If you’re new to small-business bookkeeping, you might be unsure where to start. What are bookkeeping and things you need to understand to create it? Here’s a guide for you to start.
Any successful business relies on accurate, up-to-date bookkeeping. Understanding bookkeeping best practices is critical for keeping your business functioning smoothly today and in the future, regardless of the type of business you run.
What is Bookkeeping and Why is It Important for Your Business?
Bookkeeping is the practice of recording every financial transaction made by a company. Each financial transaction is documented based on supporting paperwork, depending on the type of accounting system utilized by the organization.
A receipt, an invoice example, a purchase order, or some other sort of financial record proving the transaction took place could be included in such proof.
The purpose of having a good bookkeeping practice is to make sure that you have the numbers and data necessary to assist your accountant in making future predictions and diagnosing your company’s financial health.
These are some reasons good bookkeeping can help you in running a business:
1. Monitor Profitability
You can track your company’s profitability over time and prepare methods to improve it in the future by tracking its profitability.
It makes it simple to keep track of transactions and figure out how much money your company makes from inventory.
2. Improve Financial Management and Cash Flow
You should be aware of your company’s revenue streams as a bookkeeper or business owner.
You can tell how much money your firm is producing and manage your spending with proper bookkeeping to make sure you have enough cash on hand to cover your business expenses.
Financial records that are kept properly make it easier to assess your company’s financial health and identify if you’re new to small-business bookkeeping, you might be unsure where to start. What are bookkeeping and things you need to understand to create it? Here’s a guide for you to start.
3. Bookkeeping Assists in Tax Preparation for Your Business
If you’re starting a business, you can save time by keeping track of all transactions as they occur.
This eliminates the need to track critical financial data at the end of the fiscal period at the last minute. You can determine the sorts of taxes and compute the amount payable in advance with adequate bookkeeping.
4. Simplify Reporting Process
As a business owner, you will have to inform potential investors and other stakeholders about critical financial information about your company.
Bookkeeping that includes graphs, charts, and other visual aids makes it easier to improve data precision and communication.
You must also keep your staff informed about your company’s financial situation.
They want to know if the business is progressing and what role they play in it.
Bookkeeping accounting guarantees that you have the knowledge you need to communicate with your team and make them feel like they’re a part of the firm.
5. Evaluate Past Performance and Make Future Plans
Accurate bookkeeping aids in the tracking of your company’s financial records and the evaluation of its success.
You may go back in time and check for patterns, as well as make comparisons to previous business years.
Bookkeeping gives you a better grasp of where you might save money in your company.
To stay on top of your business, you may need to re-strategize and make improvements.
Correct bookkeeping also enables you to identify areas of your business that should be improved.
Simple Bookkeeping Procedures to Start in Your Business
To begin with, make sure you do proper documentation and organize the files.
There are some financial records that you will have to keep such as receipts, invoices, bank statements, etc.
Next, part of your job will be preparing financial reports such as balance sheets, income statements, and cash flow statements.
As a business owner, you’ll almost certainly be required to prepare a full financial report at least once a year for tax purposes.
However, there are numerous reasons to prepare financial statements on a quarterly or monthly basis.
Financial reports are an excellent method to keep track of your budget and see where you can make changes if necessary.
There are two bookkeeping methods – single-entry and double-entry. Choose the one that’s more suitable depending on the size of your business
Last but not least, you can take advantage of online accounting software such as Mekari Jurnal.
Jurnal can be used as an online bookkeeping software to help you track all the transactions and generate financial reports.
It makes your bookkeeping process simpler and more accurate. Get a more information about Mekari Jurnal pricing and 14 days free trial.
The Significance and Role of Bookkeeping in Business
Bookkeeping is an essential aspect of financial management for any business, regardless of its size or industry.
It involves the systematic recording and organization of financial transactions, ensuring that a company’s financial health and performance are accurately reflected in its records.
In this comprehensive guide, we will explore the primary purpose of bookkeeping, its significance in various business settings, and the responsibilities of bookkeepers in maintaining accurate financial records.
