What is Bookkeeping?
Bookkeeping is a part of the accounting process that deals with recording of the transactions. It is the systematic recording and classification of accounting transactions. Bookkeeping can be described as an accounting function that is helpful in the accounting process.
Bookkeeping is associated with proper classification of all the financial transactions that take place in the business. It ensures that the recorded transactions are correct and properly updated.
Bookkeeping is the source of information from which financial accounts are prepared. Accurate bookkeeping is essential for the external users, which includes investors, government and other financial institutions.
Bookkeeping provides these users with reliable information that influences decisions related to lending and investment.
Types of Bookkeeping
Bookkeeping can be of different types, the most common ones are single entry and double entry bookkeeping systems.
- Single Entry bookkeeping: Single entry bookkeeping is the recording of transactions using a single entry. The transactions are either recorded as incoming or outgoing.
- Double Entry bookkeeping: Double entry bookkeeping is that system of bookkeeping where two entries are given for a transaction, one will be debit while the other will be a credit entry.
Objectives of Bookkeeping
The objectives of bookkeeping are as follows:
1. The primary objective of bookkeeping is recording the financial transactions in an orderly or systematic manner.
2. To summarise the transactions in a chronological order.
3. To provide financial information to both internal and external users, which will be beneficial in making future plans.
4. To detect potential errors in recording of information.
Importance of Bookkeeping
Following are some of the points about importance of bookkeeping:
1. Helps in budgeting: Bookkeeping makes it easier for the business organisation to plan a budget accordingly.
2. It is easier to calculate tax.
3. Bookkeeping makes it easier for analysing the financial performance of the company.
4. Bookkeeping makes it easier to present the financial information to investors, which is helpful in decision making related to investment.
This concludes the topic of Bookkeeping, which is important for Commerce students. For more such interesting articles, stay tuned to BYJU’S.