What is bookkeeping?
Bookkeeping and accounting are often heard being used interchangeably. Although interconnected, they are two very distinct processes. Bookkeeping is the process of systematically recording and organizing all financial transactions in a company. It has a long history as an integral part of accounting and involves ledgers, charts of accounts, and a tedious double-entry system.
From recording each transaction in the correct day book and journals to preparing the trial balance, the bookkeeper’s duty is to competently log and present financial transactions in such a way that it gives a clear picture of activities performed inside a business unit. Among his other various responsibilities, the bookkeeper is also responsible for finding and correcting errors. Using this information, the accountant will then prepare the financial statements, including income statement, statement of financial position, statement of changes in equity and cash flow statement, which reflects the performance of the business. Every financial statement has to be correct, up-to-date and comprehensive. Accuracy is therefore vital to the process and should not be left to an amateur.
Bookkeeping involves recording and tracking numbers in an organized and systematic manner. It is not only essential for businesses but is also useful for non-profit organizations. Below is a list of the tasks that have to be completed by the person or team responsible for bookkeeping (this is not a comprehensive list):
- Billing customers for products or services provided
- Recording payments received from customers
- Recording invoices from suppliers
- Making payments to suppliers
- Loan repayments
- Monitoring asset depreciation
- Generating financial reports
- Recording depreciation
Importance of Bookkeeping
As mentioned above, bookkeeping is crucial for businesses of all sizes. Although it may seem straightforward, bookkeeping is complex because it needs to be very detailed and thorough. It involves tracking the financial activities of a business to help it:
- keep an up-to-date record of cash flow, amounts owed by customers and by the business
- organize data logically and chronologically for further usability
- understand the financial effect of each transaction
- determine the factors responsible for profit or loss in a certain period
- keep track of expenses and plan for future expenses
- avoid errors in the process of accounting
- determine tax-liability
Types of Books Used to Record Particular Transactions
Below is a list of only a few types of subsidiary books:
Cash books are used to record both cash receipts and cash payments. Any transaction held in cash or cheques must be recorded in this book. There are five types of cash books: single column cash book, double column cash book, triple column cash book, bank cash book and petty cash book. While the single column cash book is used to record only receipt and payment of cash, the double column cash book is used to record cash receipts and cash discounts received as well as cash payments and cash discounts allowed. In addition to these transactions, the triple column cash book also records cheque received and paid. Bank cash book tracks the receipt and payment of cheques, and cash discount received and allowed. Finally, petty cash book records only small cash payments.
Purchase books, also known as day books, bought journals, purchase journals or inward invoice books, are used to record all credit purchase of goods. They are not used to track either cash purchase of goods or credit purchase of assets.
Sales books are also called sales day books, sales journals, sold books and outward invoice books. Only sales of goods are written in this book, cash sale of goods and credit sale of assets are not.
Purchase Return Book
Purchase return books, also known as return outward books, are used to record goods that have been purchased on credit but that your business must return. There may be a wide range of reasons for which goods are returned, such as damaged goods or wrong order.
Sales Return Book
Sales return books are also called return inward books. This resembles the purchase return book in the sense that it involves goods that are returned. However, it records all goods that customers have returned for a variety of reasons.
When to Consider Hiring a Company
As you may have noticed by now, bookkeeping is very methodical and cannot be done haphazardly. What with running your business, managing your employees, looking for ways to innovate, trying to provide the best customer service, you may already be way above your head. Bookkeeping will just be another tedious task to add to the already very long list of duties. Therefore, you should consider hiring either full-time accountants to work for you or outsource the job to a professional firm.
Firms such as SJB Bookkeeping offers reliable bookkeeping and can help you run your business more effectively. Accurate bookkeeping provides information on general strategic decisions and a benchmark for revenue and income goals. Essentially, you get a reliable measure of your business performance.