Bookkeeping involves recording and organizing a business’s financial transactions, including income and expenses, to track financial health and make informed decisions. It can be done manually or with software and is a crucial part of accounting.
Here’s a more detailed breakdown:
- What it is:Bookkeeping is the process of tracking all of a business’s financial transactions.
- What it does:
- Records income and expenses.
- Ensures accuracy in financial records.
- Helps understand a business’s financial health.
- Provides information for making informed business decisions.
- Can be used to prepare tax returns.
- How it works:
- Recording Transactions: Bookkeepers record all financial transactions, including purchases, sales, receipts, and payments.
- Using Source Documents: They use supporting documentation like bills and invoices to record transactions.
- Organizing Records: Transactions are categorized and organized into accounts.
- Summarizing Information: Bookkeepers regularly summarize financial activities into reports.
- Double-entry bookkeeping: Every transaction affects at least two accounts (debits and credits).
- Software: Many businesses use bookkeeping software to automate the process and maintain organized financial records.