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What is Bookkeeping?
Bookkeeping is the systematic recording and organizing of a firm's business transactions. It is a daily activity that involves the recording of financial transactions and information related to a specific business. Some of its crucial functions are to ensure the data entered for each financial transaction is accurate, comprehensive, and up-to-date. The correctness of financial data is paramount. Accounts preparation relies on information from bookkeeping. As such, bookkeeping is part of the broader accounting functions.
Importance of bookkeeping
Proper bookkeeping is essential to enable companies’ management and owners to have all the relevant information to make operating, investing, and financing decisions. Also, it allows businesses to be in the know of their financial position at any given time and the transactions taking place in the firm.
External users rely on accurate bookkeeping to make some critical decisions. Some of the users include investors, lenders or creditors, the government, and others who need to access the information—which must be reliable, accurate, and timely—to make decisions on things like investing and lending.
Bookkeeping, which is the work of a bookkeeper, refers to the acts of recording and keeping tabs on the numbers related to the financial side of the business in a systematic way. It is mostly done in enterprises, which need to be aware of the financial impact of transactions, but it can also be meaningful for individuals and non-profit organizations.
The bookkeeper in a company records all the transactions that are related but not limited to the following:
- Suppliers’ payments
- Payment by customers for invoices
- Employees’ pay and related government reports
- Loan repayments
- Depreciation on assets
Proper records on amounts owed to lenders, like banks, or for goods bought on credit is paramount to avert instances of delayed payments or defaulting. Both can dent the credit score of the business, making it hard to obtain credit in the future and to enjoy other benefits. However, if a firm or an individual's credit score is already in a poor state, they can seek the services of experts by visiting Boostcredit101 official site for assistance in restoring and improving their score.
Traditional bookkeeping vs. modern bookkeeping
As a vital part of accounting, bookkeeping has come a long way. In the past, it involved charts of accounts, ledgers, and the double-entry system. Some of the traditional bookkeeping practices that are still in use today include:
Recording transactions – Ideally, transactions must be entered daily in the books or the system. The starting point for recording transactions is the document that describes the particular transaction in question. This document can be a sales receipt, sales invoice, supplier's invoice, bank payment documents, journals, or something else. All these supporting documents are crucial in providing the audit trail for every transaction. They also play a vital role in keeping accurate records for auditing purposes.
Double-entry bookkeeping - The premise for the dual-entry bookkeeping system is that every transaction comprises two parts, and therefore it has an impact on two ledger accounts. Every transaction results in a debit entry in one account and a credit entry in another account. The system helps to detect the occurrence of errors, as at any given moment, the debit side must be equal to the credit side.
Today, bookkeeping, like any other area, has gone through a massive transformation thanks to technological advancements—from numerous ledgers to Excel files, both of which involve tons of paper and computer files as well as the need for massive storage space, to the computerized system that use various software. Moreover, nowadays there are fully online applications, with cloud backup that has unlimited storage capacity. Users do not have to worry about losing data due to the system crashing or due to viruses, and storage—whether online or offline—is no longer an issue.