Bookkeeping (For VAT)

Bookkeeping in Accounting

Many people confuse bookkeeping as accounting. Assumptions are usually made that the preparation of financial statements and keeping of an organisations books are same as bookkeeping. Accountants don’t have same view.

Others view bookkeeping as restricted to entering transactions in daybooks or journals and then posting the sums into balance sheet in ledgers. After the posting of the amounts, bookkeeping is done with a degree holder in accounting taking over. Adjustment of entries is done by the accountant who then sees to the preparation of the financial statements and any other needed report.

The historical distinctions between accounting and bookkeeping have become unclear with the use of accounting software and computers. A person with little training in bookkeeping can make use of the accounting software to prepare sales invoices, record vendor invoices, etc. and the accounts will be automatically updated by the software. Once the format of the financial statements has been established, the software will be able to generate the financial statements with the click of a button.. With the pre-setting of the financial statements format, a click of the button will produce software generated financial statement.

At medium scale and bigger businesses the term bookkeeping can be vague. Corporations usually have accounting sections manned by accounting clerks who process accounts receivable, accounts payable, payroll, etc. The accounting clerks will be directed by one or other accountants.

Our description of bookkeeping tries to provide you with knowledge of bookkeeping and its connection with accounting. Our aim is to increase your understanding and confidence in accounting, bookkeeping and business. As a result, our hope is that you will be more valuable in your present and upcoming roles.

The electronic speed of accounting software and computers gives the impression that several of the bookkeeping and accounting tasks have been eliminated or are going on at the same time. For example, sales invoice preparation will automatically bring up to date the important general ledger accounts (Accounts Receivable, Inventory, Sales, and Cost of Goods Sold), update detailed information of the customer, and store the financial statements information among other reports.

All accounting software is designed such that every single transaction must have the debit sums equal to the credit amounts. The electronic precision also eliminates the mistakes that had arisen there was manual entry and calculation. The credits will always equal debits and the trial balance will at all times be in balance. The days of wasting long hours searching for errors that occurred in a manual entry are gone.

Bookkeeping in the Old Days

Prior to software and computers, bookkeeping in small businesses involves by writing entries into journals. Journals were well-defined as original entry books. To reduce the volume of  writing in a general journal, daybooks or special journals were introduced. The special or specialized journals comprised of a purchases journal, sales journal, cash receipts journal, and cash payments journal.

The business’s transactions were inscribed in the journals in period order. Later, the sums in the journals would be entered into the selected accounts found in the general ledger. Examples of accounts include Rent Expense, Sales, Wages Expense, Loans Payable, Cash, etc. Each account’s balance must be calculated and the balances were used in preparing the company’s financial statements. Apart from the general ledger, there may have been supplementary ledgers for accounts like as Accounts Receivable.

Bookkeeping in Present Day

Bookkeeping (and accounting) involves the recording of a business’s financial transactions.. There must be proper identification, approval, sorting and storing of the transactions in a form that must be easily retrievable.

Here are examples of some of a company’s financial transactions:

  • The purchase of materials with cash
  • The buying of merchandise on credit.
  • The sale of goods on credit.
  • Rent payment for the business office.
  • Salaries and incomes earned by employees.
  • Buying equipment for the office.
  • Lending money from a bank.

The transactions will be arranged into possibly hundreds of accounts including Cash, Accounts Loans Payable, Receivable, Sales, Accounts Payable, Rent Expense, Salaries Expense, Wages Expense Dept. etc. The sums in each of the accounts will be stated in the corporation’s financial statements in summary or in detail form.

With hundreds of accounts and perhaps thousands of transactions, it is clear that once a person learns the accounting software there will be efficiencies and better information available for managing a business.

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