Definition of Bookkeeping

In a single day, a business makes a lot of financial transactions. Basing on that premise, a company needs to continually keep track its flow of money. The responsibility of tracking and monitoring these important transactions goes to the bookkeeper.

Bookkeeping is the monitoring, recording and tracking all the financial transactions performed and done by the company. The term “company” includes large corporations, medium scale business, small scale business and home businesses.

It is important for a company owner to know some basics of bookkeeping. First, he should know what is bookkeeping all about. In bookkeeping, certain people called bookkeepers keep records of what the company sold, bought, owed, and owned. Bookkeeping also allows owners to keep track of their financial inventories, and to determine their company’s financial standing.

A business owner should be aware of the aim of bookkeeping. This is one of the basics of bookkeeping that the owner should know about. Why is it needed in business? Bookkeeping shares two basic goals. First, it keeps track of the company’s income and expenses. Keeping track of these financial transactions enables the business owner to improve his chances of making a profit.

Secondly, bookkeeping aims to collect financial information that is needed for filing the business’s tax returns.

The basics of bookkeeping sound simple enough. Given the right tools and knowledge, it can be. All that is needed is for the owner and the bookkeeper to remind themselves of those two goals.

As to keeping and monitoring the records, there are no fixed ways to do it. As long as the records of the business’s income and expenses are accurate and clean, the business won’t have a problem. The Internal Revenue Service will find them acceptable.

The basics of bookkeeping also involve the actual process of keeping the books easy to understand and read. The process is broken down into three steps.

  • First, the owner or the bookkeeper must keep the receipts and other acceptable financial records such as deposit slips for all expenditures of the business.
  • Second, the business’s income and expenditure records should be summarized in a periodic basis, whether daily, weekly or monthly.
  • Third, those summaries will be used to formulate financial reports that will state how much profit the business is making and how much is it losing. The financial report will also show how much the business is worth at a specific point in time.

Bookkeeping can be done by hand on ledger sheets or by using accounting software. However, these basics of bookkeeping remain exactly the same.