What is Bookkeeping?
The simple definition of bookkeeping is that – “it is the practice involved in the recording of transactions affecting the operation of a business”.  Bookkeeping involves a system which records the transactions occurring in a business on a day to day basis, and the information recorded in this manner makes up the bookkeeping records. 

These records enable the business owner or managers to assess the performance of the business, prepare its financial statements and product other reports and data which will allow the business owner or the accountant/advisor to give advice or make recommendations where the business can improve its operation and its profitability.

Importance of Bookkeeping
Putting in a bookkeeping system is one of the most important tasks you have to do as a new business owner.  You will probably need the services of a qualified accountant, or someone with experience in accounting, so you can ensure the system incorporated will adequately serve the purpose of providing good information that will carry your business to the next stage of the bookkeeping process, which is called accounting.
With a good bookkeeping system, you will be able to extract information to improve the management of your business.  It will also provide a source of valuable financial data to enable your accountant to assist you in all other areas of the business. The information the bookkeeping system produces must therefore be accurate, as well as easy to extract. 

Basic Information to be extracted
The information you need to pull out from the system will depend on the type of operation that you have, but in general, most businesses need to record or have the facility to extract information in the following areas:
  • Sales
  • Cash received
  • Sales returned
  • Purchases
  • Cash paid out.
  • Purchased returned.
  • Payroll and Tax
  • Equipment owned.
  • Plant and equipment leased.
  • Debtors (money owing to the business).
  • Creditors (money owing by the business).
  • Details of loans and other debts the business has.
  • Details of assets and investments owned by the business.
These and other records will help your accountant produce the financial statements at the end of each period or at the end of the year.  Essentially, the information produced by the bookkeeping records will allow the accounting process to begin. 
The accounting process is where the accountant using this information is able to complete full financial reports such as:
  1. Profit and Loss Account (or Revenue Statement).
    This statement shows the flow of income into the business and the flow of expenses out of the business for the period in question.  It will also arrive at a profit made by the business, or a loss for the period.

  2. Balance Sheet
    This is a balance or statement showing what the business owns (assets) and what it owes (liabilities) at any particular period in time.  It will also be used to show where the funds of the business have come from and how they have been used. 

  3. Cash flow Statement. 
    This statement will show the flow of cash into the business and of cash out of the business and is basically a duplication of the bank account of the business.