Bookkeeping

{{Short description|Recording financial transactions or events}} {{for|the computer programming concept|Boilerplate code}} {{More citations needed|date=December 2013}} {{Bookkeeping}} {{Accounting |expanded=}}'''Bookkeeping''' is the record of financial transactions that occur in business daily or any time so as to have a proper and accurate financial report.

Bookkeeping is the recording of financial transactions, and is part of the process of accounting in business and other organizations.<ref name="Weygandt, Kieso, Kimmel (2003)">{{cite book |author=Weygandt |author2=Kieso |author3=Kimmel |title=Financial Accounting|year=2003|publisher=Susan Elbe|isbn=0-471-07241-9|pages=6}}</ref> It involves preparing source documents for all transactions, operations, and other events of a business. Transactions include purchases, sales, receipts and payments by an individual person, organization or corporation. There are several standard methods of bookkeeping, including the single-entry and double-entry bookkeeping systems. While these may be viewed as "real" bookkeeping, any process for recording financial transactions is a bookkeeping process.

The person in an organisation who is employed to perform bookkeeping functions is usually called the '''bookkeeper''' (or book-keeper).<ref>{{Cite web |last=Maddocks |first=Krysten Godfrey |date=August 9, 2023 |title=What Does a Bookkeeper Do? A Look into the Role and Necessary Skills |url=https://www.snhu.edu/about-us/newsroom/business/what-does-a-bookkeeper-do |access-date=July 2, 2025 |website=Southern News Hamphshire University |archive-date=July 2, 2025 |archive-url=https://web.archive.org/web/20250702150207/https://www.snhu.edu/about-us/newsroom/business/what-does-a-bookkeeper-do |url-status=live }}</ref> They usually write the ''daybooks'' (which contain records of sales, purchases, receipts, and payments), and document each financial transaction, whether cash or credit, into the correct daybook—that is, petty cash book, suppliers ledger, customer ledger, etc.—and the general ledger. Thereafter, an accountant can create financial reports from the information recorded by the bookkeeper. The bookkeeper brings the books to the trial balance stage, from which an accountant may prepare financial reports for the organisation, such as the income statement and balance sheet.

== History == [[File:Pacioli.jpg|thumb|right|250px|''Portrait of the Italian Luca Pacioli'', painted by Jacopo de' Barbari, 1495, (Museo di Capodimonte). Pacioli is regarded as the Father of Accounting.]] The origin of book-keeping is lost in obscurity, but recent research indicates that methods of keeping accounts have existed from the remotest times of human life in cities. Babylonian records written with styli on small slabs of clay have been found dating to 2600 BC.<ref>{{cite EB1911|wstitle=Book-Keeping|volume=4|page=225}}</ref> Mesopotamian bookkeepers kept records on clay tablets that may date back as far as 7,000 years. Use of the modern double entry bookkeeping system was described by Luca Pacioli in 1494.<ref>{{cite web|url=https://fremot.edu/history-of-accounting/|title=History of Accounting|publisher=Fremont University|access-date=2022-07-15}}{{Dead link|date=September 2025 |bot=InternetArchiveBot |fix-attempted=yes }}</ref>

The term "waste book" was used in colonial America, referring to the documenting of daily transactions of receipts and expenditures. Records were made in chronological order, and for temporary use only. Daily records were then transferred to a daybook or account ledger to balance the accounts and to create a permanent journal; then the waste book could be discarded, hence the name.<ref>{{cite web | publisher= Guides to Archives and Manuscript Collections at the University of Pittsburgh Library System |title= Pittsburgh Waste Book and Fort Pitt Trading Post Papers |url= http://digital.library.pitt.edu/cgi-bin/f/findaid/findaid-idx?c=ascead;cc=ascead;q1=General%20John%20Forbes;rgn=main;view=text;didno=US-PPiU-dar192503 |access-date= 2015-09-04 }}</ref>

==Process == The primary purpose of bookkeeping is to record the ''financial effects'' of transactions. An important difference between a manual and an electronic accounting system is the former's latency between the recording of a financial transaction and its posting in the relevant account. This delay, which is absent in electronic accounting systems due to nearly instantaneous posting to relevant accounts, is characteristic of manual systems, and gave rise to the primary books of accounts—cash book, purchase book, sales book, etc.—for immediately documenting a financial transaction.

