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Introduction Difference between accounting and bookkeeping Process of bookkeeping Entry system in bookkeeping Types of bookkeeping Differences between present day bookkeeping with old
method Importance of bookkeeping
Introduction Bookkeeping is the process of recording, analyzing, storing and retrieving of
financial transaction that takes place in any profit or non- profit organization.
Systematic way for the record of transaction.
Requires daily update.
Requires knowledge of financial transaction including debit and credit.
It is done on day to day basis.
Difference between accounting and bookkeepingACCOUNTING
It is a complete system, representing whole process of accounting system.
Involves number of process; recording, analyzing, classifying, interpreting, summarizing and reporting.
Requires technical knowledge.
BOOKKEPPING It is only the part of accounting
process.
Involves only one process; keeping the record.
Requires the basic idea on financial transaction.
Process of bookkeeping
• Filing of source documents• Sorting of business related transactions from
all the source documents.• Entry of transaction into journal.• Transfer of transaction from journal to
ledger.• Preparation of final account at the end of the
year.
Entry in bookkeeping
Whenever there is any transaction made in the business, whether its inbound or outbound; there is always a proof provided to the related person of the firm either the invoice, written slip or any other form. Hence, these are source documents which must be properly filed.
All the source documents are not necessarily important, only some are of interest for the business record, Hence proper sorting of important documents must be done.
Journal entry of source documents followed by the ledger entry is then initiated with reference to source document,
Financial statement is prepared either, monthly, quarterly or annually with the help of journal and ledger entries.
Single entry system
It is an informal or easy bookkeeping system. Only one entry is done either in the form of revenue or expenses. Doesn't provide accurate knowledge on financial affairs of the
business. Useful for small business having few financial transaction that
comes in play. Proper idea on profit and loss cannot be obtained. Doesn’t require very good accounting knowledge. No requirement of advanced software. Incomplete system of recording transaction.
Double entry system It is quite a complex yet a standard method of
bookkeeping. Two entries are done in the form of debit and credit. Personal, real and nominal account are maintained. It helps to determine profit and loss accurately. Required by well- developed firm or organization. Provide accurate knowledge of financial affairs of any
firm. Requires well developed tools or software to simplify the
work. It is Complete method of bookkeeping.
Types of Bookkeeping
Day book: It is used for day to day record of financial transaction. Such as : sales day book, purchase daybook, etc.
Petty cash book: It is used to keep the record of small amount involved in purchase of some necessary items.
Journals: It is the systematic record of every transaction either in one single book or in separate book as a reference in later accounting processes.
Ledger: It is systematic record of financial transaction under classified accounts. Example: purchase ledger, sales ledger etc.
Present day book- keeping and old method Present day
Entries done using electronic medium such as computers and laptops.
Follows double entry of bookkeeping.
Use of software with all the coded information's.
Requires very less time.
High level of accuracy.
Safety of record for years.
Old method
Done manually using hands.
Follows single entry of bookkeeping.
No software was used.
Time consuming.
Chances of mistake in the entries.
Higher chances misplace.
Importance of bookkeeping
Provides idea on profit earned by the business.
Keeps all the record safely.Helps to evaluate the growth of the business.Helps to invest money qualitatively.Keeps the account of financial condition of
the company.Helps to take any important decision for the
firm.
For more information on bookkeeping visit
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