If you have a business, you need to file different papers and documents to government agencies.
You also need to pay taxes. Every sale has a tax component and you have to report that at the end of the quarter or the year. Keeping track of transactions is done through various documents like invoices and receipts. These documents are then transcribed in a book, journal and ledger so that these can be recorded according to standard accounting practice. Keeping track of these transactions and writing them down or encoding them to your financial books is called bookkeeping.
It is the start of a thorough process of recording transactions and creating reports from them. However, the very core of the business starts with copying numbers from different documents or papers and putting them to journals. The journals include all the details of running a company. These include sales, purchases, transfers, loans, and others. Every financial data is converted from a source document and put into the journal.
The journal is the daily record of transactions. A glance at the journal will show the business’s activity. This is the raw data. To make it understandable in a standard form, you need to have the journal data transferred to a ledger. The ledger follows accounting standards for account naming, and the relationship of different accounts. In automated systems, these are done almost automatically, once the data has been entered in the journals.
In manual systems, the information is copied from one book, to another book. Before the information is coaxed out of the mass of numbers.
When running a business, an owner wants to know where he stands at any point in time. This information may be the cash flow, or the balance sheet, or the income statement. All of these reports are based on the initial data. Like any other system, data integrity is important. If you cannot trust the data, or if there is something wrong in the data entry, or a mistake was done, then you run the risk of having the wrong reports. Accountants are notorious for being sticklers in finding the last cent.
Bookkeeping may be a rudimentary skill, but it is a necessary skill. A company’s data requires careful bookkeeping. For your bookkeeping needs, don’t forget to reach out to us at The Oasis Firm!