of this system is placed on
determining the profit or loss of business. It got its name because your record
each transaction only once as either revenue (deposit) or as an expense
(check).
Double Entry System
The double entry system is the standard
system used by businesses and other organizations to record financial
transactions. Since all business transactions consist of an exchange of one
thing for another, double entry bookkeeping using debits and credits, is used
to show this two-fold effect. Debits and Credit are the device that provide the
ability to record the entries twice and are explained in more detail later in
this tutorial.
There is also a check and balance in
double entry system. Due to the use of debit and credits, the double-entry
system is self-balancing. The total of the debit value recorded must equal the
total of credit values recorded.
This system, when used along with the
accrual method of accounting, is a complete system has worldwide support as the
system to use b businesses for recording the financial transactions.
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