What is Bookkeeping ?

 What is Bookkeeping ?

Bookkeeping-Recording of business transaction as per prescribed law and on accrual basis, Financial Analysis and Results of business based on BookKeeping (accurate and systematic recording of transactions help business to overcome from-fraudulent activities, cash embezzlement, theft and stolen of information and data, provide - true reporting, true financial statement, assist businessman to know actual financial position of business, without proper BookKeeping-Accounting cannot be done, if done then it is window dressing of information i.e. not for business it is for making stakeholders stupid.

Bookkeeping involves the recording, on a regular basis, of a company’s financial transactions. With proper bookkeeping, companies are able to track all information on its books to make key operating, investing, and financing decisions.

Bookkeepers are individuals who manage all financial data for companies. Without bookkeepers, companies would not be aware of their current financial position, as well as the transactions that occur within the company.

Accurate bookkeeping is also crucial to external users, which includes investors, financial institutions, or the government – people or organizations that need access to reliable information to make better investments or lending decisions. Simply put, business entities rely on accurate and reliable bookkeeping for both internal and external users.

Importance of Bookkeeping

Proper bookkeeping gives companies a reliable measure of their performance. It also provides information to make general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical.

Many small companies don’t actually hire full-time accountants to work for them because of the cost. Instead, small companies generally hire a bookkeeper or outsource the job to a professional firm. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent.

The Accrual vs Cash Basis of Accounting

In order to properly implement bookkeeping, companies need to first choose which basis of accounting they will follow. Companies can choose between two basic accounting methods: the cash basis of accounting or the accrual basis of accounting. The difference between these types of accounting is based on the timing for when the company actually records a sale (money inflow) or purchase (money outflow) in the books.

Definition:

Cash basis- Record transaction only when cash is actually received or paid

Accrual basis- Record transaction when it occurs, even if cash is not received or paid

Example:

Cash basis-Example: You purchased 100 units of a product and will pay for it next month. Remarks-No transaction recorded

Accrual basis-Transaction recorded through an accounts payable (liability) account. Remark- Actual Receipt or payment or inflow or outflow is not considered while recording.