Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis, it is an essential part of your accounting process for a few reasons.
Before you begin bookkeeping, you must decide what method you are going to follow. When choosing, consider the volume of daily transactions your business has & the amount of revenue you earn.
Types of Bookkeeping
Single-entry bookkeeping is a straightforward method where one entry is made for each transaction in your books. These transactions are usually maintained in a cash book to track incoming revenue & outgoing expenses. The single-entry method will suit small private companies.
Double-entry bookkeeping is more robust. It follows the principle that every transaction affects at least two accounts, & they’re recorded as. For example, if you make a sale for $10, your cash account will be debited for $10 your sales account will be credited by the same amount. In the double-entry system, the total credits must always equal the total debits.
In cash-based, you recognize revenue when you receive cash into your business. Expenses are recognized when they are paid for.
In the accrual method, revenue is recognized when it is earned. Similarly, expenses are recorded when they are incurred, usually along with corresponding revenues.
Financial Recording
Recording transactions begins with source documents like purchase & sales orders, bills, invoices, cash register tapes. Once you gather these documents, you can record the transactions using The information can then be consolidated & turned into financial statements.
The balance sheet reports a business’ assets, liabilities, & shareholder’s equity at a given point in time. In simple words, it tells you what your business owns, owes, & the amount invested by shareholders. However, the balance sheet is only a snapshot of a business’ financial position for a particular date.
The income statement A.K.A. the profit loss statement, focuses on the revenue gained & expenses incurred by a business over time. There are two parts in a typical income statement. The upper half lists operating income while the lower half lists expenditures. The statement tracks these over a period.
Bank reconciliation is the process of finding congruence between the transactions in your bank account & in your bookkeeping records. Reconciling your bank accounts is an imperative step in bookkeeping because, after everything else is logged & is the last step to finding discrepancies.
Proper bookkeeping drives your company to success. It is a foundational accounting process & developing strategies to improve core areas of your business would be nearly impossible without it. Yet as important as bookkeeping is, implementing the wrong system for your company can cause challenges.