Maintaining the record of financial transactions and financial day to day business activities is called bookkeeping. The basic purpose of bookkeeping is to maintain the financial records of a business clean, transparent and up to date. Bookkeeping provides the basic financial information which later can be used in accounting and managing the financial records of business. In other words bookkeeping is preliminary to complex accounting procedures. The basic goal of bookkeeping and accounting is the same and that is to keep business transaction transparent, to improve the chances of profit in the business and to keep the accurate track of income and expenses.
Bookkeeping can be easily done by keeping the receipts of your business transactions. You must back every transaction of your business with some record for example a receipt containing the time, date and the other details of the transactions. The next step in bookkeeping is to set up and keep a comprehensive ledger. A ledger is a complete record of your cash inflows and outflows that means expenses and revenues. The third and the final step in bookkeeping is to create basic financial reports. With the help of financial reports you can measure your income against your expenses. Financial reports also help you in finding out whether your cash flows are adequate to run your business or not.
Bookkeeping helps in creating transparency in business but it has some cons as compared to advance accounting. It is time consuming as it requires a lot of time to collect records, maintain ledgers and create financial records. Another disadvantage of bookkeeping is that it is costly especially for small businesses.
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