Bookkeeping is a process of recording and organizing all the business transactions that have occurred in the course of the business.  Bookkeeping is an integral part of accounting and largely focuses on recording day-to-day financial transaction of the business. Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis.

All the financial transactions such as sales earned revenue, payment of taxes, earned interest, payroll and other operational expenses, loans investments etc. are recorded in books of accounts.

Need for Bookkeeping

One of the main reasons for bookkeeping is so records can be maintained to show the financial position of each and every head/account of income and expenditure. Through book-keeping, detailed information about each expense or income could be obtained instantaneously.

Say for example a company makes sales in both cash and credit. Each of these sale transactions will be recorded. When a credit sale is made, the creditor’s account will be recorded. So at any time, the management of the company can determine which creditors owe them how much money by just looking at the records/accounts.

Also, the maintenance of books of accounts and financial statements is a legal requirement in many cases. In the case of companies or banks or insurance companies, there are acts that require such firms to keep and maintain financial records. In such a case, book-keeping becomes mandatory.

Book-keeping is so outlined as to incorporate a system of internal check and control which minimize the possibility of taking place.

Process of Bookkeeping

  1. Identifying financial transactions
  2. Recording of financial transactions
  3. Posting in Ledger
  4. Ledger account Balancing
  5. Preparation of trial balance
  1. Identifying financial transactions: All transactions and events which are financial in nature, relate to the entity and have documentary evidence are to be identified for recording. Nonfinancial activities are to be ignored.
  2. Recording of financial transactions: Financial transactions and events identified at step number one are recorded in the books of original entry i.e Journal and sub–journal.
  3. Posting in Ledger: All transactions recorded in the books of original entry relating to person, property, expense, income, loss or gain are posted in the respective accounts maintained in the ledger. Ledger accounts provide the latest information at glance.
  4. Ledger account balancing: At the periodic intervals, accounts maintained in the ledger are balanced. The account is balanced by finding out the difference between the totals of debit and credit of the amount.
  5. Preparation of trial balance: The balance of all ledger accounts is placed on a separate list with debit credit columns. This list of balances is known as Trial Balance.
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