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Bookkeeping may not be your favorite business activity. But you cannot ignore its importance. It’s almost impossible to run a successful business without bookkeeping and accounting.
Imagine running your business without knowing where and how much you are spending or without knowing where the money is coming from. Similarly, not knowing how much you owe others and vice versa.
Without a proper overview of your finances, your business will soon set itself on the path of failure rather than success and growth.
As a result, basic bookkeeping is a necessity rather than a choice if you want your business to grow.
Bookkeeping is recording, classifying, and systematically summarizing financial transactions to maintain a complete and accurate record of a company’s financial activities.
It involves recording a business’s financial transactions systematically, including sales, purchases, receipts, and payments, into a journal or ledger to produce financial statements and other reports.
Bookkeeping | Accounting |
Recording of financial transactions | Analysis and interpretation of financial transactions |
Focus on data entry and record-keeping | Focus on financial reporting and analysis |
Transactions are recorded in chronological order | Transactions are analyzed and classified into relevant categories |
Emphasis on accuracy and completeness of financial records | Emphasis on providing insights into a company’s financial performance and position |
Includes tasks such as journalizing, posting to ledgers, and producing financial statements | Includes tasks such as preparing balance sheets, income statements, and cash flow statements |
Help to ensure compliance with laws and regulations | Helps to inform business decisions and support informed financial planning |
Single-entry accounting is a simple method of recording financial transactions that involve keeping track of only one aspect of each transaction, either as a debit or a credit. It is a less systematic and less accurate method of recording financial transactions. And small businesses and individuals typically use it.
On the other hand, double-entry accounting is a more systematic and accurate method of recording financial transactions. It is based on the principle that every financial transaction affects at least two accounts.
It involves recording both sides of each transaction as a debit in one account and a credit in another. Consequently, this method provides a more complete and accurate picture of a company’s financial position, and businesses of all sizes widely use it.
Cash and accrual accounting are ways of recording financial transactions and recognizing revenue and expenses.
Cash accounting is a method of accounting that records financial transactions only when cash is received or disbursed. It is a simple method that focuses on the inflow and outflow of cash and does not consider the timing of a transaction.
Accrual accounting, on the other hand, is a method of accounting that records financial transactions when they occur, regardless of when payment is received or made. As a result, it is a more sophisticated method that considers the timing of transactions and provides a better picture of a company’s financial position and performance.
Once you have made a choice between single-entry or double-entry accounting and cash or accrual accounting, do the following:
Assets are resources that a company owns. Furthermore, they have a monetary value. For instance, cash, investments, property, equipment, and inventory.
Liabilities are obligations or debts that a company owes to others. For instance, loans, bonds, accounts payable, and taxes owed.
Equity is the financial stake in a company that you, as the owner, or your investors and partners hold. For instance, stockholders’ equity and retained earnings.
As new financial transactions come in, you must review them, authorize them, and then record them. As a result, for this, many owners of small businesses set a specific day of the week for handling payables and customer payments.
Start by comparing the transactions recorded in your bookkeeping system with those listed on your bank statement. Simultaneously, check for discrepancies or missing transactions. If you find any, then make any necessary adjustments to your bookkeeping records.
Also, look for any checks that have been written but still need to clear your bank account. If you find any, then include these transactions in your reconciliation.
You need a precise picture of your company’s status to understand how it’s doing. And that is precisely what financial statements do.
In general, you should generate three key financial statements. These are as follows:
Basic bookkeeping for a small business plays a pivotal role. The following are a few reasons you should invest in small business bookkeeping:
Bookkeeping helps ensure that a company complies with tax laws and regulations by keeping accurate records of financial transactions. And this, in turn, helps in preparing tax returns and other financial reports.
Bookkeeping provides up-to-date financial information, which is critical for informed decision-making and effective financial planning.
By regularly recording financial transactions, a business can keep track of its cash inflows and outflows. Consequently, this helps to ensure that there is enough cash available to meet its obligations.
Bookkeeping provides a clear and comprehensive record of a company’s financial activities. Consequently, this helps to increase transparency and accountability.
By regularly tracking financial data, a business can identify areas for improvement and make necessary changes to enhance its financial performance.
Accurate and up-to-date bookkeeping records are often required by banks and other financial institutions when applying for loans or other forms of credit.
Bookkeeping records are essential for auditors to perform a financial audit, helping to ensure that a company’s financial statements accurately reflect its financial position.
Bookkeeping provides up-to-date information about a company’s financial performance and position. And this is essential for the following activities:
You can use bookkeeping softwares like Zoho books, Xero, QuickBooks, Tally and more to make this process easier. Or you could always let bookkeeping services experts like GJM & Co. do the job for you.
Our experts at GJM will handle all your bookkeeping needs and take care of other business requirements such as income tax return filing, creating a profit and loss account, payroll management, and more.
Should you have any queries or need consultation, Schedule a Call today or write to us at info@gjmco.in.