Bookkeeping is the process of recording all the financial transactions made by a business. Bookkeepers are responsible for recording, classifying, and organizing every transaction made over the course of a given period.
Bookkeepers are crucial for the operations of a business. Without bookkeepers, companies wouldn’t be able to identify their current financial position or keep track of business transactions.
There are five basic accounts that every bookkeeper should know about.
Anything that holds value in your business is your asset. This includes your cash, receivables, inventory, furniture, plant, and machinery.
Debts owed by your business are included in liabilities. These include any account payables and loans that you have acquired.
The money you earn by selling your products or providing services is called revenue.
The money that you spend to run your business is expenses. This includes your electricity bill, salaries, rent, etc.
You will get your equity after subtracting the liabilities that you have to pay from the business assets that you hold. This amount will reflect the owner’s financial interest in the business.
Methods Of Bookkeeping
These are the basic methods of bookkeeping methods that you should know about.
Single Entry Bookkeeping
This is a relatively simple method of recording. In this method, only one entry is made against each transaction. These are usually recorded in a cashbook to track incoming revenue and outgoing expenses.
Double Entry Bookkeeping
This method of recording is more suited to large businesses. Each transaction is recorded as debit and credit, and in the end, the total debits must be equal to the total credits. This is essentially a method for double-checking your accounts, and thus it leaves less room for error.
Cash Or Accrual Based Bookkeeping
In a cash-based method, the revenues are recognized when you receive cash in the business. Conversely, in the accrual method, revenues are recognized when they are earned. This means that in an accrual method, cash does not have to enter or exit the business.
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