The Ultimate Guide To Bookkeeping

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What is Bookkeeping?

Bookkeeping involves the recording, on a daily basis, of a company’s financial transactions. With proper bookkeeping, companies are able to track all information on its books to make key operating, investing, and financing decisions.

Bookkeepers are individuals who manage all financial data for companies. Without bookkeepers, companies would not be aware of their current financial position, as well as the transactions that occur within the company.

Accurate bookkeeping is also crucial to external users, which includes investors, financial institutions, or the government – people or organizations that need access to reliable information to make better investments or lending decisions. Simply put, the entire economy relies on accurate and reliable bookkeeping for both internal and external users.

Importance of Bookkeeping

Proper bookkeeping gives companies a reliable measure of their performance. It also provides information on general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical.

Many small companies don’t actually hire full-time accountants to work for them because of the cost. Instead, small companies generally hire a bookkeeper or outsource the job to a professional firm. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent.

Tracking the financial activities of a business is the truest purpose of bookkeeping, meaning it allows you to keep an up-to-date record of the current incoming and outgoing amounts, amounts owed by customers and by the business, and more.

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Single-entry vs. Double-entry Book keeping

When you’re first setting up your books, you’ll have to decide whether you want to use single-entry or double-entry accounting. This is a question that’s often intimidating for small business owners—especially those who may not have a ton of bookkeeping experience—looking to manage the books themselves.

What Is Bookkeeping: Types

There are two main types of bookkeeping:

Single Entry

This is a simple and easy bookkeeping solution for very small, start-up businesses or sole traders using printed papers or Excel type spreadsheets.

Single-entry bookkeeping involves tracking all business transactions (i.e. payroll, expenses, revenue) in one ledger. This is how most small businesses, especially freelancers, start, as it’s very easy to do.

The minimum requirement that a business must have is a cash book (which reflects the bank account activities of receipts and payments) and many small businesses can stick with just a cashbook to do their bookkeeping.

The most basic of bookkeeping records should enable people to see all the income earned and all the expenses paid resulting in a difference (income minus expenses) for a period of time like one month or the whole year.

This type of basic bookkeeping is acceptable for sole proprietors to handle.

Cash books are typically only for the cash basis of accounting.

Double Entry

Double-entry bookkeeping tracks every transaction as two entries, entering the amounts as “debits” and “credits,” which describes if funds are transferred to or from an account. This helps you see where your finances are coming from, as well as where they’re going. While double-entry accounting is more work, it provides a much more comprehensive view of your business’ financials. A more complicated bookkeeping system found within developed software like QuickBooks or Xero which includes cash books, accounts payable and receivable, tracking of loans, inventory, payroll, journal entries, ledgers and trial balances.

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Reports from these systems can be for either the cash basis of accounting or the accrual basis of accounting.

What’s the difference between an accountant and a bookkeeper?

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It’s common to confuse the role of a bookkeeper and that of an accountant. They both, after all, offer critical support for the financial health of a business and share similar goals. While both play essential roles, they focus on different details and processes.

Bookkeepers are responsible for the initial stages in the financial cycle, involving record-keeping, whereas accountants play a more subjective and analytical role, providing insights on the information compiled during bookkeeping.

Bookkeepers, for instance, deal with consistently recording daily transactions and organizing financial information. Accountants, on the other hand, use this information to easily discern a company’s financial standing. 

Author: GANESH NAYAK

 Ganesh is an Entrepreneur and a Successful Stock Market investor. Ganesh help finance professionals and Fin-tech startups to build an audience and get more paying clients online. Ganesh is  available for Sales,Marketing,Finance , as well as private consultations.

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Zoe Campos
1 month ago

Thanks for telling me that doing bookkeeping properly can serve as a measure of a company’s reliable performance. One of my friends is thinking of starting his own cleaning company but I’m not sure if he’s capable enough to handle financial paperwork. It might be better for him and his potential company if he would hire an expert in bookkeeping services who can assist him.

rachel frampton
1 month ago

I agree with you that businesses must be able to keep track of their service’s financial activities because this will help them determine if their company is making enough revenue. I agree with you that this will also help the owners decided what unnecessary expenses must be cut down. Well, if ever I’ll be given the chance to run my own company someday, I’ll make sure to hire a bookkeeper instead.

Taylor Hansen
1 month ago

I found it beneficial when you said that bookkeeping can help a business measure its reliable performance. My best friend is wanting to start a specialized jewelry company and he’s worried about handling the financials. It might be good for him to hire a bookkeeper so he can hit the ground running and not be drowning in debt.

Melton
1 month ago

Proper bookkeeping gives companies a reliable measure of their performance. It also provides information on general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical
Thanks

Small Business Accountant Auckland
12 days ago

Hello, thank you for sharing this article it will be really helpful for me to understand about bookkeeping what is bookkeeping how it works. I appreciate your step for choosing this topic. Great article!! You have done a good research I must say, thank you very much for sharing this article.

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