bookkeeping
American Heritage Dictionary:
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book·keep·ing
n.
The practice or profession of recording the accounts and transactions of a business.
bookkeeper book'keep'er n.
Britannica Concise Encyclopedia:
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bookkeeping
Recording of the money values of business transactions. Bookkeeping provides the information from which accounts are prepared but is distinct from accounting. Bookkeeping offers information on both the current value, or equity, of an enterprise and on its change in value (due to profit or loss) over a given time period. Managers require such information to examine the results of operations and budget for the future; investors need it to make decisions about buying or selling securities; and credit grantors use it to determine whether to grant a loan. Financial records were kept in Babylon and in ancient Greece and Rome. The double-entry method of bookkeeping began with the development of the Italian commercial republics of the 15th century. The Industrial Revolution stimulated the spread of bookkeeping, and 20th-century taxation and government regulations made it a necessity. Two types of records continue to be used in bookkeepingjournals and ledgers. They can be recorded by hand or entered into a computer. The journal contains daily transactions (sales, purchases, etc.), while the ledger contains the record of individual accounts. Each month an income statement and a balance sheet are posted in the ledger.
For more information on bookkeeping, visit Britannica.com.
Barron's Accounting Dictionary:
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bookkeeping
Accounting support functions performed by the bookkeeper.
Bookkeeping is the most basic of the accounting duties and requires less education and experience.
Bookkeeping is the most basic of the accounting duties and requires less education and experience.
| Bookkeeper, Book-To-Bill Ratio, Book Value Per Share | |
| Boolean Algebra, Boot, Bottleneck |
Gale Encyclopedia of Small Business:
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Bookkeeping
Bookkeeping is that aspect of accounting that is concerned with the mechanics of keeping accounts, ledgers, and journals, including posting entries and taking trial balances. Bookkeeping provides the necessary support for such accounting functions as the preparation of financial statements, cost reports, and tax returns.
Bookkeeping involves keeping track of a business's financial transactions and making entries to specific accounts using the debit and credit system. Each entry represents a different business transaction. Every accounting system has a chart of accounts that lists actual accounts as well as account categories. There is usually at least one account for every item on a company's balance sheet and income statement. In theory, there is no limit to the number of accounts that can be created, although the total number of accounts is usually determined by management's need for information.
The process of bookkeeping involves four basic steps: 1) analyzing financial transactions and assigning them to specific accounts; 2) writing original journal entries that credit and debit the appropriate accounts; 3) posting entries to ledger accounts; and 4) adjusting entries at the end of each accounting period. Bookkeeping is based on two basic principles. One is that every debit must have an equal credit. The second, that all accounts must balance, follows from the first.
Bookkeeping entries are made in a journal, which is a chronological record of all transactions. Journal entries are typically made into a computer from paper documents that contain information about the transaction to be recorded. Journal entries can be made from invoices, purchase orders, sales receipts, and similar documents, which are usually kept on file for a speci-fied length of time. For example, the journal entry for a transaction involving a cash payment for a new stapler might credit the cash account by the amount paid and debit the office supplies account for the value of the stapler.
Journal entries assign each transaction to a specific account and record changes in those accounts using debits and credits. Information contained in the journal entries is then posted to ledger accounts. A ledger is a collection of related accounts and may be called an Accounts Payable Ledger, Accounts Receivable Ledger, or a General Ledger, for example. Posting is the process by which account balances in the appropriate ledger are changed. While account balances may be recorded and computed periodically, the only time account balances are changed in the ledger is when a journal entry indicates such a change is necessary. Information that appears chronologically in the journal becomes reclassified and summarized in the ledger on an account-by-account basis.
Bookkeepers may take trial balances occasionally to ensure that the journal entries have been posted accurately to every account. A trial balance simply means that totals are taken of all of the debit balances and credit balances in the ledger accounts. The debit and credit balances should match; if they do not, then one or more errors have been made and must be found.
Other aspects of bookkeeping include making adjusting entries that modify account balances so that they more accurately reflect the actual situation at the end of an accounting period. Adjusting entries usually involves unrecorded costs and revenues associated with continuous transactions, or costs and revenues that must be apportioned among two or more accounting periods.
