Bookkeeping

Bookkeeping is the process of recording a business’s financial transactions in a systematic and organized way. It captures every sale, purchase, payment, and receipt to ensure the business’s financial records are complete and accurate.

Why It Matters

Bookkeeping is the foundation of accounting. Without accurate records, it’s impossible to prepare reliable financial statements, measure performance, or make informed decisions.

Key Points

• Purpose: Maintain a detailed, up-to-date record of all financial activities.
• Methods: Manual (books/ledgers) or digital (accounting software).
• Systems:
  • Double-entry system – Every transaction affects at least two accounts.
  • Single-entry system – Simpler but less detailed, often used by small businesses.
• Output: Data used to prepare financial statements like the income statement and balance sheet.

Example

If your shop sells goods for $500 cash, bookkeeping records:

• Cash account ↑ $500
• Sales revenue account ↑ $500

Common Misconceptions

• “Bookkeeping and accounting are the same.” Bookkeeping records the data; accounting analyzes it.
• “Bookkeeping can be skipped if you have good memory.” Without proper records, you risk errors, missed payments, and tax problems.

Quick FAQ

Q: What is the difference between bookkeeping and accounting?
A: Bookkeeping records transactions; accounting analyzes, summarizes, and reports them.

Q: Do small businesses need bookkeeping?
A: Yes. Even small operations need accurate records for taxes, tracking, and growth planning.