Bookkeeping is the process of recording financial transactions made in a business. These transactions are typical sales, purchase, income and payments by the company. No matter how big or small a company is, bookkeeping is an essential activity. Without this planned strategy of recording the financial transactions, tax returns would be a nightmare. As many people think, bookkeeping is NOT accounting. This confusion arises as the accounting function as a part of book keeping, but it is not the whole. Most common methods in bookkeeping are single entry method and double entry method. The professionals who do this task are book keepers. To more clarify, the input from bookkeeper is used by accountant to file necessary government forms.
The person who records day-to-day financial transactions in a company is also known as accounting clerk and/or bookkeeper. He is responsible for writing purchases, sales, receipts, and payments to a book, also known as “day book”. He is responsible for accuracy and completeness of transactions getting recorded.
An accountant, who may prepare income statement and balance sheet, need a trial balance and ledgers. These ledgers and trial balance are provided by book keeper, who brings the books to trial balance stage.
In any business, when a financial transaction happens, it leads to a creation of a document. If it is sales, then there will be an invoice. If it is a purchase, there will be a receipt. In banks, a deposit slip is created for every deposit made. Companies normally maintain various journals for each purpose. There may be different journals to record credit card transactions and cash transactions. A transaction is recorded only once, if it is a single entry system. One best example for single entry system is an individual who balance their check book at month end.
By carefully planning major purchases and defining efficient processes, a business can have an efficient book keeping in place.