Bookkeeping

Bookeeping is the process of recording all the financial transactions associated with a business, usually for a one-year period. It involves keeping records of what the business bought and sold and the inventory it still has remaining. By examining the books of a company, an auditor or a bank official can see a list of all the properties the business owns, how much sales it had during the year and what the expenses were. By subtracting the expenses from the income one can see how much profit the business made or if there is a negative amount, the business could have a loss.

Individual businesses keep records of sales and expenses in ledgers or cash books or by electronic means through a spreadsheet program. When they take their business information to a bookkeeper, they either bring the ledgers or the discs on which they have the information from the computer stored.

There are two commonly used methods of bookkeeping – single entry and double entry. In single entry bookkeeping, the business simply records income on one page and expenses on another for each month. Each entry is dated and if there are any receipts for the transaction, they will likely be stored separately. Such records are mainly used to record petty cash, accounts payable and receivable and expenses such as travel.

In the double entry system, each entry is recorded twice in two systems. This results in one account receiving payment (credited) and the money taken from another account (debited). The same entry exists in both accounts must be exactly the same amount. All transactions such as bank deposits, invoices from suppliers, sales slips and other records must match each of the entries in this system.

Bookkeeping consists of using a variety of abbreviations. These include:

a/c – account
B/S – balance sheet
c/d – carried down
b/d – brought down
c/f – carried forward
Dr – debit
Cr - credit

Technology has dramatically lessened the job of bookkeeping in the invention of calculators that add up the figures you enter. There are also computer programs that will generate all the various statements you need for your business and maintain the records of the income and expenses as well as allow you to create checks. You can easily do a bank reconciliation using such a program at the end of each month. However, you do need to have a back up record of your bookkeeping in the form of general ledgers or discs on which you have all this information stored.