definition of bookkeeping

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To understand the importance of bookkeeping in business finance, it is good to take a look at its definition and provide some background information on the matter. Many company owners and self employed entrepreneurs avoid things like debits and credits or journal entries like the plague. But this attitude only ends up costing them money in the long run, meaning they have to work even harder to keep up simply because they’re robbing themselves of cash flow that could be gained with greater efficiency.

Bookkeeping is something no company ought to ignore. As a matter of fact, it’s an area that can’t be ignored for too long without major financial repercussions. To get a sense of why this is so, we need to look at what it means to keep the books and how this works impacts the operations of a company.

A simple bookkeeping definition might go something like this: bookkeeping is the recording of the financial transactions of a business. In accounting terms, it is the very first step in the whole bookkeeping process. If this step is not attended to, things like paying taxes can become a real challenge. When bookkeeping is done well, the accountants have the ability to perform reporting, classifying, and analyzing a company’s financial data as well as these other tax related activities. Without accurate and detailed bookkeeping efforts, it is hard to know what kind of financial shape a business is in. Owners can’t really devise long term plans or set goals without a sense of the direction things are going financially. So, accurate bookkeeping is essential to a company.
Bookkeepers have many responsibilities, some of which may vary depending on the situation. In some cases, paid bookkeeping professional do only some of this work and give the owner the raw data needed to do the remainder of the bookkeeping. In any case, their job typically consists of organizing and tracking receipts and making sure expenses are properly noted as soon as purchases are made. Bookkeeping involves tracking canceled checks and other records that are created as a result of transactions by the company. They record transactions in a chronological fashion, whether cash disbursements or sales, and keep them all in a journal. Bookkeeping then takes these journal entries and places them into a general ledger of accounts. Often accountants take over from there and use these account records to prepare monthly statements for the company.