Bookkeeping is a process of keeping a physical record of financial transactions such as income from sales and expenditure. Typically this function is provided for a company but can also be necessary for other types of organizations as well as individuals.
In fact, most people perform some personal bookkeeping functions for themselves on a regular basis. Balancing your checkbook or calculating whether your bank balance correctly reflects your income and expenditure are bookkeeping functions.
There are many different types of recording structures called journals that a bookkeeper uses to record transactions. For example, a cash receipts journal will be used to keep a record of all cash expenses. Each cash transaction will be recorded in this journal when the bookkeeper receives the receipts for cash purchases or expenditure.
In the same way, credit purchases or other forms of expenditure are recorded in different books. Income is recorded in the income statement and takes into account all types of income from cash sales, credit transactions as well as other forms of income for example income from dividends or shares.
The information or totals from these journals is then entered into a balance sheet. Usually, this function is performed on a monthly basis, and the balance sheet is then compared with the bank statement to ensure that the books balance. Other factors like petty cash, cash floats as well as debtors comments must be taken into account when balancing the books.
Debtors and creditors form another essential function of bookkeeping. This is a record of how much money is owed by the business to debtors and how much money is owed to the company by their creditors. It is also a record of when payment is due from creditors as well as to debtors. A bookkeeper is often the person who will call creditors who are late with the payment to ensure that outstanding amounts are recovered by the business.
A bookkeeper may also be responsible for recording salaries and wages. This includes keeping a record of deductions for pension funds, tax, and other information. Benefits like medical or dental insurance, car allowance, etc., will also be recorded. All the above-mentioned information is essential in determining the profit or loss of business on a monthly, quarterly, biannual or annual basis.
Book-keeping can be broken down into different roles. For example, in a large company or corporation, you would find debtors and creditors clerk, sales clerk, receipts clerk, etc., all of who fulfill a specific function rather than taking care of all the bookkeeping requirements of the business.
Smaller businesses often take care of their bookkeeping requirements in a limited form or outsource the different functions as and when they are needed. This is because lower firms simply perform fewer transactions and therefore the need for recording these operations on a regular basis is far less than in a more significant corporation.
Bookkeeping is, however, an essential function of any business to record and track all financial transactions also important is keeping up with your certified payroll.