Accounting is the systematic process of recording, analyzing, and interpreting financial transactions. It is the responsibility of every business - big or small, to submit its accounting records to the Income Tax Department. Generally, startups ignore these issues and after a few years, they are forced to deal with them, along with the interest. It is always a good idea to keep track of your finances and provide information to government organizations to avoid difficulties like raids and fines. Companies are required to update annual returns regularly.
What is Bookkeeping?
Bookkeeping is the process of recording your company's financial transactions in organized accounts on a daily basis. For many reasons, bookkeeping is an important aspect of your accounting process. Companies can track all the information on their books and make key operating, investment, and financial choices with proper bookkeeping.
The persons who manage the financial data of the company are known as bookkeepers. Companies would not be aware of their current financial position or internal operations without a bookkeeper.
Importance of Bookkeeping
- Proper bookkeeping provides a reliable measure of a company's performance
- It also serves as a benchmark for general strategic decision-making and a company's revenue and profit goals.
- In short, once a company is started and operating, it is necessary to dedicate more time and resources to preserve accurate records.
- Because of the high cost of full-time accountants, many small businesses do not hire them.
- Small businesses, on the other hand, are more likely to hire an accountant or outsource work to a professional agency.
- One thing to keep in mind is that many people who want to start a new business forget the need for things like keeping track of every penny spent.
- It also helps in detecting fraud or bank errors.
Bookkeeping & Accounting Differences
|Definition||The basic purpose of bookkeeping is to identify, measure and record financial transactions.||Accounting is the process of analyzing, evaluating, and conveying the financial transactions recorded in a ledger.|
|Decision Making||The data provided by bookkeeping is insufficient for management to make a judgment.||Based on the data provided by the accountants, the management can take major decisions for the company. Types of Bookkeeping System|
Single-entry bookkeeping and double-entry bookkeeping are two types of bookkeeping methods used to record commercial transactions.
Single-Entry Bookkeeping System:
It allows you to keep track of all your financial transactions in one place. For small enterprises with few or no transactions, a bookkeeping system is often employed. It is often described as a straightforward, practical, and informal method of recording. It usually only keeps track of cash disbursements, cash received sales, and purchases. All other accounting records, such as inventory, equipment, capital, and so on, are kept in memorandum or notes format only.
A daily summary of cash receipts, as well as a monthly summary of cash receipts and disbursements, showing revenue and expenses, are books or records kept in a single-entry accounting system.
Unlike double-entry bookkeeping, where one transaction affects two accounts, in single-entry bookkeeping, a transaction affects only one account. A cash sale, for example, is recorded solely as an increase in cash receipts or deposits, with no sales account.
However, because it lacks a formal recording system, the simplicity of single-entry bookkeeping makes it more subject to error and incompleteness than a double-entry accounting system. Although it is a suitable technique of record-keeping for tax reasons for small and basic firms, it may not provide a fair assessment of a business's key financial information.
Double-Entry Bookkeeping System:
The standard technique of record-keeping used by most organizations, bookkeepers, and accountants is double-entry bookkeeping.
The techniques of double-entry bookkeeping are more extensive and complex than those of single-entry bookkeeping. It introduces the concept of debit and credit, which states that for every transaction, something is received (debit) and something is left (credit), and that each transaction is linked to two or more accounts. affects.
The advantage of double-entry bookkeeping is that it has a mechanism to ensure that business transactions are recorded accurately and completely. It is a reliable source of financial data and a fair assessment of a company's condition or performance.
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