Basic Bookkeeping Principles

Although there are many types and methods of bookkeeping, the principles are the same. One is you must always have an accurate tally of your income. If you are keeping the books for your company, ensure that every sale and transaction is recorded and tracked. It is best to tally your income daily to ensure your finances are updated. The same goes for your expenses. Separate your expenses into simple categories. Tally the totals in each category so you will know where your funds are going to. It helps you identify which expenses are unnecessary and can be cut down. It also enables you to calculate the percentage of money that is spent from your income. Accounts receivable is money that is owed by your customers for goods or products that your company provided on credit. Put simply, a transaction had taken place but no immediate payments were made. Record these transactions down but be aware of the payment due date. Some payments may be made in a specific period like 15 or 30 days, so be clear on which payments are due when.

Some bookkeepers also follow the five principles of bookkeeping that are commonly-practiced in bookkeeping activities. The first is the principle of double entry in the double entry bookkeeping system. A single transaction is recorded twice on both sides for debit and credit, hence double entry. Next is the principle of recording. Any financial transaction recorded in the books must come from a source document such as receipts, invoices, bank statements and others. These documents provide the transactions with authority for entry into the books, so to speak. The third is principle of profit determination. As mentioned earlier on, accounting keeps clear records of your daily financial transactions so that by the end of the month, you will know if you are making profit or losing money. The fourth principle is the principle of reporting. The purpose of bookkeeping is to convey bookkeeping information in a clear and logical manner to an average person with no knowledge or background in bookkeeping. It is a method of recording and presenting financial transactions so that it is comprehensible. Last but not least is the principle of control. Doing bookkeeping activities gives you a certain control over how your finances are managed. You will know where most of your finances go to and prevent any occurrences of fraud or error.