In the normal course of business, a document is produced each time a transaction occurs. Sales and purchases usually have invoices or receipts. Historically, deposit slips were produced when lodgements (deposits) were made to a bank account; and checks (spelled "cheques" in the UK and several other countries) were written to pay money out of the account. Nowadays such transactions are mostly made electronically. Bookkeeping first involves recording the details of all of these ''source documents'' into multi-column ''journals'' (also known as ''books of first entry'' or ''daybooks''). For example, all credit sales are recorded in the sales journal; all cash payments are recorded in the cash payments journal. Each column in a journal normally corresponds to an account. In the single entry system, each transaction is recorded only once. Most individuals who balance their check-book each month are using such a system, and most personal-finance software follows this approach.

After a certain period, typically a month, each column in each journal is totalled to give a summary for that period. Using the rules of double-entry, these journal summaries are then transferred to their respective accounts in the ledger, or ''account book''. For example, the entries in the Sales Journal are taken and a debit entry is made in each customer's account (showing that the customer now owes the company money), and a credit entry might be made in the account for "Sale of class 2 widgets" (showing that this activity has generated revenue). This process of transferring summaries or individual transactions to the ledger is called ''posting''. Once the posting process is complete, accounts kept using the "T" format (debits on the left side of the "T" and credits on the right side) undergo ''balancing'', which is simply a process to arrive at the balance of the account.

As a partial check that the posting process was done correctly, a working document called an ''unadjusted trial balance'' is created. In its simplest form, this is a three-column list. Column One contains the names of those accounts in the ledger which have a non-zero balance. If an account has a ''debit'' balance, the balance amount is copied into Column Two (the ''debit column''); if an account has a ''credit'' balance, the amount is copied into Column Three (the ''credit column''). The debit column is then totalled, and then the credit column is totalled. The two totals must agree—which is not by chance—because under the double-entry rules, whenever there is a posting, the debits of the posting equal the credits of the posting. If the two totals do not agree, an error has been made, either in the journals or during the posting process. The error must be located and rectified, and the totals of the debit column and the credit column recalculated to check for agreement before any further processing can take place.

Once the accounts balance, the accountant makes a number of adjustments and changes the balance amounts of some of the accounts. These adjustments must still obey the double-entry rule: for example, the ''inventory'' account and asset account might be changed to bring them into line with the actual numbers counted during a stocktake. At the same time, the ''expense'' account associated with use of inventory is adjusted by an equal and opposite amount. Other adjustments such as posting depreciation and prepayments are also done at this time. This results in a listing called the ''adjusted trial balance''. It is the accounts in this list, and their corresponding debit or credit balances, that are used to prepare the financial statements.

Finally financial statements are drawn from the trial balance, which may include: * the income statement, also known as the ''statement of financial results'', ''profit and loss account'', or ''P&L'' * the balance sheet, also known as the ''statement of financial position'' * the cash flow statement * the statement of changes in equity, also known as the ''statement of total recognised gains and losses''

===Single-entry system=== {{main|single-entry bookkeeping}}

The primary bookkeeping record in single-entry bookkeeping is the ''cash book'', which is similar to a checking account register (in UK: cheque account, current account), except all entries are allocated among several categories of income and expense accounts. Separate account records are maintained for petty cash, accounts payable and accounts receivable, and other relevant transactions such as inventory and travel expenses. To save time and avoid the errors of manual calculations, single-entry bookkeeping can be done today with do-it-yourself bookkeeping software.{{citation needed|date=May 2026}}

===Double-entry system=== {{main|double-entry bookkeeping}}

A ''double-entry bookkeeping system'' is a set of rules for recording financial information in a financial accounting system in which every transaction or event changes at least two different ledger accounts.

