In an organisation, financial transactions are recorded timely and accurately in the books of accounts. With that recorded information, the accountant analyze, review and prepare various reports. The entire process is known as accounting of which bookkeeping is a very important part.
Bookkeeping is generally defined as the process of accumulating, classifying, recording and organizing financial information to facilitate day-to-day transaction of an entity for preparing financial statements. Accounting is concerned with collecting, analyzing and communicating financial information to various stakeholders.
Bookkeeping is the record-keeping part of the accounting process which provides the raw materials you need to develop reports such as financial statements . The person responsible for the whole process is known as bookkeeper. A bookkeeper compiles and record information. An accountant analyzes that information and present it in a useful format to stakeholders.
Information for preparation of financial statement comes from the bookkeeping system.
To reflect company’s financial condition, every business needs to have a reliable bookkeeping system which can provide financial information timely and accurately.
Accountants by using these information, prepare financial statements, income tax return and other reports for various stakeholders.
Accounting goes beyond bookkeeping to prepare various reports and financial statements based on the transactions recorded through the bookkeeping process.
The basic financial statements include the Balance Sheet, the Income Statement or profit and loss account, the Statement of Cash Flows, and the Statement of Retained Earnings.
The profit and loss account measures financial performance over the year. The balance sheet states the financial position as at the year-end.
The Statement of Cash Flows shows how much cash the business started the period with, what additions and subtractions were made during the period, and how much cash left over at the end of the period.
The Statement of Retained Earnings shows how the balance in Retained Earnings has changed during the period of time for which the financial statements are being prepared.
To produce these important financial statements, it is essential for an entity to record every financial transaction timely and accurately.
Big and mid sized companies have systemized their process. In many cases, its handled by computer programs.
We have two systems of bookkeeping: single entry and double entry. You can use single-entry or double-entry based on your business size and complexity. If your business size is big and complex, double-entry system will be best suit you.