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Bookkeeping - What Is Bookkeeping?

Bookkeeping - What is bookkeeping?

Bookkeeping is the systematic recording and organising of financial transactions in a company

Starting and maintaining solid, professional accounting practices is essential for the growth of a business. Make sure yours are in order with Debitoor.

Bookkeeping is the recording, on a day-to-day basis, of the financial transactions and information pertaining to a business. It ensures that records of the individual financial transactions are correct, up-to-date and comprehensive. Accuracy is therefore vital to the process.

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Bookkeeping provides the information from which accounts are prepared. It is a distinct process, that occurs within the broader scope of accounting.

Each transaction, whether it is a question of purchase or sale, must be recorded. There are usually set structures in place for bookkeeping that are called ‘quality controls’, which help ensure timely and accurate records.

Bookkeeping tasks

Essentially, bookkeeping means recording and tracking the numbers involved in the financial side of the business in an organised way. It is essential for businesses, but is also useful for individuals and non-profit organisations.

The person(s) responsible for bookkeeping for a business would record all transactions that are related, including but not limited to:

Expense payments to suppliers

Loan payments

Customer payments for invoices

Monitoring asset depreciation

Generating financial reports

Bookkeeping and accounting are often heard being used interchangeably, however, accounting is the overall practice of managing finances of a business or individual, while bookkeeping refers more specifically to the tasks and practices involved in recording the financial activities.

Why bookkeeping matters

While it may seem obvious, detailed, thorough bookkeeping is crucial for businesses of all sizes. Seemingly straightforward, bookkeeping quickly becomes more complex with the introduction of tax, assets, loans, and investments.

Tracking the financial activities of a business is the truest purpose of bookkeeping, meaning it allows you to keep an up-to-date record of the current incoming and outgoing amounts, amounts owed by customers and by the business, and more.

Traditional bookkeeping

Bookkeeping has a long history as an integral part of accounting. Traditionally, it involves ledgers, charts of accounts, and a tedious double-entry system. You can read more about the history of invoicing & accounting in our blog post: 'Invoicing & accounting: a journey through history.

Here we'll cover how the main activities are recorded in traditional bookkeeping practices, which are still used to this day.

In principle, transactions must be recorded daily into the books or the accounting system.

For each transaction, there must be a document that describes the business transaction. This could include a sales invoice, sales receipt, a supplier invoice, a supplier payment, bank payments and journals.

These accompanying documents provide the audit trail for each transaction and are an important part of maintaining accurate records in the event of an audit.

Double-entry bookkeeping

The double entry system of bookkeeping is based on the fact that every transaction has two parts, which therefore affects two ledger accounts.

Every transaction involves a debit entry in one account and a credit entry in another account.

Bookkeeping options today

It seems there is no industry that advances in technology (read: the internet) has not affected. Bookkeeping is no exception. Bookkeeping used to involve multiple ledgers, then multiple Exel files...essentially an inordinate amount of paper or computer files. Storage quickly becomes an issue and organisation can be a challenge.

Technological advances facilitated a move to a computer-based system, with software available to purchase and download to a desktop. Even then, these programs could be costly and slow.

Continued development have led to what is available today: 100% online applications, backed up in the cloud, with unlimited storage. This means no downloads and buggy updates, no concern over losing documents due to computer crashes or viruses, and no problems with storage space [https://perfectvirtualteam.com/how-to-make-the-most-of-virtual-assistant-for-sales/ Virtual Assistant For Sales] online or off.

New options have also been opened by the boom of Android and iPhone mobile apps, allowing you to manage your accounting even on the go.

Bookkeeping and Debitoor

Say goodbye to tedious books and ledgers. With a cloud-based accounting system like Debitoor, it’s easy to record income, expenses, and use automatic bank reconciliation to make sure your credits equal your debits.