=== Method ===

==== Cash Accounting ==== The Cash-Based System of Accounting (or Cash Basis Accounting) is a simplified method of financial record-keeping that determines a company's profit based on the actual cash flow. The cash-based system of accounting records revenues when cash is received and expenses when cash is paid out, simplifying profit calculation for smaller entities (smaller businesses, freelancers, and sole proprietorships) by focusing purely on the actual movement of money. This method provides a clear view of current liquidity (cash on hand), but it does not necessarily reflect the true economic position (e.g., outstanding invoices or liabilities).<ref name=":0">{{cite web |last=Tamplin |first=True |date=April 6, 2024 |title=Cash Accounting |url=https://www.financestrategists.com/accounting/introduction-to-accounting/cash-accounting |access-date=22 November 2025 |website=Finance Strategists}}</ref>

==== Accrual Accounting ==== The accrual basis method, which is the required standard under Generally Accepted Accounting Principles (GAAP), records income when it is earned and expenses when they are incurred, regardless of when the cash is actually exchanged, providing a more accurate picture of a company's financial performance. The accrual-basis system offers a more accurate view of a business's profitability and success by matching revenues and expenses in the correct period, which enhances forecasting accuracy, enables better strategic decisions on resource management and growth, and increases transparency and credibility for stakeholders.<ref name=":0" />

== Daybooks == A ''daybook'' is a descriptive and chronological (diary-like) record of day-to-day financial transactions; it is also called a ''book of original entry''.<ref name="Nicholson, M. 1989 136–145">{{cite book |author=Nicholson, M. |url=https://link.springer.com/chapter/10.1007/978-1-349-10853-4_18 |title=Accounting Skills |publisher=Palgrave Macmillan |year=1989 |isbn=978-1-349-10853-4 |editor= |pages=136–145 |chapter=Chapter 18 Sales and Purchase Analysed Day Books |doi=10.1007/978-1-349-10853-4_18}}</ref> The daybook's details must be transcribed formally into journals to enable posting to ledgers. Daybooks include:<ref>{{cite book |last1=Dam |first1=B. B. |url=https://www.google.de/books/edition/ACCOUNTING_FOR_PROFESSIONALS/0WQOEQAAQBAJ?hl=de&gbpv=1&dq=General+Journal+daybook,+for+recording+journal+entries.&pg=PT355&printsec=frontcover |title=ACCOUNTING FOR PROFESSIONALS |last2=Nandi |first2=M. K. |publisher=PHI Learning Pvt. Ltd. |year=2018 |pages=PT355}}</ref>

