 | This articleneeds additional citations forverification. Please helpimprove this article byadding citations to reliable sources. Unsourced material may be challenged and removed. Find sources: "Bookkeeping" – news ·newspapers ·books ·scholar ·JSTOR(December 2013) (Learn how and when to remove this message) |
| Bookkeeping |
|---|
| Key concepts |
| Financial statements |
| Related professions |
| Part ofa series on |
| Accounting |
|---|
 |
People and organizations |
Bookkeeping is the record of financial transactions that occur in business daily or any time so as to have a proper and accurate financial report.
Bookkeeping is the recording offinancial transactions, and is part of the process ofaccounting inbusiness and other organizations.[1] It involves preparing source documents for all transactions, operations, and other events of a business. Transactions include purchases, sales, receipts and payments by an individual person, organization or corporation. There are several standard methods of bookkeeping, including thesingle-entry anddouble-entry bookkeeping systems. While these may be viewed as "real" bookkeeping, any process for recording financial transactions is a bookkeeping process.
The person in an organisation who is employed to perform bookkeeping functions is usually called thebookkeeper (or book-keeper).[2] They usually write thedaybooks (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 thegeneral ledger. Thereafter, an accountant can createfinancial reports from the information recorded by the bookkeeper. The bookkeeper brings the books to thetrial balance stage, from which an accountant may prepare financial reports for the organisation, such as theincome statement andbalance sheet.
The origin of book-keeping is lost in obscurity, but recent research indicates that methods of keeping accounts have existed from the remotest times of human life in cities. Babylonian records written withstyli on small slabs of clay have been found dating to 2600 BC.[3]Mesopotamian bookkeepers kept records on clay tablets that may date back as far as 7,000 years. Use of the modern double entry bookkeeping system was described byLuca Pacioli in 1494.[4]
The term "waste book" was used in colonial America, referring to the documenting of daily transactions of receipts and expenditures. Records were made in chronological order, and for temporary use only. Daily records were then transferred to a daybook or account ledger to balance the accounts and to create a permanent journal; then the waste book could be discarded, hence the name.[5]
The primary purpose of bookkeeping is to record thefinancial effects of transactions. An important difference between a manual and an electronic accounting system is the former's latency between the recording of a financial transaction and its posting in the relevant account. This delay, which is absent in electronic accounting systems due to nearly instantaneous posting to relevant accounts, is characteristic of manual systems, and gave rise to the primary books of accounts—cash book, purchase book, sales book, etc.—for immediately documenting a financial transaction.
In the normal course of business, a document is produced each time a transaction occurs. Sales and purchases usually haveinvoices orreceipts. Historically, deposit slips were produced when lodgements (deposits) were made to abank account; and checks (spelled "cheques" in the UK and several other countries) were written to pay money out of the account. Nowadays such transactions are mostly made electronically. Bookkeeping first involves recording the details of all of thesesource documents into multi-columnjournals (also known asbooks of first entry ordaybooks). For example, all credit sales are recorded in the sales journal; all cash payments are recorded in the cash payments journal. Each column in a journal normally corresponds to an account. In thesingle entry system, each transaction is recorded only once. Most individuals who balance their check-book each month are using such a system, and most personal-finance software follows this approach.
After a certain period, typically a month, each column in eachjournal is totalled to give a summary for that period. Using the rules of double-entry, these journal summaries are then transferred to their respective accounts in theledger, oraccount book. For example, the entries in the Sales Journal are taken and a debit entry is made in each customer's account (showing that the customer now owes the company money), and a credit entry might be made in the account for "Sale of class 2 widgets" (showing that this activity has generated revenue). This process of transferring summaries or individual transactions to the ledger is calledposting. Once the posting process is complete, accounts kept using the "T" format (debits on the left side of the "T" and credits on the right side) undergobalancing, which is simply a process to arrive at the balance of the account.
As a partial check that the posting process was done correctly, a working document called anunadjusted trial balance is created. In its simplest form, this is a three-column list. Column One contains the names of those accounts in theledger which have a non-zero balance. If an account has adebit balance, the balance amount is copied into Column Two (thedebit column); if an account has acredit balance, the amount is copied into Column Three (thecredit column). The debit column is then totalled, and then the credit column is totalled. The two totals must agree—which is not by chance—because under the double-entry rules, whenever there is a posting, the debits of the posting equal the credits of the posting. If the two totals do not agree, an error has been made, either in the journals or during the posting process. The error must be located and rectified, and the totals of the debit column and the credit column recalculated to check for agreement before any further processing can take place.
