Financial transactions are important records that one needs to maintain properly. But do you know how these records can be maintained in the right way in the right way by the business? The only answer will be bookkeeping.
This is the responsibility of the book keepers to firstly record the financial transaction, then classify it accordingly and the last stage is to organize them correctly. The process of accounting work is based on the books that are recorded and organized by the bookkeepers to prepare all the accounts of the accounting at the end of the year.
Most of the time it’s seen that small businesses keep a cheque book type bookkeeping system in which there are the records of transactions mentioned. However, in contrast, complex or big businesses usually go through the process of double entry accounting.
Is there a difference between bookkeeping and accounting?
It is important to understand the fact that bookkeeping and accounting both are not similar and differ in terms of functionality. It is important for all types of business to maintain bookkeeping. A bookkeeper is required to acquire all the transaction information and then record it in an accounting journal, classify it in the form of debits and credits, and lastly organize the financial transactions as per the business organization’s account.
There should be a complete summary of the recorded financial transactions at the end of the year or specific month. However, small businesses often need the yearly records.
When the specific time period comes, it is the turn of the accountant to do all the analysis and interpretation for the business. It is also required to make statements and accounts for the organization as it is an important part of the accounting work.
Effective bookkeeping becomes an important factor for a bookkeeper when they understand the accounting basics.
The three terms are most important and help in making up the balance sheet of the company. Assets, liabilities and last but not the least equity are the three important terms that should be known when doing the work of accounting as it’s the main base of accounts.
Assets are the resources that are owned by the company or a business. It includes mainly the fixed assets.
Liabilities are basically the company’s debts or a sum of money that company owes to someone. It includes mainly mortgage loans.
Next comes equity, which refers to the company’s shares or investors in the business.
The bookkeeper is required to check whether all these three terms are recorded in the form of accounts correctly or not. It basically keeps good track of all the related terms and transactions that have happened in the business.
The formula is actually written as –
Liabilities + Equity = Assets
Summing up, we can conclude that for any firm, transaction records are really very important. However, keeping track of all the transactions by oneself is not an easy task. That’s why it’s best to hire a bookkeeper to help in tracking all the transactions in the right way.