Another bookkeeping procedure involves closing accounts. Most companies have temporary revenue and expense accounts that are used to provide information for the company's income statement. These accounts are periodically closed to owners'equity to determine the profit or loss associated with all revenue and expense transactions. An account called Income Summary (or Profit and Loss) is created to show the net income or loss for a particular accounting period. Closing entries means reducing the balance of the temporary accounts to zero, while debiting or crediting the income summary account.
Good bookkeeping is particularly important to small businesses, since they can rarely afford to waste money. Bookkeeping enables the small business owner to support expenditures made for the business in order to claim all available tax credits and deductions. It also provides detailed, accurate, and timely records that can prove invaluable to management decision-making, or in the event of an audit.
Further Reading:
The Entrepreneur Magazine Small Business Advisor. Wiley, 1995.
Pinson, Linda, and Jerry Jinnett. Keeping the Books: Basic Recordkeeping and Accounting for the Successful Small Business. Upstart Publishing, 1998.
Placencia, Jose. Business Owner's Guide to Accounting and Bookkeeping. Oasis Press, 1997.
Columbia Encyclopedia:
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Bookkeeping
bookkeeping, maintenance of systematic and convenient records of money transactions in order to show the condition of a business enterprise. The essential purpose of bookkeeping is to reveal the amounts and sources of the losses and profits for any given period. Proper bookkeeping should also reveal the nature and value of the assets and liabilities of a firm, as well as its net worth at the close of that period.
Bookkeeping records are kept in columnar form, using separate columns for the date of transaction, an explanation of the nature of the transaction, and its value. Other columns may be added. In general, two sets of columns are used, assets being placed in one set of columns and liabilities in the other set (a money value having been assigned to all assets and all liabilities of the business). Such an arrangement is called double entry. A balance sheet may be compiled at any time by totaling each column and subtracting the smaller total from the greater to give either a surplus or a deficit. The result is called the net worth, and it gives an indication of the financial state of a firm. A detailed balance for a period between two balance sheets is called a profit and loss statement.
The process of deciding whether to enter items into one set of columns or the other, i.e., into the debit side or the credit side, is called journalizing, since the analyzed items are placed in a journal, or daybook, soon after the transactions occur. Separate accounts of persons or sections are kept in a book called a ledger; the ledger is now often a computer file (created in "spreadsheet" software) rather than a physical book. The transfer of items from the journal to the ledger is called posting. In large businesses, the journal is broken into many sections, each concerning a separate function of the business, such as sales, purchases, accounts receivable, accounts payable, sales return, purchases return, and cash on hand. The journal also has sections for invoices, inventory, orders, cash, sales, bills, and checks.
Single-entry bookkeeping enters all debits and credits in a single set of columns in a journal and labels each entry Dr. (debit) or Cr. (credit). Thus in a single entry only one element of a transaction is entered. Single-entry bookkeeping fails to give detailed information as to the sources of gain or loss.
There are two main methods of accounting for money in a business. The cash method reports income in the year it is received and deducts expenses in the year they are paid. The accrual method reports income when it is earned and deducts expenses as they are incurred, regardless of whether the money has actually entered or left the business yet.
Any bookkeeping system must also account for all canceled checks, paid bills, duplicate deposit slips from banks, and other records of transactions. These records act as proof of the posted entries; they are usually organized chronologically or by type and are kept in filing cabinets. Bookkeeping machines, ranging from the simple adding machine to the computer, help in maintaining properly organized books. Computers revolutionized bookkeeping and accounting systems, both for entering ledger items and for such operations as year-end profit-and-loss calculations.
The Babylonians, Egyptians, Greeks, and Romans kept business records. Double entry seems to have been first developed by the people of N Italy during the great commercial expansion of the 14th and 15th cents. and has consequently been called the Italian method. The system then spread to the Netherlands, England, and elsewhere. Single entry developed later.
See also accounting; auditing.
West's Encyclopedia of American Law:
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Bookkeeping
This entry contains information applicable to United States law only.
The process of systematically and methodically recording the financial accounts and transactions of an entity.
Double-entry bookkeeping is an accounting system that requires that for every financial transaction there must be a debit and a credit. When merchandise is sold for cost, there is a debit to cash and a credit to sales.
Word Tutor:
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bookkeeping
IN BRIEF: n. - The activity of recording business transactions.
