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Bookkeeping 101: Everything You Need to Know About Bookkeeping in Accounting

Bookkeeping is the recording of financial transactions and is part of the process of accounting in business and other organizations. It involves preparing source documents for all transactions, operations, and other events of a business. Bookkeeping helps companies track all their financial transactions on their books with accurate bookkeeping. Bookkeeping also helps companies to make important investing, operating, and financing decisions.

Bookkeeping Vs. Accounting

The difference between bookkeeping and accounting is that bookkeeping is the process of recording and maintaining financial transactions, while accounting is the process of interpreting, analyzing, summarizing, and reporting financial data. Bookkeeping is a part of accounting, but accounting has a broader scope than bookkeeping. Bookkeeping focuses on the day-to-day financial activities and transactions of a business, while accounting uses the information provided by bookkeeping to prepare financial statements and make informed decisions. Bookkeeping is performed by a bookkeeper, while accounting is performed by an accountant.

Objectives of Bookkeeping

The main objectives of bookkeeping are:

To record the transactions:

The first objective of bookkeeping is to maintain accurate and complete records of all financial transactions in an orderly manner. It systematically records all transactions and ensures that all financial transactions recorded are reflected in the books of accounts. These transactions can be used for future reference.

To show the correct position:

Bookkeeping helps to ascertain the overall impact of all financial transactions of a company. It reflects the financial effect of all business transactions that have taken place in a financial year. It provides financial information to the shareholders and management of the company, thus helping them formulate future policies and plans.

To detect errors and frauds:

Bookkeeping helps to identify the transactions and summarise them chronologically in a systematic manner. It also helps to detect any errors or frauds that may have occurred in the course of business operations. By maintaining proper records, bookkeeping can prevent or minimize the chances of misappropriation or manipulation of funds.

Types of Bookkeeping

There are two main types of bookkeeping:

Single-entry bookkeeping