No matter you are a freelancer, small business or a large enterprise, there is a common thing among all. They all receive and spend money. That’s what we all do. So bookkeeping is the process of recording these transactions. Simple as that, isn’t it? Whether you like it or not, it is essential for all as everyone needs to keep track of their income and expenses. Not doing it may cause a lot of setbacks and pitfalls while working out finances. Let’s see what is bookkeeping and why it is important for your business.
What is Bookkeeping?
Bookkeeping is a regular process of recording, classifying and organising the financial transaction from the start till the end of a business. It is a sub-field of accounting that does not deal with taxes, auditing and other types of accounting. It helps individuals and companies to know what money is coming in and what is going out of business.
One of the important components of bookkeeping is managing the general ledger (the main document to record everything). All the expenses, records and receipts are recorded here. This process is also called posting. This information further helps accountants to perform accounting and financial tasks.
It is performed by a bookkeeper based on the supporting documentation (like invoices, receipt, purchase order, etc). A bookkeeper tracks money that comes in and goes out of a business and keeps accurate financial records and performs the following duties:
- Data Entry
- Bank Reconciliation
- Monthly reports
- Accounts receivable and payable
However, some of the advanced duties of a bookkeeper may be to do:
- Tax filings
- End of year reporting
- Business process and strategy
- Meeting accountants and others on clients’ behalf
Types of Bookkeeping
There are two basic types of it:
- Single-Entry: Here, each transaction is recorded with a single entry in the log or general. It is a preferred way for small businesses.
- Double-Entry: In this type of bookkeeping where each financial transaction is recorded with two corresponding entries (debit and credit). Large companies use double-entry bookkeeping.
Let’s see why bookkeeping is important for your business.
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Importance of Bookkeeping
Your business can sustain itself for long without knowing the ins and outs of its finances. As you have to pay taxes and other liabilities to the government and others. For which you need to know how much you need to pay. To work it out, you need to do bookkeeping. You also need to keep proper records to file your tax return accurately and on time.
Bookkeeping plays a great role in expanding your business by showing your profitability to others. It helps external users to get substantial information about the financial performance of a business. External users can be investors, financial bodies or the government, or any organisation which is going for investment or lending.
It is useful for making financial and management decisions. You can better access your income and revenue goals by bookkeeping. Through it, you can maintain your cash flow and your accountant can effectively work out taxes, and other accounting tasks for managing your finances effectively.
Quick Sum Up
So, you have now got a better understanding of what is bookkeeping and why it is important for your business. Bookkeeping is the sub-field of accounting. It is a process of recording financial transactions like sales, receipts and payments. Additionally, it provides the required information for accountants to prepare accounts. To summarise, it is a way to keep track of your income and expenses to know the financial performance of your business. So, it is important for your business growth too.
If you are earning a large amount as a self-employed, you may find it difficult to keep track of your finances. So, contact our qualified bookkeepers and accountants to take the financial burden off your shoulders so that you can focus on growing your business!
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Disclaimer: This blog provides general information on bookkeeping.