The term bookkeeping is comprised of the two words ‘Book’ and ‘Keeping’ where ‘Book’ means the collection and retention of financial activities and ‘Keeping’ is their maintenance. In this sense, bookkeeping is a process of collection, retention and maintenance of the financial activities of a company. In course of time it has been developed as a discipline.
Bookkeeping provides the information from which accounts are prepared. It is a distinct process that occurs within the broader scope of accounting. It ensures that records of the individual financial transactions are correct, up-to-date and comprehensive. Accuracy is therefore vital to the process.
Recording Transaction in Bookkeeping
In Bookkeeping principles, transactions must be recorded daily into the books or the accounting system. For each transaction, there must be a document that describes the business transaction. This could include a sales invoice, sales receipt, a supplier invoice, a supplier payment, bank payments or journals. The double entry system of bookkeeping is based on the fact that every transaction has two parts, which therefore affect two ledger accounts.
Every transaction involves a debit entry in one account and a credit entry in another account. This serves as a kind of error-detection system: if, at any point, the sum of debits does not equal the corresponding sum of credits, then an error has occurred
Manual Bookkeeping (The Old School)
Manual bookkeeping is paper-based traditional way of bookkeeping. Business transactions are recorded manually by hand using manual or paper book of accounts such as journal books, ledger books and worksheets.
The method of bookkeeping is still widely used, especially by small business with less complex transactions. However the manual recording process is far more tedious than computerized bookkeeping
There can be hundreds of transactions in a business. Investment of capital, taking loans, purchase of assets, materials or suppliers, payment of wage, salary, rent, interest, commission, sales of goods etc. are some examples of business transactions. All of these transactions cannot possibly be recalled by a human memory, and thus they are to be regularly and systematically recorded in a set of books for ascertaining profit or loss during a certain period and financial position up till the date.
Electronic and Digital Bookkeeping (The New School)
If you’re still relying on manual bookkeeping to stay up to date with your books, it’s time to rethink your approach. Modern bookkeeping solutions are included in many ERP systems. A good ERP software solution will have the capacity to automate and perform most ERP business processes for you, with minimum supervision, Through ERP, you can get improved visibility on cash flow, manage staff more effectively, and understand your books in depth. For example, the preparation of a sales invoice will automatically update the relevant general ledger accounts (Sales, Accounts Receivable, Inventory, Cost of Goods Sold), update the customer’s detailed information, and store the information for the financial statements as well as other report. This simplifies the process for the business owner and allows them to spend time on higher concept problems like customer experience.
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