Book Keeping is the recording of financial transactions and is part of the process of accounting in business transactions which includes purchases, sales, receipts and payments by an individual person or an organization/corporation.
There are several standard methods of book keeping, such as the single-entry and the double-entry book keeping system, but while they may be thought of as “real book keeping”, any process that involves the recording of financial transactions, any process that involves the recording of financial transactions is a book keeping process.
Book keeping is usually performed by a Book Keeper. A book keeper is a person who records the day-to-day financial transaction of a business. He/she is usually responsible for writing the daybooks, which contain records of purchases, sales, receipts and payments. The book keeper is responsible for ensuring that all transaction or credit transactions are recorded in the correct daybook, supplier’s ledger, customer ledger and general ledger; an accountant can then create reports from the information concerning the financial transactions recorded by the book keeper.
The book keeper brings the books to the Trial Balance stage: An accountant may prepare the income statement and balance sheet using the trial balance and ledger prepared by the book keeper.
History of Book keeping
In colonial America, the term “waste book” was used for the purpose of recording daily transaction. In this book, all the transactions were recorded in chronological order, and the purpose was temporary use only. The daily transactions would then be recorded in a day-book or account ledger in order to balance the accounts.
Further, advanced form of book keeping is recording it on a computer system, this tendency is called Computerized Book keeping. Computerized book keeping removes many of the paper “books” that are used to record the financial transactions of an entity. Instead, relational databases take that place.
Process of Book keeping
The book keeping process primarily records the Financial Effects of transactions.
In normal course of business, a document is produced each time a Transaction occurs.
Book keeping first involves recording the details of all of these source documents into multi-column journal.
Most individuals who balance their check-book each month are using such a system, and most personal-finance software follows this approach.
After a certain period, typically a month, each column in each journal is total to give a summary for that period, using the rules of double-entry, these journal summarize and are transferred to their respective accounts in the ledger, or account-book. This process of transferring summaries or individual transactions to the ledger is called posting. Once the posting process is complete, account keep using the “T” format undergo balancing which is simply a process to arrive at the balance of the accounts.
As a partial check that the posting process was done correctly, a working document called an Unadjusted Trial Balance is created. The error must be located and rectified, and the totals of the debit column and the credit column recalculated 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.
Finally financial statements are drawn from the trial balance, which may include:
- The income statement
- The balance sheet
- The cash flow statement
- The statement of changes in equity
Hence, by this way the process of book keeping is complete.