Bookkeeping is the process of tracking all of your business’s finances and generating financial statements to illustrate how your business is performing. A bookkeeper will start with gathering all the financial transactions for a specific period (daily, biweekly, weekly, etc.) and organize those transactions into journals. They will include the amount of the transaction, the date it occurred, and a brief description of what it was for. If the bookkeeper is following the double-entry method, they will enter each transaction twice, to represent a credit and a debit.
Once all of the transactions are organized and totaled, they will input the information into the general ledger and use it to create your financial statements. Bookkeepers will typically produce an income statement (also known as a profit and loss statement), a balance sheet, and a cash-flow statement. Each of these statements provides information on how a business is performing and where there might be areas to improve. Investors and Lenders will also use these statements to learn more about a business’s financial situation.
Bookkeeping is a lot of data entry and organizing, but it is important to know all the different methods and systems and to understand where each type of transaction should be recorded. Without proper bookkeeping knowledge, your bookkeeping data could be incorrect, providing you with bad information in your financial statements.