The Basics of Bookkeeping
Reviewed by: Judith Kaufman, Bookkeeper & Accountant
Updated: March 2023
Interested in knowing more about bookkeeping? Whether you’re looking at pursuing a career in bookkeeping, or just need to know enough to do the books for your small business, we’ve got you covered with the basics!
Bookkeeping is simply the act of keeping a financial record of a company, institution, or individual. That financial record must be detailed, accurate, and up-to-date. Bookkeeping records are usually kept through an accounting program, depending on the needs of you or your clients. A few of these software programs are free, but most must be purchased.
As a bookkeeper, your job may look different depending on the size of the company and the type of work you do. In addition to keeping the accounts, a bookkeeper may also help a company run payroll, prepare for taxes, or do other accounting task tasks.
The most common form of bookkeeping is called a double-entry bookkeeping or double journal system. That means every transaction is recorded twice, once as a debit and once as a credit. For every debit entry there is a credit entry. With double-entry bookkeeping, you make sure you know the reason why every financial transaction happenes. This keeps your accounts balanced and it helps maintain accuracy.
The most important part of bookkeeping is paying close attention to detail. You or your client’s financial records hold all the key factors to their success! When you use double-entry bookkeeping, you have a record of all the accounts and changes within them
Five Key Terms of Bookkeeping
There are five key terms in bookkeeping that you will need to understand! These are the most important words and definitions that you will need to know to be a successful bookkeeper.
- Assets are the things that give your company value. Cash, accounts receivable, and equipment your company owns would all be considered assets.
- Liabilities are the things that your company owes money towards. This includes things like accounts payable or loans.
- Revenueis also known as income. This is the invoicing your process through the sale of your company’s goods or services.
- Expenses are exactly what you expect - the recurring costs you need to keep your business running.
- Equity is the final piece of the bookkeeping equation. When you subtract the liabilities from the assets, you are left with the equity. Equity is any investment the owner makes in the company, as well as any profit or loss the company makes through the revenue minus expenses.
Using the information from the that list, you create what is called a general ledger. A general ledger is the master list of enntires made in all of the accounts of the company tha tmake up the finacial information you will use to make decisions, get reports, and take to your Accountant during tax season.
Bookkeeping can be a rewarding career choice, or it can help you manage your own business better. With the right bookkeeping training and the right software, you can be an expert in no time.