Bookkeeping is the process of recording all financial transactions in an organization; it’s part of the accounting process in an institution. The various transactions include; purchases, sales, receipts and payments by an organization. Bookkeeping responsibilities fall upon a bookkeeper whose duty is recoding the multiple financial business transactions of an organization. Bookkeeping involves writing of the daybooks and documentation of each financial transactions. For example, if a company borrows Ksh500,000 from its bank the following records are written;

• An increase of Ksh500,000 must be recorded in the company’s Cash Account
• An increase of Ksh500,000 must be recorded in the company’s loans account

It’s in every organization’s interest to ensure that there is an effective bookkeeping method. This is to allow the active tracing of every transaction that occurs in an institution. Bookkeeping also acts as a point of reference incases of any controversy in the accounts. Additionally, a company can review its various transactions and get guidelines on their transaction and verify if they are on the right objective.

Methods of bookkeeping

Before beginning the bookkeeping process, an institution must take into consideration and decide on which bookkeeping method to be followed. When choosing the method, the organization must consider the volume of their daily transactions. With such knowledge in mind the following techniques can be applied;

• Single-entry bookkeeping – this is quite a straightforward technique where a single entry is made for each transaction in the company’s books. These transactions are kept in a cash book to track the various incoming revenue and outgoing expenses. There is no formal training required for the single-entry bookkeeping system. This method will most likely suit small enterprises and sole proprietorship.
• Double-entry bookkeeping – this is a more sophisticated method compared to the single-entry. It follows certain principles that every transaction affects two accounts, and they are recorded as debits and credits, which must be equal. Therefore, in the double-entry system, a transaction is recorded twice.

Factors to consider

After selecting the type of bookkeeping method, a business should consider how the entries are recorded. A company should consider the use of the following ways;

• Cash register – this is an electronic machine used to calculate and register all transaction s and cash flows arithmetically.
• Journals – these are also referred to as the original books of entry. It’s the platform where an institution can record its entries chronologically. Journals can be physical (book or diary) or digital (spreadsheets and accounting programs). A journal contains the data, account debited or credited and the specific amount for each transaction.
• The Ledger – this is a book or a compilation of accounts. After recording transactions in a journal, they are transferred to a ledger/ book of the second entry.
• Trial balance – produced from a complied summary of ledger entries.

Importance of Bookkeeping

• Bookkeeping helps a business to budget – accounting involves the organization of the various revenues and expenses; thus, its more comfortable to review financial resources and expenses. Therefore, it’s an excellent method that enables a business to create a fully functioning budget which in turn is used as a roadmap for the company. With the creation of the budget, a company can plan the future expenses and anticipated that would cover the expenses.
• Tax preparation – businesses must return taxes annually; most organizations scramble through their desks, looking for missing documents and paperwork. Thus, bookkeeping aids in making the tax process filling process. With bookkeeping, financial information is recorded and makes the institution ready for tax time. Instead of scrambling through papers and invoices, all data is organized in the central system.
• Organization – being organized is a skill all organization should adopt. A business should be able to get the relevant information at any time with ease. Major parties are interested in the institution’s records they include; employees, customers, investors and loaners. Provision of this information is vital to the various operators in the institutions. Well, the organization of the documents aids in the development of a positive relationship with investors and lenders. Thus, bookkeeping and financial organization of information aids in the proper financial records to be provided to the parties.
• Analysis – bookkeeping is an essential activity as it helps with business analysis. Bookkeeping will aid in the tracking of cash inflows and outflows. This type of analysis allows to focus on the company’s strengths and improves on the weaknesses.
• Better decision making – with bookkeeping comes there is the improvement of business analysis; thus, there is better decision making. For the improvement of decisions, there is a need access all available information and such information provided by the bookkeeping techniques.
• Planning purposes – bookkeeping is necessary as it presents the past financial information of an organization; thus, with such information, it becomes easier to prepare for the future of the institution.
• Better financial malmanagement – bookkeeping is necessary as it aids in controlling the businesses finances. Bookkeeping aids in the representation of a clear picture of the institution’s money.
• Tracking Profits and growth – bookkeeping is essential as it aids in the showing of the business profitability. Additionally, bookkeeping aids in the tracking of business’ growth. Due to the accumulation of years of data and analysis, there is a greater understanding of the company; thus, there is the tracking of the growth and profits.
• Tracking of cash flows is improved – with bookkeeping; there is a better and more improved cash flow process. A business can track the various revenues, expenses and liabilities. Additionally, consumer and vendor invoices are paid.
• Provision, a general snapshot of the business – bookkeeping, provides financial information in the form of financial statements. These statements provide a general overview of your business, allowing you the ability to see how well the company is performing.

Tips of Bookkeeping

• Separate business and personal finances
• Always try to automate what you can
• Perform regular financial checkups
• Always keep records of business expenses