Bookkeeping is an essential accounting tool. A small business or company may employ only one bookkeeper, who records all of the financial data by hand; large organizations may employ many bookkeepers, who use electronic and mechanical equipment for a large part of their work. Each organization has its own bookkeeping requirements, but all systems operate on the same basic principles .The bookkeepers themselves must be accurate, good in math, and meticulous; that is, they must be very careful to record each detail in its proper place.
The two basic systems of bookkeeping are double-entry and single-entry. The double-entry method was perfected by the merchants of Venice during the fifteenth century and is still used today .The basic principle of double-entry bookkeeping is that every transaction has a twofold effect. In other words, a value is received and a value is yielded or parted with. Both effects, which are equal in amount, must be entered completely in the bookkeeping records.
An account is a record of the financial transactions that concern one
item or a group of similar items. The account includes categories of financial data for each area of interest during a specific period: the value at the beginning of a period, changes in value during the same period, and the value at the end of a period. The broad areas of interest can be labeled assets, liabilities, and net worth. Income and expense accounts are totaled at regular intervals, and the resulting profit or loss is posted to a capital account.
Accounting is the recording, classifying, summarizing and interpreting
of financial events and transactions to provide management and other interested parties the information they need to make better decisions. Transactions include buying and selling goods and services, acquiring insurance, using supplies. Transactions may be recorded by hand or they may be recorded in a computer system. Of course, the trend today is to use computers since the process is often repetitive and complex, and computers greatly simplify the task.
After the transactions have been recorded, they are usually classified
into groups that have common characteristics. .or example, all purchases are grouped together, as are all sales transactions. A businessperson is thus able to obtain needed information about purchases, sales, and other transactions that occur over a given period of time. The methods used to record and summarize accounting data into reports is called an accounting system. Systems that use computers enable an organization to get financial reports daily if they so desire. One purpose of accounting is to help managers evaluate the financial condition and the operating performance of the firm so that they may make better decisions. Another is to report financial information to people outside the firm such as owners, creditors, suppliers, employees, and the government (for tax purposes).
In more basis terms, accounting is the measurement and reporting to various users (inside and outside the organization) financial information regarding the economic activities of the firm. Accounting has been called the language of business, which may make you think accounting is only for profit seeking firms. However, it is also the language used to report financial information about non-profit organizations such as churches, schools, hospitals, fraternities, and governmental units. Accounting can be divided into two major categories: managerial accounting and financial accounting. An accountant working for an organization is likely to do both.