Understanding the financial health of a business is crucial for its growth. And for this, you need to have access to properly maintained income statements, cash flow statements, and balance sheets. While the records need to be updated as often as possible, proper documentation supporting the transaction records is required.
When recording transactions, a bookkeeper uses the following methods and approaches.
- Cash Registers: An electronic machine to register transactions, a cash register is used at stores. When a cashier collects the cash and returns the balance, both the cash and the balance are added to the register. These tools are also used to store and generate receipts for businesses and customers.
- The Journal: Also called the book of original entry, the journal is a chronological record of business transactions. Bookkeepers can create either digital or physical journals wherein the dates, amounts, and credit/debit nature are recorded.
- The Ledger: It contains the compilation of accounts in a book and is often termed as the book of the second entry. Transactions are classified as separate accounts after journal entries before transferring them to the ledger. Different categories of these records include income, expenses, assets, liabilities, and equity.
- Trial Balance: This is a test of transactions in the books. It carries a list of accounts including assets, liabilities, equity, income, and expenses in the same order. It is generally used to test if the books are complete and balanced.
After the transactions and entries are recorded, the tax accountant from Toongabbie uses them to create financial statements for analysis and business growth.