The Purpose of Bookkeeping
The primary purpose of bookkeeping is to maintain a comprehensive and precise record of all financial transactions conducted by a business.
This systematic and organized approach serves several crucial purposes:
1. Financial Transparency
Accurate bookkeeping provides transparency into a company’s financial activities.
It allows stakeholders, including business owners, investors, creditors, and regulators, to assess the financial health and performance of the business with confidence.
2. Compliance with Regulations
Bookkeeping ensures that a business complies with financial reporting requirements imposed by regulatory authorities.
This is especially important for publicly traded companies and those subject to industry-specific regulations.
3. Informed Decision-Making
Business decisions, whether related to investments, budgeting, or expansion, rely heavily on financial data.
Bookkeeping provides the foundation for informed decision-making by offering insights into revenue, expenses, and profitability.
4. Tax Preparation
Accurate bookkeeping simplifies the process of preparing and filing taxes.
It ensures that the business pays the correct amount of taxes and minimizes the risk of penalties or audits.
5. Business Growth
Maintaining organized financial records is crucial for securing loans or attracting investors.
Lenders and investors often request financial statements to assess a company’s creditworthiness and growth potential.
Choosing the Right Bookkeeping Method
Selecting the appropriate bookkeeping method is a critical decision for any business.
The chosen method should align with the company’s size, transaction volume, and financial complexity.
Here are two primary bookkeeping methods to consider:
1. Single-Entry Bookkeeping
Single-entry bookkeeping is a straightforward method suitable for small businesses with limited transactions.
It involves recording each financial transaction only once, typically in a cash register or simple ledger.
While this method may lack the precision of double-entry bookkeeping, it can suffice for businesses with uncomplicated financial operations.
2. Double-Entry Bookkeeping
Double-entry bookkeeping is the gold standard for most businesses, particularly those with higher transaction volumes and greater financial complexity.
It involves recording every transaction in at least two accounts: a debit and a credit.
This method ensures that assets equal liabilities and equity, providing a more accurate financial picture.
The Role of a Bookkeeper
A bookkeeper plays a pivotal role in an organization’s financial management.
Their responsibilities extend to various aspects of accounting and financial record-keeping. Here are some key functions of a bookkeeper:
1. Transaction Recording
Bookkeepers meticulously record all financial transactions, including sales, purchases, expenses, and income.
This involves documenting details such as dates, amounts, payees, and accounts affected.
2. Data Entry
Accurate data entry is fundamental to bookkeeping. Bookkeepers must ensure that all financial data is entered correctly into accounting software or ledgers.
Any errors can lead to financial discrepancies and misreporting.
3. Account Reconciliation
Bookkeepers reconcile accounts regularly to verify that the balances match between financial records and bank statements.
This process helps identify discrepancies, errors, or fraudulent activities.
4. Financial Reporting
Bookkeepers generate financial reports, such as income statements (profit and loss statements) and balance sheets.
These reports provide insights into a company’s financial performance and position.
5. Payroll Processing
For businesses with employees, bookkeepers often handle payroll processing.
This includes calculating wages, deducting taxes, and ensuring timely payments to employees.
6. Invoicing and Accounts Receivable
Bookkeepers manage invoicing and accounts receivable, ensuring that customers are billed accurately and payments are collected promptly.
7. Accounts Payable
They also oversee accounts payable, tracking and managing the company’s outstanding bills and ensuring they are paid on time.
8. Financial Analysis
While bookkeepers primarily focus on recording transactions, some may also perform financial analysis to help business owners and managers make informed decisions.
In conclusion, bookkeeping serves as the backbone of a business’s financial operations.
Its primary purpose is to maintain accurate and comprehensive records of financial transactions, providing transparency, compliance, and critical data for decision-making.
The choice of bookkeeping method should align with the company’s size and complexity, while a bookkeeper’s role encompasses various tasks related to financial record-keeping and reporting.
Whether you are a small business owner, a large corporation, or a freelance bookkeeper, understanding the significance of bookkeeping and its role in financial management is crucial.
It ensures that your business operates efficiently, complies with regulations, and has access to the financial data needed for growth and success.