The recording of financial transactions undertaken by an individual or an organization defined Bookkeeping. The organization could be an enterprise, a charitable organization or even a local sports club. The necessary support for such accounting function is provided by bookkeeping as the preparation of cost reports, financial statements, and tax returns. Making entries to specific accounts with debit and credit system and keeping track of a business’s financial transactions is involved.
Bookkeeping has evolved through the years from clay tablets, to paper ledgers, and now computerized systems. Even for now, bookkeeping fundamentals have not been changed through the ages. And chances are the future societies will not be able to exist without a formal system of financial recording keeping. In short, some of the same problems that plagued ancient bookkeepers still exist even with modern advancement.
The process of bookkeeping is always considered to be as vital importance to categorize and record financial data. Each transaction or activity must be posted to the proper general ledger account. The general ledger is used to prepare Profit & Loss statements which tell you if you are making or losing money in a certain accounting period. The general ledger also produces the Balance Sheet which shows the company’s assets, liabilities and equity. The general ledger also produces cash flow statements which is analysed by management and used as a gauge in making important decisions. These three financial reports are supposed to show the true financial condition of the company. Extremely important decisions are made by management from these financial statements and they must be accurate. The bookkeeping process allows all data to be transferred to complicated financial statements for informational purposes. The integrity and accuracy of bookkeeping procedures affect the outcome of the financial statements. Bookkeeping is the crucial reporting that major decisions are later made from. It must be done correctly.
At least two changes in the balance sheet are caused by every business transaction. Therefore, the books of account must record the two changes. Otherwise, completion of the books of accounts would not be done and therefore the accuracy of the result will be low. For example, if we buy equipment for Rs.15,00,000. This transaction involves two changes, equipment increases by Rs.15,00,000 and cash reduce by an equal amount. While this transaction is recorded in accounting, to record the both changes is a must. “A debit change” & “a credit change” is the term of these two changes in accounting language. Consequently, we know that every transaction involves two entries, which are debit entry and credit entry. There will be a relevant credit entry of a same amount for each debit. In turn, for the credit entry there will be a corresponding debit entry of a same amount. Thus, the double entry system is which both the changes which occur under a transaction are recorded together; one change is debited, when another change is credited with an equal amount.
Double entry system could help an account to double check while doing the accounting; a mistake would be discovered if the two totals are not equal. After that, an accountant could double check and make correction on the figure in order to balance.
A double-entry system of books would be kept by an accountant for his or her own accounts. The accountants have their record and the bank has their own and. When the two are unable to achieve the agreement then a missing charge will happen which refer to a mistake, a service charge, a bad check, or a case of identity theft. If the accountant realize a charge that he or she is unable to account for then he or she can easily track it down because they have to have a one to one correspondence between the two sets of records.