Bookkeeping: A Definitive Guide
Today, businesses are increasingly turning to bookkeep services to help them manage their finances. Bookkeepers can be an invaluable asset for any business, and the demand for accounting and bookkeeping services will only grow as more businesses turn towards automation.
You may find bookkeeping as numbers or just a book of accounts. However, it is both an art and a science. It is an art that requires creativity, judgment, skills, and science because it is a body of knowledge.
What is Bookkeeping?
Technically, bookkeeping is the process of recording financial transactions from a company's various accounts and summarizing them to generate financial statements and reports. It is one of the most fundamental aspects of running a business. It helps to keep track of all the money that is coming in and going out. It also helps to identify any discrepancies in the accounts and ensure they are corrected.
Types of Bookkeeping
The bookkeeping methods are also called accounting methods. These are used to record, classify, and summarize business transactions. These transactions include purchases, and sales of goods and services, incurring and paying off liabilities with assets, and so on.
With this in mind, let us break these methods down so you can find the right one for your business.
Single-entry bookkeeping is a method in which only one entry exists for each transaction. It is straightforward because it only requires you to record your transactions in one column called cash.
It is the simplest and most primitive form of bookkeeping. It was used extensively during the Renaissance era when it developed. This method does not require any balancing entry at the end of each period; however, it is less accurate than other systems because in this system, finding errors can be challenging.
Double-entry bookkeeping is stronger than other accounting systems. The system is a present-day system that most of the bookkeeping services near me use. In the double-entry system, the total credits are always equal to the total debits.
This system is mostly used by large and public organizations that buy and sell on credit. Double-entry bookkeeping provides a more reliable method of accounting as the chances of errors are less as each transaction is recorded as two matching but offsetting accounts.
Cash-based or Accrual-based Bookkeeping
Cash-based bookkeeping is a system of accounting that records cash receipts and payments in the books of account. It is a form of accounting where all the transactions are in cash and do not use accruals to account for money owed or received.
This type of bookkeeping is the most common as it is easy to understand and implement. But the only drawback is that it does not provide a complete picture of an organization's financial position.
How Can Bookkeeping Help Small Businesses?
Now that you know what bookkeeping and its types are, the next thing you must be aware of is the importance of recording transactions for small businesses.
Bookkeeping is essential for any business as it helps to prepare a budget for any business or organization. Having expenses and income in place, reviewing the financial resources and costs of a company can become easy. Because when it comes time to budget, you need to have an accurate understanding of how your business performed in the past. And having an overall picture of the financial health of a business, you can easily make decisions on planning for future expenses.
The need to file taxes when you own a business can be inevitable, and to file your taxes, your accounting records can be of great help. Rather than referring to invoices, receipts, and other business documents, having a detailed record of all your business transactions can help your accountant file taxes. Also, this procedure will help you find opportunities for tax write-offs.
Making informed decisions for a business can be challenging at times. And simple bookkeeping for any business can help make significant business decisions as it gathers all that information in one easy-to-read system. Some essential business decisions that you can make are;
- Apply for loans
- Hire employees
- Business structure
And the list goes on. By having accounting in place, the business owners and the accountants can make clever decisions through the huge data presented in the books of accounts.
Every business needs funding that helps them succeed, especially if the business is a start-up or a small-scale business. The funds can be of various types, such as owner equity, grants, business loans, and investors. For investors, it is crucial to identify the financial position of a business before investing a single penny in any company. To do so, a business can present its accounting records before the investors to provide accurate and updated information about its business financials.
Keeps you Audit-Ready
As a business owner, you must always keep your business audit ready. You do not know when you will be on the radar of external audit teams. Thus, having accurate and clean books of accounts is always a great idea to avoid any penalties levied by these organizations.
Bookkeeping is the process of recording and maintaining the financial records of a business. It is a primary function of any organization that needs to know the amount of money earned, where it came from, and how the business is spending it. And if you want to learn more about bookkeeping or implement a system that will keep your company's finances in order, contact the best accounting services near you Today! We would be happy to discuss the kind of service that is right for your company.