Bookkeeping Basics: Why Are These Important In Every Business?

There are many small business owners who excel at creating impressive products and services, but may need extra help with basic bookkeeping. Business owners need to have a clear financial picture of what is going on with their business so cash flow problems are prevented. Do you already have an idea what your accounts receivable look like? Do you always have delayed bills payment? Although you have a bookkeeper to read financial reports, it is still your obligation to understand the figures so you can determine if your business is still on the right track. Keep in mind that your financial records provide you an idea of the health of your business. These records must be kept for six years.

The following must be recorded as they are the legal basics of bookkeeping:

•    Sale ledger confirming the receipts of cash and cash owed by debtor to the business;

•    Cash book or statement where money spent and received are entered;

•    Purchase ledger where business-related information is recorded;

•    Wage and salary ledger confirming all salary and National Insurance expenses;

•    Details of GST charges for businesses which are GST registered.

The Tools Required For Bookkeeping

Efficiency is required for bookkeeping endeavors to be successful. You become more involved in bookkeeping once your business becomes larger and more complex. While there are some strategies that may help you survive the concrete jungle of bookkeeping, unable to understand bookkeeping basics will render advanced techniques useless.

It is also imperative that you learn how bookkeeping works before you jump on to the more advanced approaches that will make day-to-day transactions a breeze. As they say, you have to walk before you run and the same is true with managing a small business. As you employ additional employees for your business, you need to make sure that everything is put in proper perspective.

Why bookkeeping must be taken seriously?

Do you know how some entrepreneurs end up losing their business? Poor financial management is a serious issue that needs to be taken seriously. Accounting fraud is a serious offense and should not be ignored. If you do not understand how the system works, your business will have difficulties moving forward. Bookkeeping may be a simple task that some small business owners often overlook, but it has a serious impact on your business.

When recording your expenses, your bookkeeper should have two journals, one for cash receipts and the other for cash disbursements. A business owner should also follow best practices for collecting payment. It is important for bookkeepers and business owners to track accounts receivable. This refers to the money due from customers. It needs to be kept up to date as this is also critical to your business.

The products you have in stock are also important and they need to be accounted for and tracked. Make sure the figures in your books are periodically tested through inventory. Aside from accounts receivable, you must also give importance to accounts payable. Timely payments are encouraged so your business can qualify for discounts. There are other aspects of your business that need attention such as purchases, payroll expenses, loans payable, owner’s equity and others.

Do You Need A Bookkeeper Or An Accountant?

Keeping meticulous records for the income and expenditure of your business requires a person who is considered an expert at number crunching. Every client has experienced vacillating between choosing an accountant and bookkeeper for their needs especially when there are requirements that need to be complied with. Even when you have already hired someone to assist you with your day-to-day transactions, it can be pretty hard to know exactly where to draw the line. While there are a number of options for you to choose from, the process of choosing is not that easy.

Accounting vs Bookkeeping

Bookkeeping has to do with daily financial transactions including sales, payments, receipts and purchases. A general ledger plays an important role in recording these items, but many small businesses also turn to bookkeeping software for keeping track of various transactions including entries, debits and credits. Bookkeeping involves generating data about the organisation’s activity.

Although bookkeepers do not analyse the financial transactions, they still play a vital role to ensure the business will run efficiently. For instance, recording receipts and payments ensure that correct amounts are paid and received in a timely manner. There are also prescribed procedures that bookkeepers need to follow. They need to see to it that transactions are recorded on a daily basis.

On the other hand, accounting turns data into information. The primary role of an accountant is to verify the data entered, and once data have been verified, they will be used for generating reports, performing audits, analysing the account and preparing financial records. An accountant also ensures that the financial information can be used for forecasts, opportunity for growth, business trends and many others.

The financial data are interpreted as a way of evaluating the business’ efficiency. The accountant will also be the one to decide if there is still a variety of areas and tasks that need work such as management accounting, financial accounting, auditing and financial services.

The key differences between accounting and bookkeeping:

• Financial statement is part of the accounting process, but not the bookkeeping process.

• The process cannot proceed to accounting without taking the first step, which is bookkeeping.

• Bookkeeping does not have the power to disclose correct financial position as it is an accounting job. Accountants help clients see the true and fair view of the business’ financial status and profitability.

• Bookkeeping involves keeping proper records of financial transactions while accounting measures, evaluates, groups, summarises and records transactions.

Bookkeeping and accounting work hand in hand. One cannot function without the other, hence both can be considered inseparable. Bookkeeping is the base for accounting and an important part of the entire process. Every business owner needs both an accountant and bookkeeper to keep the business on its feet.