Process of Book-keeping

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Management of economic transactions is very important for any business because, without transaction management, the business cannot prepare accounting reports due to which it will not be possible to know whether the business is making profit or loss, what is the status of the business. etc., that is why accounting is used to manage economic transactions in business. Which level to use depends on the nature of the business.

To systematically manage transactions in book-keeping has to go through several processes such as identifying transactions, measuring transactions, recording transactions, classifying transactions, summarizing transactions, etc. Bookkeeping is usually managed by a bookkeeper, but in some cases, accountants also manage the bookkeeping.

Process of Book-keeping

Following are the process of book-keeping:

1. Identifying:

The first process of book-keeping is to identify business transactions. The main objective of this process is to identify business and monetary transactions and exclude those transactions which are not related to business and monetary. Without doing this process, further process is not done because doing so may cause problems in the future.

2. Measuring:

After identifying the transactions, the next process is to measure the identified transactions because sometimes businesses conduct transactions with other countries resulting in currency exchange. The main objective of this process is to convert the currency of the transaction according to the currency of the country/book-keeping.

3. Recording:

Once transactions have been identified and measured, the next process is to record those transactions. In this process, journal entry is passed in the journal book with the help of the concept of journal. To make this process easier the journal book can be divided into several parts, it completely depends on the business.

4. Classifying:

When the recording is done the next process is to classify the transactions recorded in the journal book into the ledger account. In this process, an account is created for each head and transactions related to them are recorded in those accounts. For example, sales entries are recorded in the sales account, purchase entries are recorded in the purchase account, etc.

5. Summarizing:

Summarizing is the final process of book-keeping and all the important reports and statements are made under this process like trial balance, trading account, profit and loss account, balance sheet, etc. Once the journal entries are classified, the summarization process begins.

Read Also:

• What is Book-keeping? Meaning, Features, and More.
• Objectives of Book-keeping

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