According to Wikipedia, bookkeeping is “the recording of financial transactions, and is part of the process of accounting in business. Transactions include purchases, sales, receipts, and payments by an individual person or an organization/corporation. “Simply put, bookkeeping is an organized recording of financial transactions made in an organization. Or you can say that bookkeeping is all about recording and tracking the financial data across the business. Apart from businesses, bookkeeping is important for non-profit organizations as well as individuals. Bookkeeping provides the information from which accounts are managed. Therefore, maintaining solid and systematic bookkeeping ensures that the records of your financial transactions are accurate, up-to-date and comprehensive. In this digital era, digital or online accounting software makes bookkeeping easy and quick. A bookkeeper is supposed to record all data that are related, including but not limited to loan payments, invoices, monitoring asset depreciation, generating financial reports, payments.
Contrary to popular belief, bookkeeping and accounting are not the same. Accounting is the overall practice of managing finances while bookkeeping deals with the tasks and practices involved in the recording of financial performance. Detailed and thorough bookkeeping is important for organizations of all sizes. Bookkeeping can become more complicated with the introduction of loans, assets, investments and taxes. Recording the financial activities of a business is the key purpose of bookkeeping, letting you keep up-to-date data of current incoming and outgoing amounts.
What are the Benefits of Bookkeeping?
Owning a business and running it successfully are two different things. No matter how much capital and customers you have, your business won’t grow unless you have solid bookkeeping practices as well—at least if you are looking to record the finances yourself. Have a look at our whitepaper for further information
Bookkeeping plays an important role in this context. Here’s how…
Providing You with an Unbiased Financial Picture:
The goal of bookkeeping is to provide you with a clear picture of your business’s financial status. It shows you the financial strengths and weaknesses.
Being Important for Tax Planning:
A business has to file a tax return every year. And it is equally true that many business owners find taxation complicated, thanks to missing paperwork and confusing calculations. The tax filing can be simplified by introducing a bookkeeping function within your company. It helps you prepare financial information for tax time. Instead of juggling with receipts or invoices, all of your financial data is managed at one central place.
Keeping Your Finances Organized:
There are a few bodies that look for your financial records—the tax agency, employees, clients, lenders and investors. Being able to deliver the information required by these bodies is important for your business. If you fail to provide the financial data to the tax agency, it can lead to huge penalties and fines. Not being able to provide data required by lenders or investors can affect your funding. Being mismanaged with your books can sour your relationships with these parties. The key role of bookkeeping is to keep your financial information organized so that you can locate and provide it easily.
Helping in Analyzing Business Performance:
Bookkeeping is a vital tool to assess business performance. After all, finances are one of the key indicators of your business’s health. While assessing those financial statements, you can determine how cash is flowing across your business.
Helping with Decision Making:
Given that bookkeeping helps you assess your business performance, you can make an informed decision. For example, your financial records let you know your profits, losses and debts. Based on this financial data, you can plan budget and expenses as well. Besides, you can plan for the future as bookkeeping shows you the past financial performance of your business. In other words, you can determine what can work or what can’t.
Simplifying Reporting to the Investors:
Investors often ask for the financial performance of your business before investing. After all, they want to be sure that they are putting money into a profitable venture. Financial statements can help them simplifying bookkeeping and determine the performance of your company. As told earlier, bookkeeping records financial statements, letting the investors have an update and accessible data.
Managing Your Finances:
Bookkeeping is vital as it lets you keep track of your finances. It shows you a clear picture of the flow of money. You can see outstanding invoices owed by the clients or your company. This way, you can pay off your debt on time or ask for the payment from your clients.
Ensuring Peace of Mind:
Chaotic bookkeeping can cause stress and keep you awake at night. After all, money is the lifeline of your business. You should know how finances are going across your business. When you have sound bookkeeping, you can have peace of mind knowing that your business’s financial data is ready for everything, whether its lenders, taxation or investors.
Letting You Know Profit and Growth:
Bookkeeping is critical as it keeps track of profit and growth. For example, the income statement is a financial statement that is being created from bookkeeping. And these income statements help you determine the profitability of your business. Bookkeeping also helps with determining growth. You will amass months and years of data over time. This data helps you understand where your business is standing.