The first semester of accounting teaches basic bookkeeping.
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Random House Word Menu:
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categories related to 'bookkeeping'
- Accounting - bookkeeping: systematic recording of financial business transactions and records
Bradford's Crossword Solver's Dictionary:
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bookkeeping
See crossword solutions for the clue Bookkeeper.
Wikipedia on Answers.com:
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Bookkeeping
For the computer programming concept, see Bookkeeping code.
Bookkeeping is the recording of financial transactions. Transactions include sales, purchases, income, receipts and payments by an individual or organization. Bookkeeping is usually performed by a bookkeeper. Many individuals mistakenly consider bookkeeping and accounting to be the same thing. This confusion is understandable because the accounting process includes the bookkeeping function, but is just one part of the accounting process.[1] The accountant creates reports from the recorded financial transactions recorded by the bookkeeper and files forms with government agencies. There are some common methods of bookkeeping such as the single-entry bookkeeping system and the double-entry bookkeeping system. But while these systems may be seen as "real" bookkeeping, any process that involves the recording of financial transactions is a bookkeeping process.
A bookkeeper (or book-keeper), also known as an accounting clerk or accounting technician, is a person who records the day-to-day financial transactions of an organization. A bookkeeper is usually responsible for writing the "daybooks". The daybooks consist of purchases, sales, receipts, and payments. The bookkeeper is responsible for ensuring all transactions are recorded in the correct day book, suppliers ledger, customer ledger and general ledger.
The bookkeeper brings the books to the trial balance stage. An accountant may prepare the income statement and balance sheet using the trial balance and ledgers prepared by the bookkeeper.
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Bookkeeping process
The bookkeeping process refers primarily to recording the financial effects of financial transactions only. The variation between manual and any electronic accounting system stems from the latency between the recording of the financial transaction and its posting in the relevant account. This delay, absent in electronic accounting systems due to instantaneous posting into relevant accounts, is not replicated in manual systems, thus giving rise to primary books of accounts such as Sales Book, Cash Book, Bank Book, Purchase Book for recording the immediate effect of the financial transaction.
In the normal course of business, a document is produced each time a transaction occurs. Sales and purchases usually have invoices or receipts. Deposit slips are produced when lodgements (deposits) are made to a bank account. Cheques are written to pay money out of the account. Bookkeeping involves, first of all, recording the details of all of these source documents into multi-column journals (also known as a books of first entry or daybooks). For example, all credit sales are recorded in the sales journal, all cash payments are recorded in the cash payments journal. Each column in a journal normally corresponds to an account. In the single entry system, each transaction is recorded only once. Most individuals who balance their cheque-book each month are using such a system, and most personal finance software follows this approach.
After a certain period, typically a month, the columns in each journal are each totaled to give a summary for the period. Using the rules of double entry, these journal summaries are then transferred to their respective accounts in the ledger, or book of accounts. For example the entries in the Sales Journal are taken and a debit entry is made in each customer's account (showing that the customer now owes us money) and a credit entry might be made in the account for "Sale of class 2 widgets" (showing that this activity has generated revenue for us). This process of transferring summaries or individual transactions to the ledger is called posting. Once the posting process is complete, accounts kept using the "T" format undergo balancing, which is simply a process to arrive at the balance of the account.
As a partial check that the posting process was done correctly, a working document called an unadjusted trial balance is created. In its simplest form, this is a three column list. The first column contains the names of those accounts in the ledger which have a non-zero balance. If an account has a debit balance, the balance amount is copied into column two (the debit column). If an account has a credit balance, the amount is copied into column three (the credit column). The debit column is then totalled and then the credit column is totalled. The two totals must agree – this agreement is not by chance – because under the double-entry rules, whenever there is a posting, the debits of the posting equal the credits of the posting. If the two totals do not agree, an error has been made either in the journals or during the posting process. The error must be located and rectified and the totals of debit column and credit column recalculated to check for agreement before any further processing can take place.
Once the accounts balance, the accountant makes a number of adjustments and changes the balance amounts of some of the accounts. These adjustments must still obey the double-entry rule. For example, the "inventory" account asset account might be changed to bring them into line with the actual numbers counted during a stock take. At the same time, the expense account associated with usage of inventory is adjusted by an equal and opposite amount. Other adjustments such as posting depreciation and prepayments are also done at this time. This results in a listing called the adjusted trial balance. It is the accounts in this list and their corresponding debit or credit balances that are used to prepare the financial statements.
