What is Bookkeeping?
On a daily basis, Bookkeeping involves the recording of financial transactions in a company. The companies can track all the details on their books to invest and operate the finance decisions. Without the bookkeepers, the companies are not aware of the present finance position. For the external users like investors, public sector, financial institutes they need to access the reliable information for better lending decisions. The entire economy of a company depends on the Bookkeeping for both external and internal users.
Role of the Bookkeeping in a company:
If there is proper Bookkeeping, then the company will give reliable performance. It provides detailed information on revenue benchmarks and general strategic decisions on income goals. If once the business is running well, then spending extra time on records maintenance is very critical. Many of the small companies are willing to hire full-time accountants because of the huge cost. Instead of hiring full-time accountants, the small companies employ a bookkeeper. Sometimes, people who intend to start a new business overlook keeping the records well.
Terms of Bookkeeping which are related to Accounting:
In the Bookkeeping, there are some specific terms related to the Accounting equation:
Assets: The Asset account usually starts with the marketable securities and the cash account. Then the inventory accounts fix the assets like plant equipment, buildings, land, and so on. Apart from those, the company also has intangible assets like customer goodwill.
Assets = Liabilities + Equity
Liabilities: The account liability on the balance sheet include long-term and current liabilities. The current liabilities are accruals and payable. The account payable include bank loans, credit cards, and suppliers. The Accruals have social security, taxes including state, federal and medicare.
Equity: The equity accounts consist of the owner’s claims against the company. The business owner has an investment in the firm, and that is also considered as an equity investment.
The double-entry Bookkeeping has a set of rules in recording the financial information and also impacts in various accounts. The whole process can be done by using the credits and debits for error detection. At any point, if the total debits are equal to the total credits, then an error will occur in the records.
Basic types of bookkeeping accounts:
Here are some basic types of bookkeeping accounts include Cash, Accounts Receivable, Accounts Payable, Inventory, Sales, Loans Payable, Payroll Expenses, Purchases, Retained Earnings, and Owners Equity.
The above gives you the basic information about Bookkeeping such as its role in financial transactions, terms related to accounting, about double-entry Bookkeeping and its basic types. Bookkeeping plays a vital role in maintaining the financial records of a company. Hope this article helps in acquiring the basic knowledge about Bookkeeping.
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