This is a process that has been used for hundreds of years to keep track of a companies transactions it comes with the equation Credits = Debits, and is called double entry bookkeeping because it affects two accounts one gains credit and the other in turn is debited.
s It is the bookkeeper’s responsibility to ensure the money being debited from the companies source account and being transferred to the destination account is recorded through the ledger account. The company can also see how much they owe to their suppliers and how much different customers owe them via their double entry records, there fore allowing them to see how much they have in their business account on deposit at any moment. The process that is to be followed by any double entry bookkeeper is as follows:
- For every purchase the company makes there will be an invoice or receipt all of which are sent to the bookkeeper. As well as purchase made there will be a record of all sales or amounts paid for services. They are to keep a record of all financial transactions in the ledger account.
- Then they have to ensure all the companies’ debt is paid and all customers have paid what they owe the company. For example if the company made an order of products costing £500 the invoice would be sent to the bookkeeper and the amount owed to the ledger account. There is then £500 sent via the ledger account to the supplier there fore paying off the debt and there will be a record of the transaction in the ledger account records. This is also the process for sales apart from it would be the amount for the amount for the product is paid into the ledger account then transferred to the businesses source account.
- Then dependant on the size of the company and the amount of transactions being processed each day they would need to balance all the accounts in the ledger, if the company was very large they may want to do this every day if it’s a fairly small company they may be able to get away with doing it every week.
- They do this by ensuring the amounts that have been paid out of the account match the amount that has been paid in, this is because they work on the theory what has been paid out has to have been paid for and what has come in has to have been paid for also. If the accounts don’t balance out then they need to go back through their calculations and make sure they find the discrepancies before they can produce the financial statements for the company.
There are many variations in the bookkeeping line of work so if you want to hire a bookkeeper to keep a double entry record then ensure they have the right skills to carry that work out for you.