What is Bookkeeping?
What is Bookkeeping?
Bookkeeping is the process of recording your company’s financial transactions into organized accounts on a daily basis. Which is also essential part of your accounting process for keeping transaction records updated,
generate accurate financial reports that help measure business performance. These business activities are recorded based on the company’s accounting principles and supporting documentation.
Examples of these documents include:
- Bills
- Receipts
- Invoices
- Purchase orders
Business transactions can be recorded by hand in a journal or an Excel spreadsheet. To make things easier, many companies opt to use bookkeeping software to keep track of their financial history. With well-managed bookkeeping, your business can closely monitor its financial capabilities and journey toward heightened profits, breakthrough growth, and deserved success.
Methods Of Bookkeeping
Proper bookkeeping gives companies a reliable measure of their performance. It also provides information to make general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical.
Before you begin bookkeeping, your business must decide what method you are going to follow depend on the volume of daily transactions your business has and the amount of revenue you earn. Many small companies don’t actually hire full-time accountants to work for them because of the cost. Instead, small companies generally hire a bookkeeper or outsource the job to a professional firm. If you are a small business, less robust methods of bookkeeping will suitable for you. On the other hand a complex bookkeeping method designed for large corporations
Both a cash and accrual basis can work with single- or double-entry bookkeeping. However, the single-entry method is the foundation for cash-based bookkeeping. Transactions are recorded only when cash is actually received or paid. On the other hand, The accrual basis works better with the double-entry system. Transactions are recorded when it occurs, even if cash is not received or paid.
What is Bookkeeping
- Single-Entry The single-entry bookkeeping is a straightforward method where one entry is made for each transaction in your books. These transactions are usually maintained in a cash book to track incoming revenue and outgoing expenses.
- Double-Entry – The double-entry system of bookkeeping requires a double entry for each financial transaction. The double entry system provides checks and balances by recording corresponding credit entry for each debit entry. The double-entry system of bookkeeping is not cash-based. Transactions are entered when a debt is incurred or revenue is earn.
- Cash-Based – In cash-based, any time cash enters or exits your accounts, they are recognized in the books. Which means you recognize both revenue and expenses. In general however, purchases or sales made on credit will not go into your books until the cash exchanges.
- Accrual-Based – In the accrual method, revenue is recognized when it is earned and expenses are recorded when they are incurred. The actual cash does not have to enter or exit for the transaction to be recorded. You can mark your sales and purchases made on credit right away.
Bookkeeper Function
Bookkeeping tasks provide the records necessary to understand a business’s finances as well as recognize any monetary issues that may need to be addressed. Proper planning and scheduling is key since staying on top of records on a weekly or monthly basis will provide a clear overview of an organization’s financial health.
What is Bookkeeping
- Record transactions using accounting software, spreadsheets, and databases
- Collect and organize financial records, cash flow statements, bank documents, and loss statements
- Generate invoices and receive payments from customers
- Track debits and credits for various accounts.
- Completing payroll functions.
Six Reason Why Bookkeeping is important
Budget
A budget creates a financial road map for your business. With a budget, you can plan for future expenses and the anticipated resources that would cover those expenses. When income and expenses are correctly organized, it makes it easier to review financial resources and costs.
Legal Obligation
It is the bookkeeper’s job to ensure that the business is paying adequate tax, wages and National Insurance contributions are kept up to date, with every important transaction appropriately recorded to prevent any discrepancies with previously submitted tax returns.
Investors
Many businesses rely heavily on investors to help their business grow and become successful, but these investors need to know that their money is in the right place. Bookkeeping ensures that investors can access detailed reports about the company’s financial status in order that they can feel confident in their investment
Analysis
In analyzing your financial statements,
you can easily manage your profit and loss.
By practicing bookkeeping, you can assess your business performance and identify your strengths and weaknesses..
Tax
Failure to keeping tax affairs updated may lead to serious repercussions and huge fines and litigations. Hence, to avoid such fines and litigations, bookkeeping plays a pivotal role to provide the required date in a well-presented manner and on a timely basis.
Cash Flow
Bookkeeping helps to make the cash flow management useful as it depicts the sources from where the cash flows are coming and use where cash is spent. Many businesses get hit by unexpected cash crunch which can only be resolved through bookkeeping.
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