Bookkeeping is a task concerned with the recording of financial data relating to business operations in a significant and orderly manner. It envelopes all the procedural aspects of accounting work and embraces record-keeping function. There are different types and
methods of bookkeeping which are practised in managing books of accounts.
Objectives of Bookkeeping
Understanding the bookkeeping objective will helps us to understand the methods and types easily.
- Absolute recording of transactions – It is concerned with a complete and permanent record of all transactions in a systematic and logical manner to show its financial effect on the business.
- Determining the financial effect on the business – It is concerned with the combined effect of all the transactions made during the accounting period upon the financial position of the business as a whole.
Types of Bookkeeping system
The single-entry and double-entry bookkeeping systems are the two methods commonly used. While each has its own advantage and disadvantage, the business has to choose the one which is most suitable for their business.
|Single Entry Bookkeeping System
||Double Entry Bookkeeping System
- The single entry system of bookkeeping requires recording one entry for each financial activity or transaction.
- Single entry bookkeeping system is a basic system that a company might use to record daily receipts or generate a daily or weekly report of cash flow.
- The double-entry system of bookkeeping requires a double entry for each financial transaction.
- The double entry system provides for checks and balances by recording a corresponding credit entry for each debit entry.
- The double-entry system of bookkeeping is not cash-based. Transactions are entered when a debt is incurred or revenue is earned.
Methods of Bookkeeping
|Manual methodology of Bookkeeping
- It is a paper-based and traditional way of Bookkeeping.
- Transactions are recorded manually by hand using a paper book of accounts such as journal-register, ledger books etc.,
- Widely used by small businesses with less complex business transactions.
- Cheaper and easier to maintain but requires a lot of skill and time, sometimes turns out to be tedious task at hand.
|Computerized methodology of Bookkeeping
- A new innovative way of recording business transactions.
- Uses accounting and bookkeeping software such as Tally.ERP 9 for recording transactions.
- An easier, faster and convenient way of recording business transactions.
- Eliminates the tedious tasks involved in manual bookkeeping.
- Reliable and accurate financial reports possible.
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