Calculating bookkeeping involves systematically recording, classifying, and summarizing financial transactions to give a clear view of a business’s financial health.
The first step in the bookkeeping process is recording each transaction accurately in the appropriate journal. This stage, often referred to as journalizing, entails noting down details like the date, description and amount of each transaction. Transactions are categorized based on type (e.g., revenue, expense, asset, liability) and recorded accordingly.
For accuracy, bookkeeping often uses DOUBLE-ENTRY ACCOUNTING, where each transaction affects at least two accounts—one as a debit and the other as a credit. This system helps maintain balance within the books, ensuring that assets equal liabilities plus owner’s equity.
Once the transactions are recorded in journals, they need to be posted to individual accounts in the ledger, which is essentially a categorization of all transactions under respective account heads. For instance, all revenue-related entries are posted to the revenue account, while expenses are directed to the expense account. This stage provides a clear view of each account’s activity, allowing bookkeepers to track inflows and outflows accurately.
After all transactions are posted, the next step is to prepare a TRIAL BALANCE. Here, bookkeepers check for discrepancies by ensuring that the total debits equal the total credits. Any errors at this stage signal that adjustments are needed before proceeding further.
And at the last stage, with a balanced TRIAL BALANCE, THE BOOKKEEPER moves on to the preparation of Financial Statements, which include the Income Statement, Balance Sheet and Cash Flow Statement. These reports summarize the business’s financial activity over a specific period, helping stakeholders understand Profitability, Financial Position and Cash Movement. Adjustments and closing entries are also made at this stage to account for any accrued expenses or revenue earned but not received.
Once the financial statements are finalized, the books are closed, ready to begin the next cycle. This comprehensive bookkeeping process ensures that all financial data is accurately recorded, classified, and summarized, forming the foundation for sound financial decision-making.
