Book keeping Meaning:
Books of account are a scientific method of recording day-to-day business transactions in words and figures to show the financial position of a business accurately and clearly.
Bookkeeping is the process of tracking a company's financial transactions. This involves recording all the money coming in and going out of the business. This includes things like sales, purchases, payments, incomes, receipts, and expenses.
Keeping accurate and proper records of these transactions is the main function of bookkeeping. Bookkeepers use a variety of tools, such as journals, ledgers, and accounting software, to keep track of financial information.
Bookkeeping helps businesses understand their financial health, keep track of where their money is going, and make informed decisions about spending, budgeting, and planning for the future.
Concepts of bookkeeping:
The basic principles of bookkeeping ensure the reliable and systematic recording of financial transactions. The principles mentioned above guarantee uniformity, reliability, and clarity in preparing financial statements. Below are some basic bookkeeping concepts explained in simple language.
Double Side Concept: This concept is the foundation of bookkeeping. It states that every financial transaction affects at least two accounts. For example, when a business sells a product, it records both an increase in sales revenue and an increase in cash or accounts receivable.
Revenue-recognizing principle: Revenue should be recorded when it is earned, regardless of when the cash is received. For example, if a service is supplied in January but payment is received in February, the revenue is recorded in January.
Matching principle: Expenses should be recorded in the same period in which they make a contribution to income. For example, if a business pays in January for supplies that will be used to make products that will be sold in February, the expense is recorded in January to match February's revenue.
The Conservative Principle: When there is uncertainty, it is better to be conservative and record losses or liabilities rather than potential gains. For example, if there is doubt about the collectability of a receivable, it should be recorded as non-collectible.
The Consistency Principle: Once an accounting method is chosen, it should be applied consistently over time. It enables the evaluation of financial data from multiple periods on a comparable basis.
Principle of Materiality and Significance: Recording is required exclusively for matters that can influence the decision-making process. Small, unimportant transactions may be omitted to avoid cluttering the financial statements.
Objectiveness Principle: Financial transactions should be recorded on the basis of objective evidence such as receipts, invoices, and contracts rather than personal opinion or guesswork.
Timeliness Principle: It is crucial that financial transactions are promptly and correctly recorded to ensure that financial statements reflect the most recent information.
These bookkeeping concepts provide a framework for keeping accurate financial records and creating reliable financial statements that help businesses make informed decisions and comply with accounting standards.
Methods of bookkeeping:
Methods of bookkeeping:
Single-entry bookkeeping: visualize writing all your income and expenses in one book. You record each transaction only once, either as an inflow of money (income) or as an outflow of money (expenditure). This is a basic inventory of what you earn and spend.
Double-Entry Bookkeeping: This method is a more elaborate version of single-entry bookkeeping. Instead of recording only income and expenses, you record each transaction twice: once when the money comes in and once when the money goes out. It's like keeping track of where your money is going and where it's coming from on two separate lists.
Manual Bookkeeping: Consider manually writing down all your financial transactions in a notebook or ledger. You write down every income and expense by hand and do all the calculations automatically. It's like keeping a personal finance journal.
Computerized Bookkeeping: Instead of using pen and paper, you use accounting software on your computer to record and manage your financial transactions. It is a kind of digital journal that automatically counts everything for you and keeps everything tidy.
Cash-based bookkeeping: In this method, you record income and expenses only when cash actually comes out of your pocket. It's like keeping track of your finances based on the money you can physically handle.
Accrual-based bookkeeping: With this method, you record income and expenses when they are earned or incurred, even if cash has not yet been transferred. It's like keeping track of how much you owe and how much you owe, whether you actually pay or when you actually pay.
Hybrid Bookkeeping: It is a mixture of manual and automated methods. Depending on what is best for you, you can use accounting software for some tasks and handwritten bookkeeping for others. It's about finding the right balance between old and modern ways of keeping track of your finances.
In brief, bookkeeping procedures encompass diverse methods for effectively managing and documenting financial transactions.
