What is Bookkeeping?
We frequently utilize the terms accounting and bookkeeping conversely. Howsoever, in reality, bookkeeping is a part of the accounting procedure that records all the financial transaction. So let us discuss bookkeeping and its disparities with accounting.
Bookkeeping is a process that deals with the activities related to the classification and recording of monetary data in an organized way. It is basically a record-keeping that helps in the accounting process. Moreover, bookkeeping helps in furnishing the financial statements of business at the end of every financial year.
In addition to this, bookkeeping also helps to identify the monetary transactions and events. This helps in maintaining proper financial accounts. It additionally includes the preparation of source documents for monetary transactions and other business activities.
There are numerous bookkeeping methods. The most well-known ones are the double-entry bookkeeping and single entry bookkeeping. However, other methods of recording financial/monetary transaction are also an admissible system of bookkeeping.
Objectives of Bookkeeping
The principal objective of bookkeeping is to keep an entire and precise record of all the financial/monetary transaction in an effective and efficient way. This guarantees that all the financial impacts of these transactions are reflected properly in the books of accounts.
And the 2nd principle objective is to discover the general impact of every recorded transaction on the financial statement of the organization. In other words, bookkeeping helps in determining the organization’s final accounts, to be specific the Profit and Loss Account and the Balance Sheet.
Need for Bookkeeping
One of the primary explanations behind bookkeeping is to show income and expenditure of every single head/record of pay and consumption. Through bookkeeping, financial data about each income and expenses could be ascertained promptly.
For instance, an organization makes deals in both cash and credit. Every one of these outward transactions will be recorded. At the point when a credit sale is made, the accounts of the creditors will be updated. So through proper bookkeeping, the administration of the organization can figure out which creditors owe them how much cash by simply viewing at the records/accounts.
Additionally, in many cases, it is mandatory to maintain books of accounts and financial statements. There are acts for companies, banks and financial institutions to maintain and keep the financial records up to date. So for some organization bookkeeping become compulsory.
Functions of Bookkeeping
There are a lot of functions of Bookkeeping. Some of the important functions of bookkeeping are:
- Financial transactions recording
- Debit and credits postings in the respective ledgers
- Generating and classifying source documents such as invoices
- Maintaining and updating the books of accounts
Bookkeeping vs. Accounting
Bookkeeping records and maintains all the financial transactions of an organization.
Such financial transactions that are recorded are summarized under Accounting
It is a part of the accounting process
It is a part of business Language
Financial statements preparations do not fall under the bookkeeping
The prime motive of accounting is to prepare the financial statements
On the basis of bookkeeping records, no decisions can be taken
Whereas accounting assist managers to make correct decisions
There are no subfields under Bookkeeping
In accounting, there are various subfields for instance cost accounting, Human resource accounting, etc.
Bookkeeping basic accounting knowledge to maintain and keep records.
On the other hand, accounting can only be done by accountants that have sound knowledge of accounting.