Finally financial statements are drawn from the trial balance, which may include:
- the income statement, also known as the statement of financial results, profit and loss account, or P&L
- the balance sheet, also known as the statement of financial position
- the cash flow statement
- the statement of retained earnings, also known as the statement of total recognised gains and losses or statement of changes in equity
Bookkeeping systems
Two common bookkeeping systems used by businesses and other organizations are the single-entry bookkeeping system and the double-entry bookkeeping system. Single-entry bookkeeping uses only income and expense accounts, recorded primarily in a revenue and expense journal. Single-entry bookkeeping is adequate for many small businesses. Double-entry bookkeeping requires posting (recording) each transaction twice, using debits and credits.
Single-entry system
The primary bookkeeping record in single-entry bookkeeping is the cash book, which is similar to a checking (cheque) account register but allocates the income and expenses to various income and expense accounts. Separate account records are maintained for petty cash, accounts payable and receivable, and other relevant transactions such as inventory and travel expenses. These days, single entry bookkeeping can be done with DIY bookkeeping software to speed up manual calculations.
Sample revenue and expense journal for single-entry bookkeeping[2]
| No. | Date | Description | Revenue | Expense | Sales | Sales Tax | Services | Inventory | Advert. | Freight | Office Suppl | Misc |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 7/13 | Balance forward | 1,826.00 | 835.00 | 1,218.00 | 98.00 | 510.00 | 295.00 | 245.00 | 150.00 | 83.50 | 61.50 | |
| 1041 | 7/13 | Printer- Advert flyers | 450.00 | 450.00 | ||||||||
| 1042 | 7/13 | Wholesaler – inventory | 380.00 | 380.00 | ||||||||
| 1043 | 7/16 | office supplies | 92.50 | 92.50 | ||||||||
| – | 7/17 | bank deposit | 1,232.00 | |||||||||
| – Taxable sales | 400.00 | 32.00 | ||||||||||
| – Out-of-state sales | 165.00 | |||||||||||
| – Resales | 370.00 | |||||||||||
| – Service sales | 265.00 | |||||||||||
| bank | 7/19 | bank charge | 23.40 | 23.40 | ||||||||
| 1044 | 7/19 | petty cash | 100.00 | 100.00 | ||||||||
| TOTALS | 3,058.00 | 1,880.90 | 2,153.00 | 130.00 | 775.00 | 675.00 | 695.00 | 150.00 | 176.00 | 184.90 |
Double-entry system
Main article: double-entry bookkeeping system
Daybooks
A daybook is a descriptive and chronological (diary-like) record of day-to-day financial transactions also called a book of original entry. The daybook's details must be entered formally into journals to enable posting to ledgers. Daybooks include:
- Sales daybook, for recording all the sales invoices.
- Sales credits daybook, for recording all the sales credit notes.
- Purchases daybook, for recording all the purchase invoices.
- Purchases credits daybook, for recording all the purchase credit notes.
- Cash daybook, usually known as the cash book, for recording all money received as well as money paid out. It may be split into two daybooks: receipts daybook for money received in, and payments daybook for money paid out.
- Petty Cash daybook, for recording small value purchases paid for by cash
- General Journal daybook, for recording journals
Petty cash book
A petty cash book is a record of small value purchases usually controlled by imprest system. Items such as coffee, tea, birthday cards for employees, stationery for office working, a few dollars if you're short on postage, are listed down in the petty cash book.
Journals
Journals are recorded in the general journal daybook. A journal is a formal and chronological record of financial transactions before their values are accounted for in the general ledger as debits and credits. A company can maintain one journal for all transactions, or keep several journals based on similar activity (i.e. sales, cash receipts, revenue, etc.) making transactions easier to summarize and reference later. For every debit journal entry recorded there must be an equivalent credit journal entry to maintain a balanced accounting equation.[3]
Ledgers
A ledger is a record of accounts. These accounts are recorded separately showing their beginning/ending balance. A journal lists financial transactions in chronological order without showing their balance but showing how much is going to be charged in each account. A ledger takes each financial transactions from the journal and records them into the corresponding account for every transaction listed. The ledger also sums up the total of every account which is transferred into the balance sheet and income statement. There are 3 different kinds of ledgers that deal with book-keeping. Ledgers include:
- Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of the financial transactions made by customers to the business.
