Generally bookkeeping is considered a dry subject among the students. However, in bookkeepingforbeginners website we have simplified a few basis rules of bookkeeping that not only make the bookkeeping easy for students to understand, but also will be useful in future while working in the field of Accounts and Finance.
Bookkeeping is a system of recording the financial transactions of a business. Bookkeeping is the art and science of recording business transactions in the books of accounts systematically and scientifically.
Although bookkeeping is centuries old method, it is still the only globally used method used by the accountants to recording the financial transactions of businesses. Surprisingly, in this fast paced and dynamic era bookkeeping has still not been replaced by a more sophisticated method.
Beginners of bookkeeping must appreciate the art behind this method. It revolves around the double entry system. Each financial transaction has its two aspects, a Debit and a Credit, and double entry records a financial transaction into books of accounts using the same system. The method has been explained in detail under How bookkeeping works.
Bookkeeping is crucial for success of any business and is an essential part of business operations as it helps keeping track of all business financial transactions. Therefore, bookkeeping makes it possible to not only manage the business but to plan the growth too. The benefits have been further discussed under Small Business Bookkeeping.
Often the terms Bookkeeping and Accountancy are used interchangeably. However, that is not true! In fact accounting begins where bookkeeping ends. The difference has been explained under Bookkeeping vs. Accountancy.
I am not sure whether the Beginners would be interested the history of Bookkeeping! However, it should be appreciated that bookkeeping system is helping the accountants recording the financial transactions and managing the business for centuries.
The beauty of this method is that its underlying skills are fundamentally unchanged since its inception. The globally used system of bookkeeping was developed in 1494 when Luca Pacioli who was an associate of Leonardo de Vinci wrote the first book on bookkeeping. Pacioli is known as the father of bookkeeping.
However, before Pacioli was around Benedetto Corugli wrote a book on double entry which explained the process of double entry, a fundamental element of a successful bookkeeping process.
Double entry bookkeeping records transactions into two areas, and has more inbuilt control than single entry bookkeeping, and hence more likely to be accurate.
Things have come a long way since the earliest history of bookkeeping and computers and information technologies have made bookkeeping more systematic as well as automatic. There was a time when financial transactions were recorded manually in the ledger accounts.
The process of recording the financial transactions manually of course required tremendous amount of effort and care. However, technology has made it much simpler and quicker for the accountants.
In my next update, I will throw some light on Different bookkeeping options available to learn how technology has made bookkeeping simple.
Bookkeeping for Beginners – How Bookkeeping Works
Bookkeeping works on duel effect basis which are Debits and Credits. The two equal and corresponding effects (recordings) of each transaction are termed Debits and Credits.
A Debit represents an assets and a Credit represents a liability. Debit will increase the value of an asset and Credit will reduce its value. However, Debit can also increase the expenses and reduce the liability, and Credit can give raise to income but is also capable of reducing the asset!
Let us look at a few bookkeeping examples. If you have received your salary then the duel effect is that, you have been paid for the work that you have done and you now have more money. If you now go shopping and buy a watch then you will have the watch but unfortunately you will have less money.
Now look at another example: if you have deposited cash in bank then the duel effect this time is that, you are now deprived of the cash that has been deposited. However, at the same time your bank balance has increased.
If you have already got a feel of how booking works, then keep reading various articles on this website. These articles have been written with the view of helping the beginners as well as advance users in such away that the transition from beginners’ level to advance accounting principles is very smooth.
Bookkeeping for beginners may appear little bit confusing at the early stages but in fact it is very simple. Once you learn the three rules of journalizing the financial transactions, understanding Debits and Credits becomes easy.