Recording, tracking, and retaining organized transactional records is vital whether you manage a small firm or a multinational corporation. And that is exactly what a bookkeeper performs for your company. It is a process of organizing and tracking day-to-day transactional data. In simper words, bookkeeping in accounting is the systematic process to store, organize, and track the business transactional data. It is one of the most significant parts of accounting that allows the smooth financial functioning of the business and is therefore an essential aspect of accounting.
Bookkeeping:
- Tracks business sales, profits, interests, debt, recipes, bills, investments or good purchases, and other financial-related operations.
- Produces an accurate balance sheet, cash flow and maintain general ledger records.
- Stores fundamental financial records of the business.
- Answers basic financial questions such as whether the company is running in profits or losses, its financial status, its net worth and more.
There are primarily two types of bookkeeping-
- Single entry- Beginner friendly bookkeeping methods mostly used by individuals, small, or micro-businesses which works well for companies without any proper assets.
- Double entry- this method records entries twice for each transaction processed by the company. Large companies or businesses leverage this method for accurate data making this type of bookkeeping highly effective and powerful.
To an untrained eye, bookkeeping and accounting can appear to be similar however, they differ from each other in a subtle way. Accounting involves preparing the financial statements, audits, income-tax statements, etc. which comes handy for both internal and external users and assists in decision making. Accounting depends solely on bookkeeping as it contains a proper record of all financial transactions and helps understand the financial position of the business and generate different types of reports.
Bookkeeping is more of a clerical job and involves identification and recording of financial transactions to create proper ledger accounts and trial balance. In bookkeeping, it’s essential that one follows the basic accounting concepts and conventions.
If you are running a business, whether as a sole proprietor or a freelancer or small business owner, you must be knowledgeable about the importance of accounting and bookkeeping. Although the thought of learning to bookkeep, tracking your expenses, invoicing your customers, etc. may seem a bit overwhelming for you, a basic understanding of bookkeeping can work wonders for your business. Knowing how stable your business is financially can revolutionize the way business is conducted.