Process: Bookkeeping, in
Process: Bookkeeping, in
Process: Bookkeeping, in
Process
The bookkeeping process primarily records the financial effects of transactions only. The
variation between manual and any electronic accounting system stems from the latency between
the recording of the financial transaction and its posting in the relevant account. This delay,
although absent in electronic accounting systems due to instantaneous posting into relevant
accounts, is a basic characteristic of manual systems, thus giving rise to primary books of
accounts such as Cash Book, Bank Book, Purchase Book, and Sales Book for manually
recording the immediate effect of the financial transaction.
In the normal course of business, a document is produced each time a transaction occurs. Sales
and purchases usually have invoices or receipts. Deposit slips are produced when lodgements
(deposits) are made to a bank account. Checks are written to pay money out of the account.
Bookkeeping involves, first of all, recording the details of all of these source documents into
multi-column journals (also known as a books of first entry or daybooks). For example, all credit
sales are recorded in the sales journal, all cash payments are recorded in the cash payments
journal. Each column in a journal normally corresponds to an account. In the single entry system,
each transaction is recorded only once. Most individuals who balance their check-book each
month are using such a system, and most personal finance software follows this approach.
After a certain period, typically a month, the columns in each journal are each totaled to give a
summary for the period. Using the rules of double entry, these journal summaries are then
transferred to their respective accounts in the ledger, or account book. For example the entries in
the Sales Journal are taken and a debit entry is made in each customer's account (showing that
the customer now owes us money) and a credit entry might be made in the account for "Sale of
class 2 widgets" (showing that this activity has generated revenue for us). This process of
transferring summaries or individual transactions to the ledger is called posting.