Bookkeeping is the systematic recording and organising of financial transactions in a company
Bookkeeping is the recording, on a day-to-day basis, of the financial transactions and information pertaining to a business. It ensures that records of the individual financial transactions are correct, up-to-date and comprehensive. Accuracy is therefore vital to the process.
Bookkeeping provides the information from which accounts are prepared. It’s a distinct process, that occurs within the broader scope of accounting.
Each transaction, whether it pertains to a purchase or a sale, must be recorded. There are usually set structures in place for bookkeeping that are called ‘quality controls’, which help ensure timely and accurate records.
Bookkeeping tasks
Essentially, bookkeeping means recording and tracking the numbers involved in the financial side of the business in an organised way. It’s essential for businesses but is also useful for individuals and non-profit organisations.
The person(s) responsible for bookkeeping for a business would record all transactions that are related, including but not limited to:
Expense payments to suppliers
Loan payments
Customer payments for invoices
Monitoring asset depreciation
Generating financial reports
The terms bookkeeping and accounting are often used interchangeably, however, accounting is the overall practice of managing finances of a business or individual, while bookkeeping refers more specifically to the tasks and practices involved in recording the financial activities.
Why bookkeeping matters
While it may seem obvious, detailed, thorough bookkeeping is crucial for businesses of all sizes. Seemingly straightforward, bookkeeping quickly becomes more complex with the introduction of tax, assets, loans, and investments.
Tracking the financial activities of a business is the truest purpose of bookkeeping, meaning it allows you to keep an up-to-date record of the current incoming and outgoing amounts, amounts owed by customers and by the business, and more.
Traditional bookkeeping
Bookkeeping has a long history as an integral part of accounting. Traditionally, it involves ledgers, charts of accounts, and a tedious double-entry system.
Here we'll cover how the main activities are recorded in traditional bookkeeping practices, which are still used to this day.
Recording transactions
In principle, transactions must be recorded daily in the books or the accounting system.
For each transaction, there must be a document that describes the business transaction. This could include a sales invoice, sales receipt, supplier invoice, supplier payment, bank payments and journals.
These accompanying documents provide the audit trail for each transaction and are an important part of maintaining accurate records in the event of an audit.