What is Bookkeeping? Types, Benefits & Examples

Your business is involved in numerous financial transactions on a daily basis, which might need to be furnished to the authorities at the end of each financial year (or any other relevant period). Be it small or big, each organisation needs to have bookkeeping software to record transactions without any hassle automatically.

What do you mean by Bookkeeping?

Bookkeeping is the process of recording each financial transaction made by an organisation right from when it started till the time it closes the shop. Each record of a financial transaction is supplemented with the help of evidence. Evidence can include invoices, bills, purchase order, etc., which can prove that the transaction took place.

What is the difference between bookkeeping and accounting?

Bookkeeping and accounting are used interchangeably but are slightly different from each other. Bookkeeping is an essential part of the accounting process.

The bookkeeper would collect each transaction’s evidence, make an official entry in the accounting journal and enter the transaction either in one or more debits and credits.

At the end of each financial year, the accountant will analyse these books to verify whether they are correct or not. In case of any discrepancy, the accountant would go over all the evidence once again to settle the books.

Types of bookkeeping

There are two types of bookkeeping methods you can choose from. They are :

1. Single-entry bookkeeping
2. Double-entry bookkeeping

Single-Entry Bookkeeping

Single-entry bookkeeping can be understood as maintaining a cheque register. You make an entry as soon as a transaction is completed. This method is generally preferred by those companies that make use of cash basis accounting over accrual accounting.

Advantages of Single-Entry Bookkeeping

• The method is simpler to understand and execute by even those employees who have a minimum understanding of bookkeeping.
• Single-Entry bookkeeping is beneficial for small companies as it eliminates the need to hire a third-party resource for maintaining books.

Disadvantages of Single-Entry Bookkeeping

• The system is marred by lack of arithmetic accuracy.  
• In several instances, this method might not reflect the actual profit and loss of your business.  
• Single-Entry bookkeeping is susceptible to financial fraud.  

Double-Entry Bookkeeping

Most prominent companies prefer the double-entry bookkeeping method. In this, two entries are made for each transaction. While debit would be made to one account, credit would be made to another account. At the end of each financial cycle, the debit section entries should be equal to the credit section amount.

Advantages of Double Entry Bookkeeping

• With double-entry bookkeeping, you can minimise financial frauds.  
• This method uses the concept of trial balance which makes maintenance of books a much simpler process.  
• Companies can compare their performance in a particular quarter to another quarter.  
• This method ensures that the profit and loss details are estimated with a higher degree of precision and in a detailed manner. 

Disadvantages of Double Entry Bookkeeping

• It is a bit complex and usually involves a higher learning curve.  
• The bookkeeper has to spend a considerable amount of time recording each transaction.

Suggested Read: What is Accounting: Types, Benefits and Best Practices

How to learn bookkeeping – Popular bookkeeping courses

Bookkeeping is not that tough for anyone to learn. We mention some of the most popular bookkeeping courses that will help you out no matter where you are in your learning journey.

1. Bookkeeping- Step by Step Mastery by Udemy 
2. Intermediate Bookkeeping by edX
3. Basic Bookkeeping Hacks by Udemy
4. Introduction to Bookkeeping by edX
5. Manual Bookkeeping by Udemy

How to do Bookkeeping?

Bookkeeping is performed by accountants in larger firms. However, small business owners with limited resources often try doing this on their own for a while. Let’s find out what should be their approach to bookkeeping:

a. Bookkeeping for Small Business

• Small business owners need first to acquaint themselves with bookkeeping terms. 
• Open a new business account. This will help you budget for tax as the business progresses rather than having to wait for the end of a financial cycle.  
• Keep your accounts organised so that you know all about business funds and personal funds pouring in.
• Some other valuable steps would be to leave an audit trail, get a business credit card and maintain daily financial transaction records.

b. Bookkeeping for Accountants

Accountants can benefit the most by using bookkeeping software. The software automates many redundant tasks, such as taking entries from a datasheet, thus leaving more time for the accountants to focus on significant tasks.   

Popular Bookkeeping Formats

We tell you about some of the most popular bookkeeping formats, allowing small business owners to proactively handle bookkeeping.

• Cashbook template

  It is a sort of spreadsheet where companies can record their cash payments.

• Bank reconciliation form

  It is used to compare the cash balance on a company’s balance sheet.

• Petty cash log form

  This form helps to track physical cash paid for clearing small payments.

• Petty cash vouchers

  A petty cash voucher doubles up as a receipt whenever you withdraw cash from a petty cash box.

• Credit note

  A credit note is a letter that the supplier sends to customer to tell that they have been credited a wrong amount.

How Much Does Bookkeeping Cost?

Bookkeeping costs generally vary from organisation to organisation. It is also affected by the size of the company, the volume of their monthly transactions and even their location. Depending on all these factors, if a business hires part-time bookkeeper services, they might have to shell anywhere between INR 12,000 – INR 20,000.

If the business has developed a solid base of customers, then they can also choose to go with a full-time bookkeeper who might charge them monthly. In this scenario, bookkeeping software would be the right tool of the trade to increase the efficiency of your bookkeeper. Many businesses also find it feasible to outsource bookkeeping tasks.

What is Bookkeeping Software?

Bookkeeping software is a tool meant for organisations to help them automatically add financial transactions in the accounts book in a streamlined manner.

With modern-day bookkeeping software, you can easily create invoices, record payments and process transactions. The software also helps you add financial advisors to your account, enabling them to see each transaction status quickly.

Bookkeeping Software Benefits

Your finance and accounts team will thank you a ton if you provide them with a bookkeeping software subscription. This is because it has the following benefits:

• Automated recording of transactions

  Bookkeeping software can automatically add a financial transaction, whether it be an amount credited to or debited from your account.

• Improved collaboration

  Since bookkeeping software maintains a centralised database, different departments can collaborate, especially when it comes to submitting evidence for bill payment, reimbursement claims and more.

• Less operational costs

  By purchasing a bookkeeping software subscription, you can cut down on the operational costs incurred due to the outsourcing of bookkeeping services.

• Handle compliances better

  A bookkeeping software ensures that all your transactions are recorded, keeping in mind the required tax compliances- state and country both.

• Intuitive financial reports

  The reports generated by the software highlights information on specific parameters such as cash flow, balance sheets etc.

• Efficient handling of invoices

  You can easily create and share invoices and even send constant reminders to your customers to clear outstanding payments.

Which Bookkeeping Software is best?

Have a look at some of the top bookkeeping software currently available in the market:

• QuickBooks Online

  QuickBooks is best for both bookkeeping and accounting purposes. Small businesses around the globe prefer this software. QuickBooks accounting software helps in managing profit, expenses and sales. The software also offers a high degree of compatibility with third-party applications.

• Xero

  Xero accounting software helps with tracking and payment of bills, project and bank reconciliation. The accounting software integrates well with payment solutions such as Stripe and GoCardless. Xero cloud version is also available for use in addition to a dedicated mobile app.

• FreshBooks

  FreshBooks cloud accounting software offers a high degree of customisation, allowing users to tweak the software as per their requirements. The software provides a host of features for printing, paying and sending invoices.

• Zoho Books

  Zoho Books provides end-to-end accounting solutions with GST compliance. It helps you with on-time tax return filings, creation of e-Way bills for consignments, GST treatment for items and contacts.

• Wave

  Wave software is known for creating intuitive reports. It also provides the feature of scanning receipts for free. Business owners have the option to run multiple accounts within a single version.

Our final word

Bookkeeping is one process that is critical for the maintenance of financial health of your company. It not only makes your finance and accounting team efficient but also ensures that all transactions are compliant with the laws laid down by the government.