Bookkeeping is the process of recording the transactions of a business and summarizing the results every month to monitor if the business is profiting or losing money.
A bookkeeper should have a basic knowledge of accounting to be able to record the transactions of the business.
The basic equation of accounting is Assets = Liabilities + Capital
Assets are what the business owns like cash, inventories, receivables, furniture, equipment, etc.
Liabilities are what the business owes to others like loans, bills payables, salary payables, etc.
Capital is the amount invested by the owners of the business.
The usual recording of business transactions is the double-entry method using the Debit and Credit. This is the preferred method for the proper valuation of the business net worth or the actual value presented in the financial report.
In recording transactions in the Cash Receipts, Cash Disbursements, and General Journal, the Debit amounts should always equal to the Credit amounts. There can be one debit and two credits, two debits and one credit or more than one debit and credit entries but the total should always be equal.
The bookkeeper can generate a chart of accounts for recording of transactions. The accounts are group into five classes. Assets, Liabilities, Capital or Equity, Revenues and Expenses.
Here is a sample of Chart of Accounts, the owner or bookkeeper can add accounts depending on the type of business transactions.
Balance sheet accounts are under the Assets, Liabilities, and Capital accounts
Income Statement accounts are under the Revenue and Expenses accounts, at the end of the month, total revenues less total expenses can result in profit or loss.
Income Statement accounts are under the Revenue and Expenses accounts, at the end of the month, total revenues less total expenses can result in profit or loss.
The amount of tax you're going to pay will depend on the profit you have at the end of each month. The higher the profit can mean higher taxes but can also be an advantage on the part of the owners to attract prospective investors to invest in the business while the creditors, banks and other financial institutions can offer additional working capital to the business at prevailing interest rates.
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