Introduction to Bookkeeping
Definition:
Bookkeeping involves organizing and managing all business transactions in a
company.
Bookkeeping
is the recording, on a day-today basis of the financial transactions and
information pertaining to a business. It is concerned with ensuring that
records of those individual financial transactions are accurate, up-to-date and
comprehensive. Accuracy is therefore vital to the process.
Bookkeeping provides the information from which accounts are prepared but is a distinct process, preliminary to accounting.
Each transaction, whether it is a question of purchase or sale, or change of loans, has to be recorded in the books.
Historically
bookkeeping was done by hand, but accounting systems have streamlined this
process
In principle transactions have to be recorded daily into the books or the accounting system
For each
transaction, there must be a document that describes the business transaction,
in the terms of a simple sales invoice,
sales receipt, a supplier invoice, a supplier payment, bank payments and
journals.
The company's transactions were written in the journals in date order. Later, the amounts in the journals would be posted to the designated accounts located in the general ledger. Examples of accounts include Sales, Rent Expense, Wages Expense, Cash, Loans Payable, etc. Each account's balance had to be calculated and the account balances were used in the company's financial statements. In addition to the general ledger, a company may have had subsidiary ledgers for accounts such as Accounts Receivable.
The accounting software has been written so that every transaction must have the debit amounts equal to the credit amounts. The electronic accuracy also eliminates the errors that had occurred when amounts were manually written, rewritten and calculated. As a result, the debits will always equal the credits and the trial balance will always be in balance. No longer will hours be spent looking for errors that occurred in a manual system.
Bookkeeping: Past and Present
Bookkeeping in the Old Days
Prior to computers and software, the bookkeeping for small businesses usually began by writing entries into journals. Journals were defined as the books of original entry. In order to reduce the amount of writing in a general journal, special journals or daybooks were introduced. The special or specialized journals consisted of a sales journal, purchases journal, cash receipts journal, and cash payments journal.The company's transactions were written in the journals in date order. Later, the amounts in the journals would be posted to the designated accounts located in the general ledger. Examples of accounts include Sales, Rent Expense, Wages Expense, Cash, Loans Payable, etc. Each account's balance had to be calculated and the account balances were used in the company's financial statements. In addition to the general ledger, a company may have had subsidiary ledgers for accounts such as Accounts Receivable.
Bookkeeping Today
The electronic speed of computers and accounting software gives the appearance that many of the bookkeeping and accounting tasks have been eliminated or are occurring simultaneously. For example, the preparation of a sales invoice will automatically update the relevant general ledger accounts (Sales, Accounts Receivable, Inventory, Cost of Goods Sold), update the customer's detailed information, and store the information for the financial statements as well as other reports.The accounting software has been written so that every transaction must have the debit amounts equal to the credit amounts. The electronic accuracy also eliminates the errors that had occurred when amounts were manually written, rewritten and calculated. As a result, the debits will always equal the credits and the trial balance will always be in balance. No longer will hours be spent looking for errors that occurred in a manual system.
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