Bookkeeping And The Accounting Cycle

One of the aspects of accounting is bookkeeping. This is defined as the mechanic of recording transactions in the journal and posting entries in the ledger. The person responsible for tracking the transaction documents and for the maintenance of account books is the bookkeeper.

Bookkeeping is relative to recording and keeping of books of accounts. Its essential purpose is to ascertain the outcome of the transactions that occurred in an accounting period by revealing the amounts of the accounts and by tracing the accounts that bring great influence to the profits and losses of a given period.

Bookkeeping is done systematically and methodically. Recording of financial accounts require great care and organization to facilitate the preparation of financial reports.

Bookkeeping has great role in the accounting cycle. Before the preparation of financial statements by an accountant, a bookkeeper has to identify the transactions and analyze them. Transactions can be sorted by journalizing the entries in the journal. This involves recording the transactions in the sequential order according to the dates they occur and debiting and crediting the amounts to appropriate account titles.

A bookkeeper may use either of the two bookkeeping systems: the single-entry bookkeeping system and double-entry bookkeeping system. The single-entry bookkeeping system is much simpler but it only integrates accounts that can be easily classified. Some small businesses with less complicated transactions can make use of this bookkeeping system.

On the other hand, double-entry bookkeeping system involves two accounting entries: debit and credit. Debit is on the left side of the accounting column where it signifies an increase in the amount of assets and expenses and a decrease in liabilities, equity and revenues. The credit side is in the right side of the accounting entry. An increase in liabilities, equity and revenue is posted on the credit side likewise to a decrease in the amount of assets and expenses.

The double entry bookkeeping sys

tem is preferred by businesses that have complex accounts. It would be much easier for bookkeeper to make adjustments as well as corrections when the double-entry bookkeeping system is used.

Posting of entries in the ledger can more appropriately be done when the double–entry bookkeeping system is used. The account titles are segregated in the ledger where each of them has a T-account. Using the T-account, the bookkeeper can identify the differences of each of the account titles. The difference in the debit and credit of the account title can bring to an account balance of an account title.

After tposting the entries in the ledger and creation of T-accounts, the bookkeeper will then make a trial balance to verify that the total debit is equal to the total credit. Any difference on the accounting entries may signify discrepancies in the amounts. This may happen when there are erroneous amounts or there are amounts that are erroneously recorded. Bookkeeper should settle in balancing the total debit and the total credit before proceeding to the next stage which is the adjustment of accounting entries.

Adjusting entries are performed on items with deferrals and accruals in nature. This step in accounting cycle is performed when the entity uses the accrual method in recording income and expenses as well as assets and liabilities. It may take the bookkeeper to journalize the adjusting entries before making adjustment on the affected T-accounts in the ledger. An adjusted trial balance may have to be performed to check the balancing of debits and credits after the adjustments.

After making the adjusted trial balance, this is where the accounting work begins. Bookkeeping provides the necessary support in facilitating the accounting works which include the preparation of the financial statements as well as the assessment of tax liabilities.

Closing the entries of the nominal accounts and making the after-closing trial balance can be performed by the bookkeeper prior to or during the preparation of financial statements. The closing of books at the end of an accounting period can provide the basis for the balance of real accounts at the start of next accounting period. The accounting cycle recurs at the start of another accounting period beginning with the bookkeeping works.