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Bookkeeping
Bookkeeping is the process of recording and organizing all business transactions focusing on daily operations. It is the backbone of accounting because incorrect posting of transactions results in inaccurate financial statements. A bookkeeper manages all company financial data.
Bookkeeping Process
Below is a complete illustration of the bookkeeping process.
1. Identifying & Analyzing Transactions
The bookkeeper identifies each business transaction and analyzes its nature to determine which accounts are affected before recording.
2. Recording Transactions in Journal
A journal is the first place where transactions are recorded. Each transaction affects at least two accounts using the double-entry system.
Example: Company A sells 50 iron sheets worth USD 500 paid in cash.
3. Posting to General Ledger
Journal entries are transferred into the general ledger, which organizes transactions into individual accounts such as cash, inventory, revenue, and expenses.
The general ledger is the main source for preparing financial reports.
4. Trial Balance Preparation
A trial balance lists all ledger account balances at a specific time to ensure total debits equal total credits.
It helps detect errors in recording before preparing financial statements.
5. Adjusting Entries
Adjusting entries are made at the end of the accounting period to update accounts for accrued or deferred items such as expenses and revenues.
6. Financial Statements Preparation
After adjustments, financial statements are prepared including income statement, balance sheet, and cash flow statement.
These reports show the financial performance and position of the business.
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