Bookkeeping is the process of documenting all the financial transactions of a business and using them to create financial reports that can be utilized to make financial decisions about the business. A bookkeeper basically maps out all the money coming into the business and going out of it, so there is a clear picture of the company’s finances.
The first step of the bookkeeping process is gathering the daily transactions. If a business utilizes bookkeeping software, most of the transactions are recorded automatically, so this step is already completed. The transactions are then organized and recorded into their proper journal, which can also be done automatically with bookkeeping software in some cases. At the end of the period, typically monthly, the transactions are then reconciled. This just means that the transactions are compared to the bank or credit card statements to confirm their accuracy.
Once everything is confirmed to be accurate and balanced, the financial statements can be produced. The most common financial reports that are prepared are the income statement (aka profit and loss), the balance sheet, and the cash-flow statement. With reliable financial statements, a business owner can make decisions on where to cut costs or invest more, and they are also used to attract lenders to help grow the business further.