Bookkeeping, commonly referred to as keeping the books, is the process of keeping full, accurate, up-to-date business records. It involves making a record of the accounts received by a business as well as the dues paid out. Proper bookkeeping can help businesses effectively manage cash flow, observe profits and losses, and develop plans for the future based on financial trends. Bookkeeping has three phases: (a) gathering of data, (b) analysis, measuring, and recording of data, and (c) classifying and storing of data.
Bookkeeping starts with the gathering of data or business documents. Business documents are business papers evidencing that business transactions took place. Examples of these are official receipts, cash vouchers, and invoices.
The gathered documents are received by the Accounting Officer or Clerk. The clerk has the responsibility to analyze, measure and record the documents. The clerk records the documents in a book called the journal.
When the journalizing of documents is done, classifying and storing of data is next. In this phase, the data recorded will then be organized and classified into related groups. This is essential since the recording involves a large number of data too diverse to be understood by the decision makers. Classified data are then stored in another book called the ledger.
Bookkeeping covers the mechanical or procedural phase of accounting. After bookkeeping, the data or documents will then be summarized, reported, and interpreted for decision making. Bookkeeping is necessary and beneficial to business owners. Its accuracy is of utmost importance.