Bookkeeping: Basic Books of Bookkeeping

What is Bookkeeping?

I mentioned in my previous article that the double-entry system involves the maintenance of various books of records. This maintenance of records related to accounts is known as Bookkeeping. They are normally kept "Financial Year-wise" starting on 1st of April and closing on 31st of March, each year.

Bookkeeping involves entering the transactions of any business activity in its proper related books of records with date, transaction description, and amount. Each transaction made needs to be entered in more than one interrelated book of accounts with a correct Debit and Credit to the parties concerned.

These books need to be maintained perfectly with genuine supporting documents like bills and vouchers, legal documents, etc. All these supporting documents need to be maintained bill-wise and date-wise in secured files or in bunches, properly tagged and bundled in easily accessible record rooms or safes.

Books of Accounts

The Companies Act and Rules made it mandatory to maintain some basic books of accounts according to the size and nature of the business.

The minimum books required are:

1. Cash Book

2. General Ledger

3. Journal Register

4. Assets Register

5 Debtors/ Creditors Ledger

The above-mentioned books are the minimum requirements for any type of business, whether it is a Proprietorship Firm, Private Company or Public Company.

Now, let us take a look at the nature of transactions entered in these books.

Cash Book
Cash book contains all cash and bank transactions made daily by the firm. All cash payments and receipts are entered in it. Similarly, all cheque/ draft payments and receipts are also entered in it, date-wise, with supporting documents kept in vouchers.

Bank Book

Since big companies and corporations deal in enormous transactions involving national and multinational levels, they mostly transact their business through banks. So it is necessary to maintain Cash and Bank Books separately. In such cases, only cash transactions are entered in Cash Books, and all bank transactions are entered in Bank Books. It facilitates maintaining a better track of bank transactions and reconciliation of Bank Books with banks' records.

General Ledger

A General Ledger is the main book of any company. It displays all transactions of the company "account-wise". Here, account-wise refers to accounts like Cash A/C, Bank A/C, Personal Account, Asset Account, Expense Account, etc. In this Main Ledger, entries are made from the Cash Book, Bank Book, and from Journal registers.

Journal Register

A Journal Register is a record of transactions other than Cash and Bank. The entries in this book are made directly from vouchers known as Journal Vouchers. These entries, generally, do not directly involve any monetary transaction. Mostly, entries of monthly sales, monthly purchases, depreciation, transfer of balances from one account to another, etc. are made in this Register.

Assets Register

This book deals with details of all assets of the company entered item-wise and bill-wise. It gives you a clear picture of all the assets of your company as on any date. Depreciation calculation is facilitated with this book.

Debtors/ Creditors Ledger.

Any type of business, whether it is a small company or a big one, deals with Debtors or Creditors. You will have to pay in advance for any purchase. So he becomes your debtor until you receive the supply from him. Similarly, you may sometimes receive goods on a credit basis. Then he becomes a creditor to you. You need to maintain records of all these transactions properly in your books. This book is maintained separately for making such entries to locate the actual dues. These are known as Debtors and Creditors Ledgers and/or as Personal Accounts. 

I will explain these books and how to make entries in them properly in my upcoming posts.

At present, it is enough that the basic knowledge about what is bookkeeping and types of basic books maintained is known to you.

If any doubts, please feel free to contact me through the comments section.