In the old days, you would register a company´s invoices in a big book - hence the name bookkeeping. Today, you´ll often use an accounting program that is stored on your computer or you´ll buy access to an online accounting program.
Many do not have an accounting program, but send vouchers and invoices to auditors or accounting firms who then will do their bookkeeping.
Bookkeeping is when you take an invoice and register the amount on the invoice in an accounts notebook. The accounts notebook is an integrated part of an accounting program.
An accounting system can theoretically be a manual system but today it will often be a computer program.
In very simple cases, a well arranged spreadsheet can be used for an accounting system but otherwise, the accounting system normally is an accounting program specifically developed for this purpose.
How bookkeeping is done will not be explained here, so please refer to instruction manuals from the different accounting programs.
Common to all the programs is that, when the transactions are entered into the system, you can extract important information about the company. For example:
The accounting programs help find answers to these and many other questions.
Remember that the information pulled from the accounting program is only as accurate as the information that is entered into the system.
Below, you see the 5 steps that give you useful financial information. Bookkeeping of the business transactions is the foundation for useful accounting.
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