Book-keeping is the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as “real” bookkeeping, any process for recording financial transactions is a bookkeeping process.
Bookkeeping is the work of a bookkeeper (or book-keeper), who records the day-to-day financial transactions of a business. They usually write the daybooks (which contain records of sales, purchases, receipts, and payments), and document each financial transaction, whether cash or credit, into the correct daybook—that is, petty cash book, suppliers ledger, customer ledger, etc.—and the general ledger. Thereafter, an accountant can create financial reports from the information recorded by the bookkeeper.
Bookkeeping refers mainly to the record-keeping aspects of financial accounting, and involves preparing source documents for all transactions, operations, and other events of a business.
The bookkeeper brings the books to the trial balance stage: an accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
Book Keeping and Accounting
Recording of financial transactions in a proper manner related to the business operation of an entity is known as bookkeeping. Bookkeeping is the permanent recording of financial transactions in a proper manner in the books of accounts of an entity so that their financial effect on the business of entity can be seen. There is a difference between the two terms bookkeeping and accounting.
Book-keeping and accounting are different from each other. Bookkeeping is an important part of accounting. Accounting is broader than book-keeping. Accounting includes a design of accounting systems which book-keepers use for the preparation of financial statements, audits, cost studies, income-tax statements, etc.
It also facilitates the interpretation of accounting information for both internal and external users for business decisions making. It requires skills and experience of an accountant.
There is a difference between the two terms bookkeeping and accounting, let us understand what is bookkeeping and accounting, their processes and difference between the two.
While doing Bookkeeping, we need to follow the basic accounting concepts and accounting conventions.
Bookkeeping is clerical in nature. Book-keeping is usually done by junior employees of the entity. Most of the entities nowadays use computers for bookkeeping rather than recording them manually. Accounting of an entity depends on its book-keeping system.
Book-keeping is the basis for accounting. It is because it is responsible for the proper recording of financial transactions. Whereas, Accounting involves classification, summarizing and reporting of financial transactions. It involves the preparation of source documents for all the financial transactions of the entity.
Process of Bookkeeping
- Identifying financial transactions
- Recording of financial transactions
- Preparation of ledger accounts
- Preparation of trial balance