Understanding the Importance of Bookkeeping
To run a business successfully bookkeeping is a necessary evil same as accounting. It is an act of collecting records of revenues and expenses transactions and then posting them to a general ledger. Whether the business is small or large it is a critical process which if neglected can hurt the firm. Companies without proper financial management, weak account records or no books on hand tend to fail.
To have successful accounting records, one must establish the type of system to use. These will ensure there are consistency and no loss of valuable data that can cause misrepresentation of the business financial health. These errors are avoided by establishing a consistent system for recording and entering transactions in journals and ledgers.
In earlier years businesses used to employ staff who would carry out the exercise, but with the onset of the digital era, it’s not necessary. Many organizations are opting to use virtual bookkeeping method where a bookkeeper accepts expense receipts, sales invoices, and payroll ledgers electronically. After the bookkeeper posts the transactions to appropriate ledgers and journals he emails back the report to the clients. Virtual bookkeeping is cost effective compared to hiring a full-time employee or a private CPA firm.
Depending on the type of method the business owner decides to use its need cannot be emphasized enough. Here are some reasons why it’s vital to the life and health of your business.
Better management and financial analysis
One of the most valuable things to focus on a business is cash flow management. Being busy or not without proper follow –ups on customer payments, delay in paying invoices which may lead to supplier’s fallout business might crash. It helps in systemizing everything from current customers’ follow-ups, invoicing and on-time payments for creditors.
Fulfilling Tax Obligations
With proper records, a track of information and documents that are necessary for accomplishing annual taxes is kept. These eliminate the rush to find bills and trying to remember expenses when tax times come. With a proper record, the tax advisor can give sound advice rather than correcting entries in the financial statements.
Easy business planning
To check whether the firm is on the right financial track all you need is Balance Sheet and Profit & Loss. With proper information planning for your business is much easy.
Report to investors and lenders
Before raising capital for expansion of the business lenders and investors want to see accurate and complete books for the business. Thus it’s good to invest time and money in record keeping avoiding inconvenience when you want to get a loan or invite investors into your business.
Areas that cover bookkeeping
Maintenance of the book of account
Identifying events and transactions to be recorded
Quantifying them regarding money
Recording in the books of primary entry
Posting into ledger
Preparation of Trial Balance
One thing should be in mind only those business activities that are expressed in money value should be recorded. The exercise might be done either end of month or end fiscal year depending on how long one is keeping books.