Accounting industries are changing the traditional way of working to expedite their work. To get everything well catalogued for your business, it’s not possible for you to ignore the importance of bookkeeping.
The task of bookkeeper is to maintain all the financial data to avoid accounting errors and keep your business running smoothly. In this article, we're going to look at six reasons why all businesses need to have their books kept organised. First, we will understand what is bookkeeping.
What is bookkeeping?
Bookkeeping is an essential business function. It is the process of recording, on a day-to-day basis, financial transactions, and information about a business. Bookkeeping is crucial for two main reasons: it helps to understand what has been happening in the Business. It also helps to create reports such as balance sheets, income statements, and others required by law.
The book of account consists of purchases, sales revenue, loans, wages, payroll, etc. More importantly, there is a set structure known as "quality control" that ensures timely and accurate records. Accuracy is vital - without it, the company will not record the correct amounts paid out in payroll or receivable funds properly recorded in the accounts.
Bookkeepers are responsible for maintaining complete records of the company's financial transactions and related activities. They also ensure those records are accurate, up-to-date, and comprehensive. Also, ensuring the business meets its tax obligations and respect banking regulations.
Your accounting method is a big decision and can significantly impact the available resources and the profits your business makes. Before you begin bookkeeping, consider the volume of daily transactions for your business and how much revenue you earn. If you are a small business, the chances are that a complex bookkeeping method will not suffice. Conversely, less robust methods may overkill large corporations.
Let's take a closer look at these and find out which method best suits your business.
- Single-entry bookkeeping
Single-entry accounting is the most popular method of bookkeeping. In this system, single entry is made for each transaction in the books and these transactions are usually maintained in a cash book to track incoming revenue and outgoing expenses. It can be a simple register or journal, mainly if you make a few transactions frequently. The single-entry system is ideal for small private companies and sole proprietorships that do not buy or sell on credit and own little to no physical assets.
- Double-entry bookkeeping
Double entry bookkeeping involves recording both debits and credits in two separate accounts. Double-entry bookkeeping is more robust than single-entry bookkeeping because it follows the principle that every transaction affects at least two accounts. Accordingly, if you buy something from a vendor, your cash account will be debited for the purchase price of $10 and will credit the sales account for $10. The double-entry system always balances equal to zero—when this happens, your books are said to be balanced.
The double-entry bookkeeping method makes sense for businesses that buy and sell on credit. A business will record transactions in this manner so they can easily track whether they have paid their debts or have received money from customers. Also, the system leaves less room for error because each transaction will record as two matching but offsetting accounts.
- Cash-based or accrual-based
Cash-based means that you recognize revenue when you receive cash into your business. Purchases or sales made on credit will not go into your books until the cash exchanges hands between your company and the customer (or vendor). Anytime cash enters or exits your accounts, you will recognize them in the books. Expenses are reported when they are paid for by cash.
The accrual method of accounting is the most popular method businesses use it. In this type of accounting, revenue accrues when services, products, or items are received. Similarly, expenses are recorded when services, products, or items are incurred along with corresponding revenues.
These two accounts can work in both the single-entry and double-entry methods. However, the single-entry process is the foundation for cash-based bookkeeping. In comparison, accrual-based accounting works better with a double-entry system.
Bookkeeping is the practice of keeping accurate financial records and accurately reporting your company's financial activities. It helps you budget for your business, prepare for tax returns, keep your business organised, and so much more. You shouldn't avoid it if you want to keep your finances in check and make sure HMRC doesn't come and cause you even more problems. Here are five reasons why bookkeeping is essential for your business.
How it is Important for your Business
Bookkeeping is the practice of keeping accurate financial records and accurately reporting your company's financial activities. It helps you budget for your business, prepare for tax returns, keep your business organised, and so much more. You shouldn't avoid it if you want to keep your finances in check and make sure HMRC doesn't come and cause you even more problems. Here are five reasons why bookkeeping is essential for your business.
- Helps You Budget Accurately
Bookkeeping is vital to any business because it makes it much easier to budget and plan for your Business. By taking care of your books with accurate accounting and management, you'll be able to review your financial resources and costs so that you know where you stand, who benefits from your earnings, and what you need in terms of investment capital.
A budget is a financial roadmap or a key tool for your business. You can use it as a long-term checklist that identifies the primary areas you want to focus on when growing your business and gives you the tools to execute. Making a budget will help with growth in the very long term because it helps with future planning, saving you time and money.
- Keeps You Prepared for Tax
Although taxes are scary, they're also important. The self-employed will be happy to know that filing taxes at the end of the tax year can be much easier with a bookkeeping process. With a few adjustments here and there, you'll have all the financial information for tax season, and the taxman won't be breathing down your neck.
Bookkeeping allows you to track debts and incomes accurately to predict the outcome of HMRC's financial information requests.
- Maintains Organised Records
Bookkeeping is a vital part of running a business; complete financial records are necessary for any business. That last-minute stress of trying to find a crucial piece of business can lead to missed deadlines and some minor errors. If a mistake does creep in, it can cost your bottom line and reputation. Businesses of any size can't afford to make any mistakes and bookkeeping regularly can help with that.
Keeping your records organized will be helpful and make it easier to find the bits of information you desperately need in no time.
- Easier to See Business Targets
An accurate financial management system is essential for any growing business. But poor records will not let you happen this. Without a proper number of data, it's not easy to set goals.
- Gives you extra peace of mind
As a business owner, you must ensure that your books of account are up to date and accurate. Unorganised books, HMRC giving problems, and losing tax deadlines all contribute to stress. It releases you from stress, and you can focus on other work too.
Reporting
Bookkeeping is a crucial process of accounting. You have to report to investors about their information, like the company's financial situation. Moreover, bookkeeping makes you impress them so that they might be interested in investing even more, who knows!