What is Bookkeeping? A complete Guide

Introduction:

Bookkeeping is linked with a recording of business transactions. Business and organization involve the exchange of money or money’s worth. All these activities are recorded for the purpose of making significant judgments as to whether the activities are available, profitable, and are to be continued or not. Data about business and other organizations is required not only by the proprietors and managers of business and other organizations but also by many other stakeholders such as the government, investors, customers, employees, and researchers. In this article, you will discover what is bookkeeping. from basic to end. A complete guide. 

What is bookkeeping?

In easy terms, ‘Bookkeeping’ means recording the business transaction in the books of accounts in a well-organized method. All transactions are listed datewise for exact business results from such records at the end of the accounting year. 

Bookkeeping is the art of recording, analyzing, and summarising the financial transaction of a business for a specific period, usually one year. 

Definitions of Bookkeeping

Richard E. Strahelm: “the art of analyzing and recording business transactions, reporting results of business operations through periodic statements and interpreting such results for purposes of efficient control of future operations.”

J. R. Batliboi: “Bookkeeping is an art of recording business dealing in a set of books.”

Nocth Cott: “Bookkeeping is an art of recording in the books of accounts the monetary aspects of commercial or financial transactions.”

R.N. Carter: “Bookkeeping is the science and art of correctly recording in the books of accounts, all those business transactions that result in transfer or money or money’s worth.”

Importance of Bookkeeping

The importance of Bookkeeping is as follow:

1. Record:  

It is impossible to remember all transactions. But bookkeeping has records of all transactions forever and orderly in the books of accounts. 

2. Financial Data: 

Bookkeeping is beneficial to get data related to profit, loss, assets, liabilities, investments, and stock, etc, at any moment. 

3. Decision Making:

Bookkeeping gives financial data to the businessman for decision-making. 

4. Controlling:

Bookkeeping enables the managers of the business to manage the activities of the business. 

5. Evidence:

A businessman requires financial proof to be presented in the court of law in case of any conflicts. 

6. Tax Liability 

Bookkeeping is beneficial to obtain the liabilities e.g: Income Tax, property tax, GST, etc. 

Features of Bookkeeping:

1. It is the process of recording day-to-day business transactions.
2. Only business transactions are recorded. 
3. All records are made for a specific time which is beneficial for future references.
4. Records of transactions are based on rules.

Objectives of Bookkeeping:

1. The primary objective of bookkeeping is to have an authentic and complete record of all financial transactions in a methodical, orderly, and rational way. 
2. All transactions are to be recorded account-wise and data-wise.
3. Bookkeeping works as a permanent record of financial transactions of a business and it can be presented as proof, whenever needed.
4. To identify the profit or loss of the business during the financial year. 
5. To identify the entire liabilities and assets of the business. 
6. To know what the businessman owes to others and what others owe to him. 
7. The last objectives Businessman comes to know the current year’s growth over the past year and analyzes its financial results with other business in similar line. 

Utility of Bookkeeping 

Owner:

The businessman can find out the profit, losses, assets, and liabilities of an enterprise at any moment. 

Management:

Management of an enterprise can plan, make decisions, and manage overall business ventures. 

Investors:

Investors can make decisions whether to invest or not. 

Client: 

Clients can easily understand the position of the business. He can be guaranteed about the supply of goods. 

Government:

Government can easily find out various types of taxes due to different sources. 

Banks:

Money banks can find the Financial position of the enterprise for the decision of to lend money or not. 

Development: 

 Business enterprises can achieve business extension with help accounting.

Types of bookkeeping:

Single Entry System:

This method of accounting records only cash books and personal accounts. It is an illogical method and also knows as an unfinished recording system because it changes with the help of businesses for recording transactions. This system of accounting does not give accurate information about the financial position of the business and it is suitable for small businesses. 

Double Entry System:

The double Entry System is the most accurate way of recording all business transactions in the books of accounts. Under this system, double or two effects of each transaction are recorded.

According to the double-entry bookkeeping system. One account is to be debited and a different account is to be credited with the same amount. 

Difference between Bookkeeping and Accountancy:

Point	Bookkeeping	Accountancy
Meaning	Bookkeeping – It is related to recording and classifying business transactions.	Account – It is concerned with recording, classifying, summarising, analyzing, and interpreting financial data.
Stage	Bookkeeping is the first stage in accounting. it is the base for accounting.	Apart from the initial stage, it involves the second stage of study and interpretation.
objectives	The main objective of bookkeeping is to have the records of all financial transactions in a correct and systematic manner.	The main objective of accounting is to prepare the financial statement and further communicate the information to the relevant authorities.
Responsibility	Junior staff is responsible for keeping records.	Superior staff is responsible for keeping accounts.
Outcomes	Bookkeeping basically results in journals and ledgers.	The results of accountancy are profit and loss a/c and balance sheet.
Period	Gives day-by-day details	Gives details of the entire year.
Analysis	Does not require any analysis.	Need bookkeeping information to analyze and interpret the information and then compile it into reports.
Decision making	Can’t take decisions based on the data given by bookkeeping.	Can make decisions based on the data given.
Skill required	Analytical skill is not needed for bookkeeping.	Needed analytical skills.

 

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References 

https://www.toppr.com/ask/en-us/question/bookkeeping-is-the-science-and-art-ofcorrectly-recording-in-the-books-of-accounts-all-those/

FAQ on Bookkeeping 

1. What is the main objective of bookkeeping?

Answer: The main objective of bookkeeping is to have the records of all financial transactions in a correct and systematic manner.

2. What are the two types of bookkeeping?

Answer: 1. Single entry system 2. Double-entry system.

3. Which transactions are recorded in bookkeeping?

Answer: Only business transactions are recorded. 

4. What is bookkeeping related to?

Answer:  It is related to recording and classifying business transactions.