Once the accounts balance, the accountant makes a number of adjustments and changes the balance amounts of some of the accounts. These adjustments must still obey the double-entry rule: for example, theinventory account and asset account might be changed to bring them into line with the actual numbers counted during astocktake. At the same time, theexpense account associated with use of inventory is adjusted by an equal and opposite amount. Other adjustments such as postingdepreciation and prepayments are also done at this time. This results in a listing called theadjusted trial balance. It is the accounts in this list, and their corresponding debit or credit balances, that are used to prepare the financial statements.
Finallyfinancial statements are drawn from the trial balance, which may include:
The primary bookkeeping record in single-entry bookkeeping is thecash book, which is similar to a checking account register (in UK: cheque account, current account), except all entries are allocated among several categories of income and expense accounts. Separate account records are maintained for petty cash,accounts payable andaccounts receivable, and other relevant transactions such asinventory and travel expenses. To save time and avoid the errors of manual calculations, single-entry bookkeeping can be done today with do-it-yourself bookkeeping software.
Adouble-entry bookkeeping system is a set of rules for recording financial information in afinancial accounting system in which every transaction or event changes at least two different ledger accounts.
The Cash-Based System of Accounting (or Cash Basis Accounting) is a simplified method of financial record-keeping that determines a company's profit based on the actual cash flow. The cash-based system of accounting records revenues when cash is received and expenses when cash is paid out, simplifying profit calculation for smaller entities (smaller businesses, freelancers, and sole proprietorships) by focusing purely on the actual movement of money. This method provides a clear view of current liquidity (cash on hand), but it does not necessarily reflect the true economic position (e.g., outstanding invoices or liabilities).[6]
The accrual basis method, which is the required standard under Generally Accepted Accounting Principles (GAAP), records income when it is earned and expenses when they are incurred, regardless of when the cash is actually exchanged, providing a more accurate picture of a company's financial performance. The accrual-basis system offers a more accurate view of a business's profitability and success by matching revenues and expenses in the correct period, which enhances forecasting accuracy, enables better strategic decisions on resource management and growth, and increases transparency and credibility for stakeholders.[6]
Adaybook is a descriptive and chronological (diary-like) record of day-to-dayfinancial transactions; it is also called abook of original entry. The daybook's details must be transcribed formally into journals to enable posting to ledgers. Daybooks include:
Apetty cash book is a record of small-value purchases before they are later transferred to the ledger and final accounts; it is maintained by a petty or junior cashier. This type of cash book usually uses theimprest system: a certain amount of money is provided to the petty cashier by the senior cashier. This money is to cater for minor expenditures (hospitality, minor stationery, casual postage, and so on) and is reimbursed periodically on satisfactory explanation of how it was spent.The balance of petty cash book isAsset.
Journals are recorded in the general journal daybook. A journal is a formal and chronological record offinancial transactions before their values are accounted for in the general ledger asdebits and credits. A company can maintain one journal for all transactions, or keep several journals based on similar activity (e.g., sales, cash receipts, revenue, etc.), making transactions easier to summarize and reference later. For everydebit journal entry recorded, there must be an equivalentcredit journal entry to maintain a balanced accounting equation.[7][8]
Aledger is a record ofaccounts. The ledger is a permanent summary of all amounts entered in supporting Journals which list individual transactions by date. These accounts are recorded separately, showing their beginning/endingbalance. A journal listsfinancial transactions in chronological order, without showing their balance but showing how much is going to be entered in each account. A ledger takes each financial transaction from the journal and records it into the corresponding accounts. The ledger also determines the balance of every account, which is transferred into thebalance sheet or theincome statement. There are three different kinds of ledgers that deal with book-keeping:
Achart of accounts is a list of theaccounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger. The equity section of the chart of accounts is based on the fact that the legal structure of the entity is of a particular legal type. Possibilities includesole trader,partnership,trust, andcompany.[9]
Computerized bookkeeping removes many of the paper "books" that are used to record the financial transactions of a business entity; instead, relational databases are used today, but typically, these still enforce the norms of bookkeeping including thesingle-entry anddouble-entry bookkeeping systems.Certified Public Accountants (CPAs) supervise the internal controls for computerized bookkeeping systems, which serve to minimize errors in documenting the numerous activities a business entity may initiate or complete over an accounting period.
| International | |
|---|---|
| National | |
| Other | |
