| The difference between bookkeeping services and | | | | money between the debtors and creditors and the |
| accounting may be unclear to the uninitiated while both | | | | business. |
| are of vital importance to financial success. | | | | When a debtor pays his sales invoice the double entry |
| Bookkeeping is an important part of the accounting | | | | is to add that amount of money to the business |
| function and is essentially the record keeping of the | | | | financial records and the opposite double entry goes to |
| financial transactions. Accounting is while incorporating | | | | the debtor account to reduce the amount owed to the |
| the record keeping also includes the presentation, | | | | business since it has now received the cash. |
| interpretation and financial control functions including | | | | When a creditor is paid the amount owed the money |
| interpretation of the numbers for the financial health of | | | | is recorded as reducing the cash resources of the |
| a business of which taxation can play a major part. | | | | business by for example deducting the money from |
| Bookkeeping stems from the recording of financial | | | | the bank balance and the double entry reduces the |
| transactions and the accounting term for a business | | | | amount the business now owes to the creditor |
| accounts as books. In effect the accounting function | | | | account since it has reduced the credit received. |
| prepares a record of the monetary affairs of a | | | | The bookkeeping function is to record these prime |
| business and stores the information in files called | | | | transactions. Since every financial transaction has an |
| books. Hence the term bookkeeping often misspelled | | | | equal and opposite entry in the books there has to be |
| as book keeping which is the function of a librarian not | | | | a mathematical check that both sides of the |
| that of a bookkeeper. | | | | transactions add up to zero. This check process is |
| The financial affairs of a business involve many | | | | called a trial balance where both sides of the entries |
| aspects and start with the recording of what is termed | | | | should be in agreement and normally the point at which |
| the prime documents. The task of a bookkeeping | | | | the bookkeeping service is deemed to be complete. |
| service which some businesses outsource is to record | | | | Double entry bookkeeping is required for all businesses |
| the prime documents, those prime documents being | | | | that require to produce a statement of its assets and |
| the sales, purchases and cash/bank transactions. All | | | | liabilities. This statement of assets and liabilities is the |
| small businesses do bookkeeping and the most | | | | total of all the balances from the trial balance and is |
| successful use the bookkeeping records as a basis | | | | called a balance sheet. |
| for an accounting function to generate a more efficient | | | | Many small businesses do not require a balance sheet. |
| financial service. | | | | In the UK the production of a balance sheet is optional |
| All business involves buying or selling something and | | | | for every self employed business as it is not an |
| the consequent function of receiving or paying money | | | | obligatory requirement of the self assessment tax |
| to the value of those transactions. Recording these | | | | return form. A self employed bookkeeping system is |
| transactions in larger business organisations is done by | | | | not required to produce a balance sheet because the |
| accounts clerks who work under the supervision of | | | | business effectively belongs to the owner and is that |
| the accountant. | | | | owners personal business. |
| Invariably medium and larger businesses use a double | | | | Limited companies must produce a balance sheet |
| entry system for recording transactions. Double entry | | | | under various financial acts and submit the balance |
| accounting evolves from the fact that every | | | | sheet to both Companies House and the tax authority |
| transaction as a double effect on the business of | | | | each year. The different rules applying to a limited |
| which these are prime examples. | | | | company is because the accounts including the |
| A sale is made. That creates a record of income for | | | | balance sheet are public records available to the |
| the business which is taxed on that income the other | | | | members of that company and not necessarily the |
| side of the financial transaction, the double entry, is the | | | | property of a single individual or partnership. |
| fact that the organisation who was sold the goods | | | | The self employed bookkeeping system can be |
| now owes the value of that sales invoice to the | | | | simpler being produced from a single entry style of |
| business. That is the double entry, record the sales | | | | bookkeeping rather than double entry. Single entry |
| income and also record the debt due from the | | | | bookkeeping makes a single entry for each financial |
| customer who is now called a debtor. | | | | transaction which is sufficient to produce an income |
| Someone who owes the business a debt is called a | | | | and expenditure account, a profit and loss account, but |
| debtor. | | | | does not make the reciprocal entry that establishes |
| A purchase is made. That creates a record of | | | | the value of the assets and liabilities. |
| expense for the business which can be deducted | | | | Single entry can be as simple as making a list of the |
| from income and lowers taxes and the other side of | | | | sales income and the purchase expenses. Such a |
| the financial transaction, the double entry, is the fact | | | | bookkeeping system is valuable to the smaller |
| that the organisation who supplied the purchase on | | | | business as it requires little or no bookkeeping or |
| credit is now owed the money. That is the double | | | | accounting knowledge. A smaller business can |
| entry, record the sales income and also record the | | | | produce its own accounts without the need for a |
| credit due to the supplier who is now called the | | | | bookkeeper or accountant particularly if it has access |
| creditor. | | | | to bookkeeping templates through bookkeeping |
| Someone who has supplied goods on credit is called a | | | | software to produce the accounts in the accounting |
| creditor. | | | | format required. |
| The third type of prime transaction is the transfer of | | | | |