Improving Cash Flow:
Bookkeeping also helps you with cash flow. The day to day recording of expenses, profits, liabilities, expenses and receivable will let you track when your clients and vendor invoices are paid. As an organization, you want to make sure that your customer invoices are being paid off on time. Paying your vendor on time is also important to avoid any penalties or fines.
Letting You Focus on Strategy:
Tactical planning is important for you as a business owner. You always try to figure out the ideas to grow your venture. With bookkeeping, you can prepare short and long term goals. Use the data that bookkeeping offers to focus on planning. Based on the results of your planning with bookkeeping, you can adjust your goals.
How to Make Your Bookkeeping Efficient
So you must have understood that your books are the reflection of the financial performance of your business. But it can’t be denied that bookkeeping can be an exhaustive and time-consuming task. However, it is important to have efficient bookkeeping in place. And these things will help you with that.
Separate Your Personal Expenses from Business:
Don’t merge your personal expenses with your business. Make sure to open a business bank account as soon as you start your venture, and opt for a separate business credit card. Not separating these transactions will lead to a great hassle and frustration when you file for reimbursement and some personal expense might be forgotten along the way—or company finances might go to your personal expenditures.
Automate the Tasks:
While bookkeeping is important, it is quite stressful and overwhelming to go through spreadsheets and reconciling numbers manually, especially if you are not a professional accountant. Enter bookkeeping tools or software. Available both online and offline, they make life easier by automating all tasks, from recording the expenditures to tracking the profits. Good thing is that most of them can be linked up with the bank accounts. The online software lets you take the back up of your data. Consult your accountant to find out which tool is best for you or what features to be prioritized. A good accountant not only offers a piece of sage advice but also knows how to set up the software. They can also educate on the tool.
Conduct Regular Financial Checkups:
Putting off bookkeeping too long will lead to bounced checked, overdue invoices or the skipped figures. Make sure to check your books weekly to keep everything organized. You can analyze your books at the end of each quarter. It requires you to take an in-depth look at your bookkeeping and accounting records. Besides, check the trends, such as increased or decreased sales, revenues, debts and late-paying customers. Discuss the things with your accountant. They can help you with the preparation for future purchases or moving to another location.
Record Your Business Expenses:
Tax codes are likely to change, requiring you to stay updated with tax compliance. Talk to your accountant to know what kind of expenditures you can deduct next year. Also, save time by digitizing and scanning the receipts.
Track Accounts Receivable:
Late payments from the customers can hamper your cash flow. Therefore, keep an eye on due receivables and ask late-paying customers to make a payment on time. Even if a customer is a cash strapped, you might create a payment plan to get at least some of what you’re owed.
Beware of Tax Deadlines:
To avoid getting penalties on tax errors, always plan ahead and set aside money for anticipated tax bills. Make sure to pay on time to avoid fines.
Use an Online Payroll System:
Another essential and recurring cost is your employee’s salary. Luckily, online payroll systems can be incorporated with most accounting systems, which reduce the manual work of adding numbers to your bookkeeping records.
Understanding the Role of a Bookkeeper
Did you know the word bookkeeper has been around since 1555? It means that it’s a centuries-old job profile. The basic task of a bookkeeper is to recording the finances. Once upon a time, bookkeepers tracked and reconciled the financial records of people and businesses in ledgers. Before the advent of the machines, calculators and computer software became a norm, bookkeepers used to record manually. Talking about the job responsibilities of a bookkeeper, they record income and outflow of money and other financial assets. Their key responsibility is to precisely record and review all financial data. To do this job efficiently, they need to pay close attention to details and be very precise when organizing numerical data.
A bookkeeper is also supposed to be ethical and to maintain the confidentiality of the financial records. Most bookkeepers also manage financial data electronically, such as employee payroll. This requires them to be excelled at spreadsheets, databases and specialized computer tools. Bookkeepers are also required to write or generate financial reports. Some bookkeepers manage bank deposits, submit bills for accounts receivables, track purchases and prepare files for local and federal taxes.
Bookkeeping not only ensures an accurate record of all financial transactions, year-end statements and tax filing requirements, but it is also an important way to determine the health of your company. Bookkeeping lets you know how much money is coming in and how much money is going out. Therefore, it should be done precisely. It is better if you hire an experienced accountant for your company’s bookkeeping. Or you can outsource your bookkeeping.
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