*Sales daybook, for recording sales invoices.<ref name="Nicholson, M. 1989 136–145"/><ref>{{cite book | chapter = A Closer Look at Trading | title = GCSE Accounting | author = Turner, D. E., Turner, P. H. | publisher = Palgrave | location = London | year = 1991 | pages = 87–95 | isbn = 978-0-333-52979-9 | doi = 10.1007/978-1-349-11734-5_9 | url = https://doi.org/10.1007/978-1-349-11734-5_9 }}</ref> *Sales credits daybook, for recording sales credit notes. *Purchases daybook, for recording purchase invoices.<ref>{{cite book |last=Collins |first=Michael |url=https://www.google.de/books/edition/Do_It_Yourself_BookKeeping_for_Small_Bus/PBZiBQAAQBAJ?hl=de&gbpv=1&dq=Purchases+daybook,+for+recording+purchase+invoices.&pg=PT164 |title=Do-It-Yourself Book-Keeping for Small Business |date=7 January 2015 |publisher=Robinson |isbn=9781845285883 |page=164 |via=Google Books}}</ref> *Purchases debits daybook, for recording purchase debit notes. *Cash daybook,<ref>The final cash balance is determined by the so-called cash count (or physical cash inventory). Taking into account the expenses paid from the cash register and recorded in the cash report, and the final cash balance from the previous day, the daily income and consequently the revenue are calculated. Income that does not originate from sales revenue (e.g., deposits or owner contributions) must be specially noted and deducted from the cash receipts to determine the daily takings. The total sum of the receipts is then booked (posted). When determining cash receipts via the Cash Report, establishing the cash balance forms an indispensable basis for calculating a day’s cash receipts (Daily Takings). In this specific case, the records detailing the result of the daily physical cash count may not necessarily need to be retained. Conversely, there is generally no mandatory requirement for continuous cash counts if every single cash receipt and expenditure is individually recorded.</ref><ref name=":1" /> usually known as the cash book, for recording all monies received and all monies paid out. It may be split into two daybooks: a receipts daybook documenting every money-amount received, and a payments daybook recording every payment made. *General Journal daybook, for recording journal entries. It is an important primary ledger (or journal), as the Generally Accepted Accounting Principles (GAAP) require the recording of every single business transaction.<ref>{{cite book |last=Kieso |first=Donald E. |title=Intermediate Accounting |publisher=Wiley |year=2019 |edition=17th}}</ref><ref>{{cite web |title=Internal Revenue Code, Section 6001: Notice or regulations requiring records, statements, and special returns |url=https://www.law.cornell.edu/uscode/text/26/6001 |access-date=11 December 2025 |website=Legal Information Institute, Cornell Law School}}</ref><ref name=":1">Falterbaum, Hermann; Bolk, Wolfgang; Reiß, Wolfram; Kirchner, Thomas (2020). ''Bookkeeping and Balance Sheet: With Special Consideration of Balance Sheet Tax Law and Tax Law Profit Determination for Sole Proprietorships and Companies''. Green Series (Grüne Reihe). Vol. 10 (23. ed.). Achim: Fleischer Verlag (Fleischer Publisher). p. 73. {{ISBN|978-3-8168-1503-7}}.</ref> The fundamental principle of proper bookkeeping requires that every financial transaction must be recorded, maintaining a complete and verifiable audit trail. However, for retailers and businesses that conduct a high volume of small-value cash transactions (such as grocery stores, food service, or fast-moving retail), a practical exception to the requirement for single-entry recording of each individual sale is universally applied across major jurisdictions. It is generally recognized that itemizing every single cash sale across the counter is commercially impractical and disproportionate to the size of the transaction. Instead of itemized recording, the daily revenue (Daily Takings) is determined summarily based on secure point-of-sale (POS) systems or cash register totals. This daily summarized figure must be rigorously documented to satisfy the regulatory requirements of bodies such as the IRS (US),<ref>{{cite web |title=Recordkeeping |url=https://www.irs.gov/businesses/small-businesses-self-employed/recordkeeping |access-date=11 December 2025 |website=Internal Revenue Service (IRS)}}</ref> HMRC (UK),<ref>{{cite web |title=Business records if you're self-employed: What records to keep |url=https://www.gov.uk/self-employed-records/what-records-to-keep |access-date=11 December 2025 |website=GOV.UK (Official Site for HMRC Guidance) |publisher=HM Revenue & Customs}}</ref> and CRA (Canada)<ref>{{cite web |title=Keeping records |url=https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/keeping-records.html |access-date=11 December 2025 |website=Canada Revenue Agency (CRA)}}</ref><ref name=":1" />

All business transactions must be recorded in a timely and organized manner in the primary books of entry (Journals/Daybooks). With the exception of cash transaction, the timely recording of transactions does not require daily entry. Nonetheless a temporal link must exist between the transactions and their accounting entry.<ref name=":1" />

==Petty cash book== A ''petty cash'' book is a record of small-value purchases before they are later transferred to the ledger and final accounts;<ref>{{cite book |last1=Bright |first1=George |title=Mastering Accounting |last2=Herbert |first2=Michael |date=1990 |publisher=Macmillan Education Ltd |isbn=978-0-333-51197-8 |edition=10th |chapter=Chapter 5 |doi=10.1007/978-1-349-20618-6_5}}</ref> it is maintained by a petty or junior cashier. This type of cash book usually uses the imprest system: a certain amount of money is provided to the petty cashier by the senior cashier. This money is to cater for minor expenditures (hospitality, minor stationery, casual postage, and so on) and is reimbursed periodically on satisfactory explanation of how it was spent. The balance of petty cash book is Asset. Taking into account the expenses paid from the cash register and recorded in the cash report, along with the final cash balance from the previous day, the daily income and therefore the revenue are calculated.<ref name=":1" /> This calculation is crucial for tax compliance and control.<ref name=":1" />

==Journals== ''Journals'' are recorded in the general journal daybook. A journal is a formal and chronological record of financial transactions before their values are accounted for in the general ledger as debits and credits. A company can maintain one journal for all transactions, or keep several journals based on similar activity (e.g., sales, cash receipts, revenue, etc.), making transactions easier to summarize and reference later. For every debit journal entry recorded, there must be an equivalent credit journal entry to maintain a balanced accounting equation.<ref>{{cite book | last = Haber | first = Jeffry | title = Accounting Demystified | url = https://archive.org/details/accountingdemyst00habe_462 | url-access = limited | publisher = AMACOM | location = New York | year = 2004 | isbn = 0-8144-0790-0 | page = [https://archive.org/details/accountingdemyst00habe_462/page/n27 15]}}</ref><ref>{{cite book | last = Raza | first = SyedA | title = Accountants Information | page = [https://sataxaccountants.co.uk/ Accountant in Milton Keynes]}}</ref>

