Important facts of bookkeeping and it's purpose

What is Bookkeeping? Meaning :

Bookkeeping involves the recording, on a daily basis, of a company’s financial transaction. Bookkeeping is the systematic recording and arranging of budgetary exchange in an organisation. Bookkeeping provides the information from which accounts are prepared. Bookkeepers are individual who control all client financial data. Without a bookkeeper, companies would not know about their current situation related to money, just like the trades that are taking place within the company.

Definition :

Bookkeeping includes the recording, storing and retrieving of financial transactions for a business, nonprofit organisation, individual, etc. Examples :  Following are some Examples of Bookkeeping: 1.  Purchase  2.  Sales 3.   Cash  4.   Owners Equity 5.   Retained Earnings Why is bookkeeping important? To improve great monetary administration and examination: 1. Better Cash Flow : Bookkeeping provides information regarding your outstanding invoices – customer/vendor name, amount, date issued and due date – which can be used to implement better cash flow policies. 2.Tax Preparation : Bookkeeping is important for filing your personal tax return too. As a business owner, a large part of your income comes from your business. In order to know how much you earned, you have to know what your business earned first. We can have financial information ready for tax time with a bookkeeping process in place. All of your financial information is collected in one central system instead of searching for receipts or invoices. 3. Better Decision Making : You need to have access to all available information in order to make the best choices possible. This information is provided by bookkeeping. 4. Easy Reporting to Investors : Investors want to learn the business ' financial performance to be able to quantify their investment's worth. That is exactly what financial statements do. The balance sheet, income statement, and cash flow statement all present the value of your business. Bookkeeping allows investors to have up-to-date and accessible information. Investors will be able to make better, well informed, decisions which is the ultimate purpose of bookkeeping.  Bookkeeping is also for future investors as well as for current investors. 5. Track Profit and Growth :  Bookkeeping is important because it shows your business’ profitability. Bookkeeping also helps with tracking growth. Over time, you will accumulate months and years of data.  With this data, you can observe trends and gain a greater understanding of your business cycles and compare results across periods. Methods of Bookkeeping There are two methods of Bookkeeping : 1.    Single Entry System 2.    Double Entry System Single Entry System The single-entry bookkeeping system is utilised for organisations that have insignificant or uncomplicated exchanges. This system records cash sales and business expenses that are paid when incurred. This system isn't customarily utilised for organisations that have accounts receivable, accounts payable or numerous capital exchanges. Double Entry system The double-entry system of accounting or bookkeeping means that for every business transaction, amounts must be recorded in a minimum of two accounts. The double-entry system also requires the amounts entered as debits to be equal to the amounts entered as credits for all transactions. Double entry also means that the accounting equation (assets = liabilities + owner's equity) will always be in balance. Difference Between Bookkeeping and Accounting  Basis of Comparisons  Bookkeeping  Accounting  Meaning  Bookkeeping is an activity of recording the financial transactions of the company in a systematic manner.  Accounting is a systematic documenting and reporting of an organisation's financial affairs over a given period of time.  Decision Making  Decisions cannot be made on the basis of bookkeeping documents.  Decisions can be taken on the basis of accounting records.  Tools  Journal and Ledgers  Balance Sheet, Profit & Loss Account and Cash Flow Statement  Methods / Sub-fields  Single Entry System of Bookkeeping and Double Entry System of Bookkeeping  Financial Accounting, Cost Accounting, Management Accounting, Human Resource Accounting, Social Responsibility Accounting.  Determination of Financial Position  Bookkeeping is not a representation of an association's money-related situation.  Accounting clearly shows the budgetary situation of the entity.