What Is Bookkeeping?

What exactly does bookkeeping comprise? What is the final product? How does it compare to accounting? Let's take a look.

Bookkeeping definition

Bookkeeping is the act that records and tracks a business's financial transactions. Bookkeepers frequently summarize this information into reports that demonstrate how the company is performing. They also carry out other tasks like billing, invoicing as well as making tax returns, monitoring key performance indicators, as well as providing strategic direction.

The background of bookkeeping

Evidence of record-keeping for financial transactions was discovered throughout Mesopotamia, Babylon, Sumer, and Assyria from 7700 BC. The archives have been found which show the record of the accounts of farm products in the early days of Greece and also from earlier in the Roman Empire.

However, it was during the fifteenth century when the origins of modern bookkeeping can be traced. In fact, the book has two pages in books of history that document the double entry system. Some credit Benedetto COtrugli and the 1458 publication Of Commerce and the Perfect Merchant. Most people think of Pacioli as the founder of bookkeeping and bookkeeping, based on his 1494 volume Review of Arithmetic, Geometry, Ratio, and Proportion.

An Italian mathematician, as well as a Franciscan monk Pacioli, was the first to write a well-known description of the double entry system, as well as the usage of a variety of bookkeeping tools like ledgers and journals. The book would become the primary educational tool used that was used for bookkeeping and accounting throughout the next hundred years. Bookkeeping became a profession in the UK as well as the US during the 1890s.

A brief introduction to bookkeeping basic concepts

Here are some fundamental bookkeeping terms and concepts you need to be aware of. They are essential to the techniques and procedures bookkeepers follow to produce accurate accounts:

Ledger: is the location where transactions in the business are recorded and classified

Accounts: are the categories into which all business transactions fall.

Assets: include things the company has purchased and owns (or partially owns) inventory, inventory, as well as money due to the company as accounts payable

Liabilities: The amount the company has to pay in taxes, bills, and wages, as well as loans.

Equity: is the term used to describe money that is taken out and returned from the shareholder or owner

Revenue: The money that enters the company through dividends, sales, or interest

Expenses: The money is paid to ensure that the business is running

Financial statements: Reports that provide information on the financial activity and performance of a company. Two principal examples are the balance sheet and the income statement

Balance sheet: Lists the items your company owns as well as their worth, as well as the amount your company owes

Income statement: Totals the income and expenses for an outlined period of time and also demonstrates how the company is operating

Chart of accounts: A listing of all the accounts you've used to track the financial transactions you make within your account. They're also known as general ledger numbers.

Journal entry: The name used to describe any record that is made within the accounts.

The distinction is between bookkeeping and accounting

Bookkeeping is typically the regular maintenance of a company's financial records. Bookkeepers would collect and verify the data that accounts were compiled. However, their roles have expanded in the past We'll examine how this happens in the next chapter.

Accounting is the process of analyzing and reporting on the information bookkeepers collect. Accounting reports give a picture of the financial performance of the business and help determine how much tax is due.

An accounting degree demands a deep knowledge and education in tax laws and other laws which companies must be in compliance with, along with the management of business and finance. While certain bookkeepers might have similar qualifications, however, this level of education is not required to be referred to as a bookkeeper.