Bookkeeping is the process of keeping track of what your business buys, sells, owes, and owns. Bookkeeping is also called accounting.
Most companies are required to do bookkeeping.
You can think of bookkeeping as a log or diary of all financial events. You should record everything that happens in your company, for example when you buy a new work laptop, sell services to a client, or take out a loan from the bank.
Bookkeeping is also called accounting, and it’s usually done in an accounting system. If you have some accounting knowledge—or if you’re willing to learn—you can do it yourself, or you can get an accountant to help you. If you’re using accounting software, it’ll usually have help articles and step-by-step instructions to help you on the way.
Bookkeeping should follow what’s called accounting principles.
Double-entry bookkeeping principle
When you do your bookkeeping, you follow a system called double-entry bookkeeping. What this means is that you should record all transactions in at least two places in the accounting system. The reason for this is that it should be possible for a third-party to know where the money came from and where the money went.
By using this method, all transactions can be controlled and verified by stakeholders, shareholders, by an accountant, or by an auditor and so on.
Let’s look at an example. If you have an online exercise equipment store, and you sell a $30 kettlebell to a client who pay immediately on your website, it would be recorded in this way:
+ $30 added to your business bank account
– $30 removed from your inventory
You do it in this way so that your accounts show what your business actually owns at any one time. When you sell the kettlebell, your inventory is worth less. At the same time, you get more money added to your bank account.
If you’re unsure about how to do your accounting—or whether your required to do it at all—you should speak to an accountant.