Bookkeeping and Its Types
Bookkeeping is the process of recording and classifying business financial transactions. In simple language, maintaining the records of the financial activities of a business or an individual. Objectives of Bookkeeping are simply record and summarize financial transactions into a working form which delivers an individual or a business the financial information. Accountant normally plan and set up the accounting and bookkeeping system for a business and turn over the day to day record keeping to the owner or one of his/her employees. In this age of computers, more and more of the daily bookkeeping is being done using bookkeeping software and computer although some businesses still maintain manual records. Due to the reasonable cost of computers and software, I recommend an automated (computer) bookkeeping system.
Types of bookkeeping System
A business also needs to determine the type of bookkeeping system that will be used for recording their business transactions. Many small businesses start out using the single entry system.
Single Entry System
The single entry system is an informal bookkeeping system in accounting, where an individuals of this system makes only one entry in order to enter a business financial transaction. Cash receipt of daily summary and a monthly records of disbursement and receipt have been included in this system.
A checkbook, for example, is a single entry bookkeeping system where one entry made for each deposit or check written. Receipts are entered as a deposit and a source of revenue. Checks and withdrawals are entered as expenses.
In manual system, for determining the revenues and expenses, you have to prepare worksheets to summarize your income and then classify and summarize your different types of expenses. There are a lot of software’s for bookkeeping and spreadsheets available.
The emphasis of this system is placed on determining the profit or loss of business. It got its name because your record each transaction only once as either revenue (deposit) or as an expense (check).
Double Entry System
The double entry system is the standard system used by businesses and other organizations to record financial transactions. Since all business transactions consist of an exchange of one thing for another, double entry bookkeeping using debits and credits, is used to show this two-fold effect. Debits and Credit are the device that provide the ability to record the entries twice and are explained in more detail later in this tutorial.
There is also a check and balance in double entry system. Due to the use of debit and credits, the double-entry system is self-balancing. The total of the debit value recorded must equal the total of credit values recorded.
This system, when used along with the accrual method of accounting, is a complete system has worldwide support as the system to use b businesses for recording the financial transactions.
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