History and Evolution of Bookkeeping
– Bookkeeping has been practiced since ancient times, with records dating back to 2600 BC in Babylon.
– Luca Pacioli described the modern double-entry bookkeeping system in 1494.
– In colonial America, the term ‘waste book’ was used to refer to temporary records of daily transactions.
– The bookkeeping process has evolved over time with the advancement of technology.
Bookkeeping Process
– The primary purpose of bookkeeping is to record the financial effects of transactions.
– Manual accounting systems have a latency between recording a transaction and posting it, while electronic systems allow for nearly instantaneous posting.
– Source documents, such as invoices and receipts, are recorded in journals or daybooks.
– Each column in a journal corresponds to an account, and summaries are transferred to the ledger through posting.
– Balancing accounts and creating an unadjusted trial balance is done to ensure accuracy before further processing.
Double-Entry System
– The double-entry bookkeeping system is a set of rules for recording financial information.
– Every transaction or event in the system changes at least two different nominal ledger accounts.
– It ensures that debits and credits are always in balance.
– The system provides a comprehensive and accurate view of a company’s financial transactions.
– It is widely used in modern accounting practices.
Daybooks and Journals
– Daybooks are descriptive and chronological records of day-to-day financial transactions.
– They are also known as books of original entry.
– Daybook details must be transcribed into journals for posting to ledgers.
– Examples of daybooks include the sales daybook for recording sales invoices.
– Daybooks are essential for maintaining an organized and accurate record of financial transactions.
– Journals are formal and chronological records of financial transactions and are recorded in the general journal daybook.
– Transactions accounted for in the general ledger as debits and credits.
– Can maintain one journal for all transactions or multiple journals based on activity.
– Requires equivalent credit journal entry for every debit entry.
Role of a Bookkeeper and Related Concepts
– The person responsible for bookkeeping functions is usually called the bookkeeper.
– Bookkeepers prepare source documents and document each financial transaction.
– They record transactions in daybooks, such as sales, purchases, receipts, and payments.
– Bookkeepers maintain the general ledger and bring the books to the trial balance stage.
– Accountants use the information recorded by the bookkeeper to create financial reports for the organization.
– Petty Cash Book is a record of small-value purchases maintained by a petty or junior cashier using the imprest system.
– Journals are recorded in the general journal daybook, while ledgers are permanent summaries of amounts entered in supporting journals.
– Other related concepts include accounting, comparison of accounting software, POS system, bookkeeping associations, and coordinate bookkeeper. Source: https://en.wikipedia.org/wiki/Accounting_technician
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Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organizations. It involves preparing source documents for all transactions, operations, and other events of a business. Transactions include purchases, sales, receipts and payments by an individual person or an organization/corporation. There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as "real" bookkeeping, any process for recording financial transactions is a bookkeeping process.
The person in an organisation who is employed to perform bookkeeping functions is usually called the bookkeeper (or book-keeper). They usually write the daybooks (which contain records of sales, purchases, receipts, and payments), and document each financial transaction, whether cash or credit, into the correct daybook—that is, petty cash book, suppliers ledger, customer ledger, etc.—and the general ledger. Thereafter, an accountant can create financial reports from the information recorded by the bookkeeper. The bookkeeper brings the books to the trial balance stage, from which an accountant may prepare financial reports for the organisation, such as the income statement and balance sheet.
