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Simple English definitions for legal terms
bookkeeping
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A quick definition of bookkeeping:
Bookkeeping is the process of keeping track of money coming in and going out of a business. It involves recording all the money that is spent and earned, and summarizing this information in a clear and organized way. There are two main methods of bookkeeping: double-entry bookkeeping, where every transaction involves both a debit and a credit entry, and single-entry bookkeeping, where each transaction is recorded in a single record.
A more thorough explanation:
Definition: Bookkeeping is the process of recording financial transactions and summarizing financial information, usually for a business. It is different from accounting, which involves analyzing and interpreting financial data.
Double-entry bookkeeping: This is a method of bookkeeping where every transaction recorded by a business involves one or more "debit" entries and one or more "credit" entries. The debit entries must equal the credit entries for each transaction recorded. For example, if a business buys inventory for $500, the bookkeeper would record a debit of $500 to the inventory account and a credit of $500 to the cash account.
Single-entry bookkeeping: This is a simpler method of bookkeeping where each transaction is recorded in a single record, such as a record of cash or credit accounts. For example, if a business receives $100 in cash sales, the bookkeeper would record a single entry of $100 in the cash account.
Bookkeeping is important for businesses to keep track of their financial transactions and to ensure that their financial statements are accurate. It helps businesses make informed decisions about their finances and can also be used for tax purposes.