It’s important for businesses, small or big to have a proper bookkeeping mechanism in place. Just like you need a source of data to prepare a report so is bookkeeping a source that gets summarized into the financial statements you have come across. Bookkeeping tracks and records all the financial transactions and it becomes the starting point of accounting. Hence “No bookkeeping = No accounting.”

The following are the importance of bookkeeping:

• Bookkeeping helps to keep track of receipts, payments. Sales, purchases and records of every other transaction made from the business.
  
  
• It also helps to summarize the income, expenditure and other ledger records periodically.
  
  
• It provides information to create financial reports which tells us specific information about the business as how much profits the business has made or how much the business is worth at a specific point of time.
• But important above all is that proper bookkeeping helps you assess and determine the rate of tax your business is liable to pay to the tax man.

With the definition of bookkeeping, it’s clear that it involves all that is required to track, record and organize all the financial transaction that have occurred in the business. This process involves doing the following activities.

• Billing for goods sold or services provided to clients.
• Recording receipts from customers.
• Verifying and recording invoices from suppliers.
• Recording payment made to suppliers etc

Types of Bookkeeping

There are two broad types of bookkeeping systems, although some entities use a combination of both.

The single-entry system of bookkeeping which requires recording one entry for each financial activity or transaction.  The single-entry bookkeeping system is a basic system that a company might use to record daily receipts or generate a daily or weekly report of cash flow.

The double-entry system of bookkeeping requires a double entry for each financial transaction. The double entry system provides checks and balances by recording corresponding credit entry for each debit entry. The double-entry system of bookkeeping is not cash-based. Transactions are entered when a debt is incurred, or revenue is earned.

Methods of Bookkeeping

The cash-based system of accounting records financial transactions when payment is made or received. This system recognizes revenue or income in the accounting period in which it is received and expenses in the period in which they are paid.

The accrual basis method, which is favored under the generally accepted principals of accounting, record income in the accounting period in which it is earned and records expenses in the period incurred.

How to record entries in Bookkeeping?

Entries in bookkeeping are recorded in the archaic method of journal entry. Here, the respective individual or accountant manually enters the account numbers and performs individual action of debits and credits for each transaction. This approach is time-consuming and subject to error, and so is usually reserved for adjustments and special entries.

Please contact a qualified accountant from Impartial World App for more help on how to do your bookkeeping.

Babara Nandera

0773659413

KIU student