Here, you will get to actually understand what is bookkeeping in accounting. What bookkeeping means is the recording of financial transactions, and is part of the process of accounting in business. Similarly, bookkeeping definition is the activity of keeping records of the financial activities of a business.
Following this, since bookkeeping is recording while accounting is the reporting, taking the ledgers and transforming them into meaningful business information, in other words, bookkeeping has to follow accounting standards.
Bookkeeping follows two accounting principles, the first one is that every debit entry must have a corresponding credit entry and the second is that accounts must balance. In fact, with adequate bookkeeping, companies will be able to track all information on its records to make effective decisions on funding, investment, and operation this can equally be bookkeeping meaning.
There are two major methods or types of bookkeeping; they are single-entry bookkeeping and double-entry bookkeeping systems.
Bookkeeping software is another bookkeeping method that small business owners are adopting to check their financial activities because of little or no knowledge in double entry bookkeeping so they use software programs like Peach tree now Sage and QuickBooks. Such software programs can be purchased online, its user friendly with information’s on how to post your transactions. You can learn bookkeeping at least bookkeeping basics so you can know the basic from bookkeeping online class.
Virtual Bookkeeping: If the simple bookkeeping which are single-entry bookkeeping and double-entry bookkeeping methods are complex for you or you among the school of thought that says is bookkeeping hard and don’t know how to do bookkeeping, then the virtual bookkeeping is best for you. It is another bookkeeping method for your bookkeeping services so if you use a virtual bookkeeper that means you are outsourcing your in house bookkeeper and bookkeeping services which will be done electronically such documents are sale invoices, payroll ledger, and receipts and emails you a copy of your report. Virtual bookkeepers are typically freelance accountants who charge lower fees than what expenses from setting up an in-house team. This is part of a successful small business that one can start to earn huge profits.
Most people always ask what do bookkeepers do. Bookkeeping job is done by a bookkeeper, the bookkeeper are individuals who manage all financial data for companies and records daily or day to day financial transaction of a business. Bookkeepers are very important in every business whether small, micro, medium or large organisation, they keep up to date with the company financial position and financial transaction.
Good bookkeeping is very important for internal or external users like investors for funding, financial institutions for lending and government for tax purposes. There are types of bookkeeping accounts or bookkeeping examples for a small business such as cash, retained earnings, owner’s equity, purchases, inventory, sales, payroll expenses, account receivable, loan payable.
Are bookkeeping and accounting the same?
The bookkeeper usually writes the daybook that involves sales, purchases, receipts, and payments records of each financial transaction. The difference between bookkeeper and accountant is that an accountant prepares financial reports from the information recorded by the bookkeeper.
Additionally, Accounting is the procedure where company’s financials are prepared, summarized, analysed and reported for interested parties. Bookkeeping is the actually recording part of financial accounting, in which all of the financial transactions of the business are entered into a database that is preparing ground work for accountant.
Again, the bookkeeper brings the books to the trial balance level: an accountant prepares the income statement and balance sheet using the trial balance and ledgers (general ledger) prepared by the bookkeeper.
Why bookkeeping is important?
Proper bookkeeping gives companies a reliable measure of their performance. It also provides information on 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.
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. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent.
Most business find it difficult with their numbers then ask some necessary questions like: what does bookkeeping do? How does bookkeeping work? What does bookkeeping means? and Why is bookkeeping important for a business? The following information answers all the why, how and what questions above.
Importance of Bookkeeping is limitless; bookkeeping provides all accurate information regarding your business, which allows you to make effective decisions for growth. It also helps companies to produce financial statement for external users which will clearly show the business performance from the financial data collected.
Bookkeeping helps to present past financial performance of your company and helps to plan for the future growth while the information gathered to determine the company positioning. Bookkeeping is important for a small business so as to stay in control of business finances through managing cash flow of the business at a given position.
Why Bookkeeping Is Important for business?
Bookkeeping is important for helping you maintain accurate financial records outside the law requirement to keep accurate books and records. How do you know the true financial position or financial transactions and your business growth or failure and the right strategy to apply without accounting or bookkeeping.
Here are 14 reasons why bookkeeping is important:
Bookkeeping makes filing a tax return easier for your business. With a proper organization of records on your earnings, you won’t have to worry about scrambling for receipts and invoices because all your records are properly documented and together.
Every existing organisation has to file a tax return every year whether you are profitable as well as the owner of the business for personal tax seems it comes from the business, so the process will be seamless due to bookkeeping system.
• Business overview
Bookkeeping at a stance provides an overview of your business through financial information in the financial statements that is cash flow, balance sheet and income statement for a set period of time.
Bookkeeping helps to present financial performance of your company and helps to plan for the future addressing the grey areas. It equally benefits organisations in setting their strategic plan to attain strategic goals.
Every organisation should be organised and bookkeeping makes it easily accessible because bookkeeping means the organization of financial information for interested parties even for auditing purposes and accountants even attorney in some cases.
The law requires that you keep all financial records of your business to avoid fines and penalties.
• Decision making
The decision making will be based on accurate financial information made available by the bookkeeper through the booking method. The decision making can be on anything that will grow the business.
• Business analysis
The essence of bookkeeping is produce financial statements. The financial statements generated will be used for analysis. And such analysis will involve cash flow in order to ascertain the business performance and credit period and limit to customers using cash flow budget.
• Attracting investors
Investors will like to look for interesting items which can be found in the organised record called financial statement prepared by the book keeper. Therefore, it is a very vital document that investors always rely on for investment.
• For budgeting
A budget creates a financial plan for your business. With a budget, it is easier to organize your future income to cover actual and anticipated expenses properly. Try using a cash flow budget for saving money; it will equally help to avoid cash shortage at a period in which a company experiences a high number of expenses.
Budgets are important for business; they are the financial guidelines to success. With bookkeeping process in place, you can be able to assess your financial resources and manage income over expenses.
• Strategic position
Simple bookkeeping is very important for strategic management; organisation will concentrate on their core strength and improve on the weak areas.
• Cash Flow
Bookkeeping provides information regarding your invoices which can be used for better cash flow policies.
• Financial management
It focus on transactions that have already taken place and ensuring that they are correct and considering ways to better them in the future using bookkeeping documentation.
Bookkeeping aids for audit services by the internal revenue which makes the process clear and easier.
• Higher profit and growth
Profit is a key metric for any business. Bookkeeping will allow you to track profit from one month to the next, and also help you better understand your business cycles.
You now know why bookkeeping is important. It can save you money, time, stress-free and avoid failure. If you need to implement a bookkeeping process, consider hiring a bookkeeping professional to help because the importance of bookkeeping cannot be ignored as noted above. Good and adequate proper bookkeeping and accounting is the difference from a successful business to a failed business.