Basics of Bookkeeping
Bookkeeping :
Bookkeeping means keeping a record of the financial transactions of a person or business
Financial transactions :
Transactions that involve giving or taking of money in any form are called financial transactions
Purpose of bookkeeping :
The main purpose of it is to know how much money a person had in the beginning, where they spent it and how much should they have left with them, finally. Your books of accounts help you to keep a track of where you are spending more than you should and help you control your expenditure
A book of accounts :
When you maintain a record of all your financial transactions, that record is called a book of accounts.
Account :
An account means a record of the money you receive from others and the money that you give to others
Particulars :
It is where you write the description of the entry. If your parents give you some money, then you will write ‘Cash received’ and put the amount in the column named debit
Debit :
“In accounting, a ‘debit’ entry is an entry which does two things — it either increases the amount of asset that you have in hand, or it could increase your expense.
Example:
If you give money to the shopkeeper for a new box of paint, what changes should you make to your book of accounts?
a. This does not count as a financial transaction
b. It is a goodwill gesture
c. You should credit your cash in hand
d. You should debit your cash in hand✅
When you give money to someone = Debit
Asset :
An asset is anything you own that is useful or has value. The money you get as pocket money is also an asset
Credit :
“It is the opposite of a debit entry. A debit entry increases your assets, and a credit entry reduces the amount of the asset you have in hand. In other words, it increases the amount of ‘liability’ you owe to someone else
Example:
If your grandmother gives you Rs. 100 as a birthday present, how would you account for it in your cash book?
- Debit it in your book of accounts
- Spend the money on a present
- Alter your budget to spend more money
- Credit the amount in your book of accounts✅
When someone gives you money = Credit
Liability :
A liability refers to money that you owe, which means you have to give to, someone else.
Balance :
The amount of money you have left after giving or receiving any sum of money, is the balance amount
Cash-in-hand :
The money you have with you for spending, is called cash-in-hand
Here you learnt the basics of bookkeeping. In the next blog, you will learn about accounts and documents and the process of opening up a bank account.
Note : I intend to share what I learn through this blog. Since these are mostly notes, I have tried not to be extra creative with my sentences. The phrases are mostly extracted from the source, as they were. Due credits go to TCSiON Reference Material for Financial Literacy
