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.
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.
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
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.
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. This serves as a kind of error-detection system: if, at any point, the sum of debits does not equal the corresponding sum of credits, then an error has occurred.
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.
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.