Bookkeeping may be defined as the process or the activity of keeping written records of financial transactions of the business. It is a part of accounting. Having accurate, up-to-date and comprehensive financial records is crucial.
Difference between accounting and bookkeeping
While bookkeeping represents every financial activity written correctly and accurately into the predicted space, accounting is more of an information system, which includes recordings, reports, summaries, analysis, interpretations and classifications. Accounting is more comprehensive; bookkeeping is just one of its parts (recordings). Bookkeeping is simpler than accounting and it can be done by less qualified individuals.
Transaction represents an agreement between two parties in order to exchange money for product or service. Transactions that a company can have and needs to keep record of are:
A person performing the activity of bookkeeping is called a bookkeeper. His work includes entering all the transactional data into a daybook. Every transaction needs to be entered in order to conduct a legit financial report at the end of the determined period. Some of the bookkeeper’s duties include: reconciling accounts, creating invoices, creating cash receipts, completing VAT returns, dealing with a variety of financial paperwork etc.
Types of bookkeeping
Before the computers, there were two traditional types of bookkeeping and they have lasted until today, except they have transferred into a digital form. Those two types are:
single-entry system – used in smaller businesses with no complicated transactional requirements
double-entry system – used for more complex transactions
Bookkeeping was done manually until appropriate software showed up. Today, writing and paper books are very rare and automated software have almost completely replaced them.
Do small businesses need a bookkeeper?
The existing bookkeeping software have made this job a lot easier than it was several decades ago. However, it’s not always so easy. It’s actually just faster, but the knowledge about accounting and bookkeeping still has to be in the head of the person doing it.
Those who are capable of running a business and keeping financial records for themselves are very rare. Most of the businesses, big and small, need a reliable person to handle these fragile data. Little mistakes can have horrible consequences and it’s better not to take that risk.
Despite having a bookkeeper, it is good idea for any business owner to know at least basics of accounting and bookkeeping. It can often prevent many mistakes, frauds and other unpleasant incidences.