==Ledgers== A ''ledger'' is a record of accounts. The ledger is a permanent summary of all amounts entered in supporting Journals which list individual transactions by date. These accounts are recorded separately, showing their beginning/ending balance. A journal lists financial transactions in chronological order, without showing their balance but showing how much is going to be entered in each account. A ledger takes each financial transaction from the journal and records it into the corresponding accounts. The ledger also determines the balance of every account, which is transferred into the balance sheet or the income statement. There are three different kinds of ledgers that deal with book-keeping: *Sales ledger, which deals mostly with the accounts receivable account. This ledger consists of the records of the financial transactions made by customers to the business. *Purchase ledger is the record of the company's purchasing transactions; it goes hand in hand with the Accounts Payable account. *General ledger, representing the original five, main accounts: assets, liabilities, equity, income, and expenses.

==Abbreviations used in bookkeeping== {{columns-list|colwidth=20em| * A/c or Acc – Account * A/R – Accounts receivable * A/P – Accounts payable * B/S – Balance sheet * c/d – Carried down * b/d – Brought down * c/f – Carried forward * b/f – Brought forward * Dr – Debit side of a ledger. "Dr" stands for "'''D'''ebit '''r'''egister" * Cr – Credit side of a ledger. "Cr" stands for "'''C'''redit '''r'''egister" * G/L – General ledger; (or N/L – nominal ledger) * PL – Profit and loss; (or I/S – income statement) * P/L – Purchase Ledger (Accounts payable) * P/R – Payroll * PP&E – Property, plant and equipment * S/L - Sales Ledger (Accounts receivable) * TB – Trial Balance * GST – Goods and services tax * SGST – State goods & service tax * CGST – Central goods & service tax * IGST- integrated goods & service tax * VAT – Value added tax * CST – Central sale tax * TDS – Tax deducted at source * AMT – Alternate minimum tax * EBT – Earnings before tax * EAT – Earnings after tax * PAT – Profit after tax * PBT – Profit before tax * Dep or Depr – Depreciation * CPO – Cash paid out * CP - Cash Payment * w.e.f. - with effect from * @ - at the rate of * L/F – ledger folio * J/F – Journal Folio *M/s- Messrs Account * Co- Company * V/N or V.no. – voucher number *In no -invoice Number }}

==Chart of accounts== A chart of accounts is a list of the accounts codes that can be identified with numeric, alphabetical, or alphanumeric codes allowing the account to be located in the general ledger. The equity section of the chart of accounts is based on the fact that the legal structure of the entity is of a particular legal type. Possibilities include ''sole trader'', ''partnership'', ''trust'', and ''company''.<ref>Marsden,Stephen (2008). Australian Master Bookkeepers Guide. Sydney: CCH {{ISBN|978-1-921593-57-4}}</ref>

==Computerized bookkeeping== Computerized bookkeeping removes many of the paper "books" that are used to record the financial transactions of a business entity; instead, relational databases are used today, but typically, these still enforce the norms of bookkeeping including the single-entry and double-entry bookkeeping systems. Certified Public Accountants (CPAs) supervise the internal controls for computerized bookkeeping systems, which serve to minimize errors in documenting the numerous activities a business entity may initiate or complete over an accounting period.

==See also== * Accounting * POS system: records sales and updates stock levels * Bookkeeping Associations

==References== {{Reflist|30em}}

==External links== {{wikiquote}} * {{cite EB9 |wstitle = Book-Keeping |volume= IV | pages=44-47 |short=1}} * [https://www.lib.ncsu.edu/findingaids/mss00378 Guide to the Account Book from Italy <small>1515–1520</small>] {{Webarchive|url=https://web.archive.org/web/20250520092612/https://www.lib.ncsu.edu/findingaids/mss00378 |date=2025-05-20 }}

Category:Accounting systems Category:Accounting