Overview

Book keeping refers to the process of recording the financial transactions and information of the business or company, it is the systematic recording of the financial transactions in a company that ensures that all information is up to date and accurate. It is helpful and important for a company. Bookkeepers can be individuals or entities, who maintain all the financial transactions of a company.

Bookkeeping is the financial backbone of a business. It involves recording all income and expenses, ensuring accuracy, and keeping everything organized. This data is used to make financial reports that tells the company's financial story, help with budget, taxes, and make informed decisions. Bookkeeping is the record that tells the company's financial health.
 

Objectives of BookKeeping 

1. Legal requirement: The maintenance of financial statements and books of accounts is a legal requirement under many acts. In the case of banks or companies or insurance companies, the acts that regulate them require such firms to maintain and keep financial records. Thus, bookkeeping becomes necessary for such companies.

2. Records the source of transactions: Bookkeeping acts as a source of all the financial transactions of a business since it records all the financial transactions from the source of the transaction, like receipts, invoices, payment notes, etc.

3. Financial Reporting: Using the recorded data to generate financial statements like profit and loss statements and balance sheets. These reports provide insights into the company's financial health and performance. These reports are necessary for company in order to represent financial data to ROC and investors.

4. Decision Making: By analyzing financial reports, businesses can make informed choices during about budgeting,  resource allocation, and future strategies.

5. Error Detection: Regular bookkeeping helps identify and rectify errors or potential fraud or prevent financial losses early on, on the early stage. Therefore, maintaining books of accounts are important and mandatory to maintain for companies.

6. Financial Clarity: Imagine flying a plane blindfolded. Bookkeeping sheds light on your business's financial performance, showing your source of income, expenses, and overall profitability.

7. Smarter Decisions: With clear financial data, you can make informed choices about budgeting, investments, and resource allocation. It's like having a roadmap for success.

8. Tax Calculation Preparation: Books of accounts help in calculating the income tax liability of an individual or a business entity. Tax season is a breeze with organized records. Bookkeeping ensures that you have the necessary documentation for accurate tax depositing, avoiding penalties and saving your time.
 

Types of Bookkeeping

1. Single-entry System of Bookkeeping

The single-entry system is a basic system or method to record financial transactions of a company. It is often used for recording daily receipt and generating monthly or weekly report. In this system a bookkeeper records one entry for each financial transaction of activity. Mainly it involves one side of the transaction, also single-entry system is used in small sized businesses which has fewer transactions.

A single-entry system of bookkeeping is used where the transactions of the business affect only one account, i.e. only one account’s value will decrease or increase based on the transaction amount. Under this system, a cash book is prepared that shows the payment and receipts of the cash transactions.

2. Double-entry System of Bookkeeping

A double entry system is a way of recording transactions of a company in which book keeper records each financial activity which has debit and credit both effects. This system offers balance and recheck of corresponding entry. This system is used by number of entities for accurate recording of business activities or financial transactions.

A double-entry bookkeeping system is, where a corresponding entry is made for every transaction, i.e. debits and credits. The basis of the double-entry bookkeeping system is that every transaction has two parts and affects two ledger accounts. The double-entry system of bookkeeping deals with two or more accounts for every business transaction.