- Purchase ledger is a ledger that goes hand and hand with the Accounts Payable account. This is the purchasing transaction a company does.
- General ledger representing the original 5 main accounts: assets, liabilities, equity, income, and expenses
Abbreviations used in bookkeeping
- A/C – Account
- Acc – Account
- A/R – Accounts receivable
- A/P – Accounts payable
- B/S – Balance sheet
- c/d – Carried down
- b/d – Brought down
- c/f – Carried forward
- b/f – Brought forward
- Dr – Debit record
- Cr – Credit record
- G/L – General ledger; (or N/L – nominal ledger)
- P&L – Profit and loss; (or I/S – income statement)
- P/R - Payroll
- PP&E – Property, plant and equipment
- TB – Trial Balance
- GST – Goods and services tax
- VAT – Value added tax
- CST – Central sale tax
- TDS – Tax deducted at source
- AMT – Alternate minimum tax
- EBITDA – Earnings before interest, taxes, depreciation and amortisation
- EBDTA – Earnings before depreciation, taxes and amortisation
- EBT – Earnings before taxes
- EAT – Earnings after tax
- PAT – Profit after tax
- PBT – Profit before tax
- Depr – Depreciation
- Dep – Depreciation
Chart of accounts
A chart of accounts is a list of the accounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger. The equity section of the chart of accounts is based on the fact that the legal structure of the entity is of a particular legal type. Possibilities include sole trader, partnership, trust and company.[4]
Computerized bookkeeping
Computerized bookkeeping removes many of the paper "books" that are used to record transactions and usually enforces double entry bookkeeping.
The term bookkeeping has an unrelated technical meaning in computer programming. Bookkeeping code is code that does not contain business logic but is needed to keep the program working properly.
Online bookkeeping
Online bookkeeping, or remote bookkeeping, allows source documents and data to reside in web-based applications which allow remote access for bookkeepers and accountants. All entries made into the online software are recorded and stored in a remote location. The online software can be accessed from any location in the world and permit the bookkeeper or data entry person to work from any location with a suitable data communications link.
Notes and references
- ^ Weygandt, Kieso, Kimmel (2003). Financial Accounting. Susan Elbe. pp. 6. ISBN 0-471-07241-9.
- ^ Pinson, p.25.
- ^ Haber, Jeffry (2004). Accounting Demystified. New York: AMACOM. p. 15. ISBN 0-8144-0790-0.
- ^ Marsden,Stephen (2008). Australian Master Bookkeepers Guide. Sydney: CCH ISBN = 978-1-921593-57-4
This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)
Translations:
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Bookkeeper
Français (French)
n. - comptable
Deutsch (German)
n. - Buchhalter
Ελληνική (Greek)
n. - (πρακτικός) λογιστής, καταστιχογράφος
Português (Portuguese)
n. - guarda-livros (m)
Русский (Russian)
бухгалтер, счетовод
Español (Spanish)
n. - contable, contador, tenedor de libros
Svenska (Swedish)
n. - bokhållare
中文（简体）(Chinese (Simplified))
簿记员, 记帐人
中文（繁體）(Chinese (Traditional))
n. - 簿記員, 記帳人
עברית (Hebrew)
n. - מנהל חשבונות
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American Heritage Dictionary
The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2007, 2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.
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Britannica Concise Encyclopedia
Britannica Concise Encyclopedia. © 1994-2012 Encyclopædia Britannica, Inc. All rights reserved. Read more
Barron's Accounting Dictionary
Dictionary of Accounting Terms. Copyright © 2010 by Barron's Educational Series, Inc. All rights reserved.
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Gale Encyclopedia of Small Business
Encyclopedia of Small Business. Copyright © 2002 by The Gale Group, Inc. All rights reserved.
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Columbia Encyclopedia
The Columbia Electronic Encyclopedia, Sixth Edition Copyright © 2012, Columbia University Press. Licensed from Columbia University Press. All rights reserved. www.cc.columbia.edu/cu/cup/.
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West's Encyclopedia of American Law
West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved.
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