What is Bookkeeping? Complete Walkthrough Guide

The entire attic of financial statements relies on the pillar of bookkeeping, which is an umbrella term under accounting. Many get puzzled between the terms bookkeeping and accounting due to their similar nature and co-related practices. 

Well, it’s a fact that the entire business growth relies on financial statements that perfectly depict the business. Many prefer to outsource accounting and bookkeeping services due to variances in skills and knowledge required to prepare them. So what is book keeping, and how is it different from accounting? 

What is Bookkeeping?

Bookkeeping refers to the act of recording and systematically maintaining day-to-day transactions. It is a record that is only limited to internal members of the firm, and to present the overview performance of the business, it is later evaluated into financial records. 

The systematic record of transactions is essential for businesses due to several reasons:

• By implementing efficient and effective bookkeeping practices, organizations could showcase their financial health in a more precise manner. Creating trust among investors leads to growth.

• Business accounting is the backbone of success; it provides accurate information on profits and expenditures and detailed statements on current assets and liabilities. 

• It helps the administration to take further necessary steps and formulate a strong plan.

• Nevertheless, the main reason to record such transactions is due to legal requirements. Failing to do so and any incorrect statements can land organizations in legal trouble for window dressing or fraud cases. 

However, there is a bit of a personalized touch to it; bookkeeping can be done in two ways, either on a cash flow or accrual basis. On an accrual basis, every transaction is recorded and in cash flow, only cash transactions are recorded. 

Furthermore, there are two methods of recording the transactions; those are either done in single-entry or double-entry bookkeeping. 

Single-entry Bookkeeping

In this type of bookkeeping, only one side of the transaction is recorded. This was the oldest and currently the least followed method of recording financial transactions, as it makes it tougher for further financial evaluation. In this type of statement, the transaction is recorded as an expense or income. For example, if a business receives $400 on sale, then it will record as $400 cash flow, and if the amount paid for rent is recorded as an expense with the date under the expense column. 

Date	Description	Income	Expenses	Balance
1/12/24	Balance			500
11/12/24	Sale	400		900
15/12/24	Rent		150	750
Ending Balance		400	150	750

Double-entry Bookkeeping

So what is double entry accounting? It is the most adopted bookkeeping technique used all around the globe. As the name suggests, both sides of entries are recorded. For example, if a firm takes a loan from the bank, both assets and liability columns are debited and credited, respectively. 

Particulars	Debit	Credit
Bank A/C                           Dr.       To Bank Loan	10,000	10,0000

Bookkeeping is not just limited to recording transactions, but acts as raw data through which financial statements are prepared. The entire record is moved through a cycle of accounting, which contains certain elements of bookkeeping. 

Elements of Bookkeeping

Bookkeeping records are further assessed and summarized into simpler statements. Those records portray the financial status of the firm, which includes:

• Journal Entry: The first and last step in the accounting cycle is a journal entry, which is a double-entry record. The entire formulation of journal entries relies on the golden rule of accounting, which states debit what comes in and credit what goes out. The importance of journals cannot be denied, as they are considered the foundation of sound financial records. 

• Ledger: Once the transaction has been recorded in the journal, those records are then moved to the ledger account. In this, all the transactions are categorized into different sub-ledgers. This helps the accountant to prepare all the transactions easily under financial statements. The general ledger example is when a firm sells its $20,000 worth of product, the transaction is recorded as Cash A/C 20000 dr to Sales A/C 20000.

• Financial Statements: This represents the true nature of the business and the existing financial condition. It includes a balance sheet, income statement, cash flow statement, and equity statement. However, the recording of these accounts isn’t part of bookkeeping, but rather comes under accounting. 

Isn’t both the terms supposed to be interrelated? Well, to some extent, bookkeeping does cover accounting, but the majority of financial statements that are deemed valuable for the public are prepared by an accountant. What does this exactly mean? Let’s find out. 

How is Bookkeeping and Accounting Different?

Bookkeeping and accounting terms are often misunderstood and used interchangeably, which is quite wrong. As we have discussed till now, bookkeeping is all about maintaining financial records and transactions, whereas accounting is a much broader term.  

Based on the financial records maintained by a bookkeeper, an accountant is responsible for preparing accounting statements. The financial records in accounting give a brief layout of the company’s financial condition, helping investors and partners to make a better move. 

It involves preparing a balance sheet, cash flow statement, and income/expenditure statement. These records showcase the performance of the organization, which is published publically compared to records in bookkeeping. 

An accountant is required to comply with tax laws and navigate through the complexity of accounting. Moreover, the role of an accountant is highly authoritative, and whatever they have summarized from raw data ultimately paints the picture of a firm.  

Basis	Bookkeeping	Accounting
Derivation	A systematic record of financial transactions.	The overall financial health of the company.
Helpful For	Bookkeeping is useful for accountants, helping them to prepare financial statements further.	Accounting statements are useful for the general public and investors. Assisting them in consolidating their investments.
Scope	Limited	Wider
Access	Access to bookkeeping is limited to the internal walls of the firm.	Accounting statements such as balance sheets and cash flow statements can be accessed by outsiders as well.
Expertise	Doesn’t require any expertise.	Requires professional skills and expertise.
Elements	It involves recording receipts, payments, sales, revenue, expenditure, debtors, and creditors.	Accounting involves combining all these transactions into meaningful financial statements. Such as cash flow and balance sheet.

How to Become a Bookkeeper and What are Some Job Responsibilities?

To become a certified bookkeeper, there are certain hard skills that you should possess that are related to the field of accounting.

• Accountancy rules
• Billing
• Data entry
• Bank Reconciliation
• Accounting software
•  Spreadsheet
• Preparing accounts receivable and payable.

Apart from this, an employer expects additional organizational skills from a bookkeeper, such as time management, planning, and so on. Moreover, bookkeeper aspirants must possess a bachelor’s or master’s degree in the field of accounting or finance. 

This will give you a great leap in securing a bookkeeping job. However, if your bachelor’s degree is not related to accountancy or the relevant finance field, you can go for bookkeeping courses. 

The major job responsibilities of a bookkeeper are:

• Preparing journal entries and ledger in accounting.
• Maintaining transactions in systematic order.
• Provide all the books for the accounting stage.
• Verify all the transactions.

The annual salary of a bookkeeper is around $50,000, which varies upon experience and the present skills a candidate possesses.

Final Words

Bookkeeping is an important aspect and covers the major chunk of accounting. The entire process of the accounting cycle begins with a journal entry and ends with it. This portrays the significance of maintaining systematic records in bookkeeping that entirely support the financial picture of a company. 

Moreover, to avoid any legal compliance that may land you into any sort of trouble, it is suggested to always hire an expert who manages your statements effectively.