The act of recording day to day financial transactions in a systematic manners is called bookkeeping.
It is also related to accounting
It records transactions in a scientific way faced on a set of rules and regulations.
The financial transactions like purchase and sales of goods, receipts of incomes and payments of expenses, borrowing and payment of loans, owners investments etc.
An owner or an accountant cannot keep in memory all the financial transactions that take place in the business for the whole year.
Therefore, all such transactions have to recorded in some books for future purposes. So, bookkeeping is the art of recording business transactions in a systematic way.
Benefits of Bookkeeping
1)To identify financial transactions
Bookkeeping identifies financial transactions from a large number of business transactions, the transactions which can be recorded in terms of money are known as financial transactions.
2)To keep systematic and permanent records
It keeps systematic and permanent records of financial transaction in chronological order.
3)To classify the transactions
It classifies all financial transactions into three types –
- personal account.
- Real account
- Nominal account
and records them in a permanent book.
4) To prepare statements
It helps to prepare different statements to summarize, present and interpret the financial information contained in the routine records.
Business organizations prepare financial statements such as profit and loss accounts, balance sheets, and statements of changes in a financial position to know the operating results and financial position of a business.
5) To help in the prevention of errors and frauds
Bookkeeping keeps the records of all financial transactions in a systematic and scientific way on the basis of the double-entry bookkeeping system.
In this way, it prevents all the errors and frauds that may happen in the future.