Whenever you hear the word “bookkeeping”, what comes to your mind? People who do not have any knowledge of the subject matter may think of someone keeping books for a business. However, in accounting parlance, this has a different meaning. Here is a detailed definition of bookkeeping with some explanations.
Meaning of Bookkeeping
Bookkeeping can be defined as the art of collecting and recording financial data of a business in the books of accounts.
It is also defined as a systematic method of recording financial transactions for a business.
Key explanation of Bookkeeping
It is a systematic method. This implies that bookkeeping is not done haphazardly. The books of accounts are well structured so that you can easily find any ledger accounts you are looking for.
It is also an act. The bookkeeper carries out a day-to-day routine. That is collecting and recording. For example, a cashier will enter Cash transactions daily. Other bookkeepers keep other permanent business records like sales daybooks, debtors’ schedules, and so on.
The books of accounts referred to are subsidiary books and ledger books. While the subsidiary book is subdivided into the daybook, cash book, and journals. The ledger book is divided into account receivables, account payable, private ledger, and general ledger. I will deliberate more on this in this course.
Bookkeeping involved collecting financial data from source documents and recording the same into the books of accounts.
However, with the advent of accounting software, the recording of data from the source document to other books of accounts is bypassed. The entering of sales receipts data on QuickBook will automatically record the transactions into the books of account.
Next, the differences between accounting and bookkeeping will be defined and explained.