What is Bookkeeping? | Omni Accounts
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What is Bookkeeping?
Bookkeeping is the recording of all financial transactions in a business. The information is captured into accounts, called Nominal or General Ledger accounts, which can then be used to manage the business’s financial transactions. The information should normally be captured in chronological order and can be captured in different forms. Old fashioned ledger books may be used or perhaps spreadsheets, but many businesses now use a software package.
What is the difference between Bookkeeping & Accounting?
Bookkeeping is the capturing of all the financial transactions and Accounting is the analysis and interpretation of the captured data and overall financial management. A bookkeeper will gather and enter all the financial transactions into various accounts. This data can then be used to produce financial statements and reports such as an Income Statement and Balance Sheet. This can be done by either an accountant or a bookkeeper. The accountant will then analyse these reports in order to manage the finances of the business. Accounting incorporates and relies on the bookkeeping functions and the two terms are often used synonymously.
What is the Double-Entry system?
Every transaction that is entered into the set of accounts has equal and opposite effects in at least two different accounts. The same amount will be debited to one account and credited to another account. This means that all the debits in the accounts must equal all the credits, which provides a method of ensuring accuracy and eliminating errors. It maintains the accounting equation of Assets = Liabilities + Capital. The type of each account defines whether its balance should normally be a debit or a credit. An example of this is that a change in an Asset (a debit) will result in a corresponding change of the same amount in a Liability (a credit).
The Importance of Bookkeeping
Accurate bookkeeping is critical to all types and sizes of businesses. It keeps track of all the income and expenses of the business showing profitably. It also keeps track of money owed by the business creditors (suppliers) and likewise, money owed to the business by debtors (customers). It is vital to keep track of bank accounts and statutory obligations such as VAT. For any kind of business, all of this information needs to be as up to date as possible, so that the business can be managed to the best advantage and informed decisions can be made. The more up to date the information is, the quicker problems or opportunities can be identified and acted upon.
Bookkeeping also allows the business to fulfil any legal accounting requirements, as well as being able to produce reports when applying for any kind of finance or loan.
Having accurate bookkeeping records means that the performance of the business can be monitored and also allows for forward planning, setting of budgets and sales targets by analysing the historical data.
What are the functions of Bookkeeping?
The main types of transactions that would be captured by a bookkeeper are:-
• Sales Invoices and Credit Notes
• Supplier Invoices and Credit Notes
• Payments from customers
• Payments to suppliers
• Salary and wage payments
• Loan payments
• Sundry Expense payments.
Bookkeeping and Accounting Software
With the advent of accessible and affordable technology, the manual multiple and handwritten bookkeeping ledgers are mostly a thing of the past. As mentioned, a small business may use Excel spreadsheets but this is open to errors and duplications. A Bookkeeping or Accounting software package will allow the easy capturing of all the business financial transactions and will usually post all the double-entry transactions automatically without much user intervention. Most software packages will easily produce most of the financial statements required as well as providing forecasting and budgeting. So the bookkeeping and a big portion of the accounting functions are handled by the software. This has resulted in the traditional differences between bookkeepers and accountants becoming blurred. A bookkeeper will often produce the financial statements and then give to an accountant to check and advise. On the other hand, an accountant may handle the bookkeeping functions himself.
Omni Accounts handles all the bookkeeping and accounting requirement for a business, be it small or large. It is a fully integrated package, meaning information is entered once into the system and all the relevant accounts are seamlessly updated. All the financial reports are easily extracted with full audit trails and historical data always available. A powerful report writer allows the design of reports to suit a large variety of businesses of different sizes.
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