Bookkeeping is an important part of managing a business owner’s finances and ultimately promoting the growth and success of the business. Many questions arise if we are new to business, such as: What exactly is a bookkeeping Service? How does it work? What does one need to know about bookkeeping and accounting?
So, what does bookkeeping mean? In layman’s terms, it involves all of the processes essential to ensure that your business has an accurate record of its financial activity. Traditionally, it involved recording day-to-day transactions in a Journal or daybook, hence the term “bookkeeping”. Nowadays with the availability of applications such as MS Excel or any of the accounting software available in the market, the process of bookkeeping has progressed as well. So what are the general processes involved in bookkeeping? Read on to find out more.
1. Accounting Software to be used – One of the first tasks involved in bookkeeping is setting up your bookkeeping or accounting software.
This will include connecting various aspects of your business such as bank accounts, data entry of expenses and incomes, etc. This enables one to acquire a comprehensive understanding of the software to see whether any aspect can be automated so that the whole process of entering data would be seamless.
Pro tip – If you have hired an accountant and are setting up a system for the first time, you may also utilize this individual’s expertise to choose the best platform for your particular business.
2. Entry method to be followed – Now that we have chosen the software, our next step would be to choose the entry system, i.e. entry or double-entry accounting.
Single-entry accounting, as the name suggests, means we will record the transactions only once, as either an expense or income. This method is straightforward but is not usually followed by businesses.
Double-entry accounting, on the other hand, means that every transaction will be recorded twice so that our books get balanced. Each transaction will, therefore, have a debit account and a credit account.
Pro-tip – The entry system that you use is up to you; however, a Double entry system is what is preferred as the chances of errors are considerably lower.
3. The Accounting method for business – Now that we have established the entry system, the next would be to decide whether you’ll be using cash or accrual-based accounting.
Cash-based accounting means that transactions get recorded only when money changes hands, which means that we won’t be accounting for customers who owe us or vendors to whom we have to make payments.
With accrual-based accounting, on the other hand, you’ll account for invoices and bills even if money is not received for the same. Generally, accrual-based is the recommended accounting method, but just as with your entry method, the final decision as to which method suits your business, you can make a call.
Pro-tip – Accrual-based accounting is preferred as it shows the business owner the correct standing of his business and whether it’s profit-making or loss-making.
4. Recording Transactions in bookkeeping and accounting – After you’ve made these core decisions regarding your software, entry system, and accounting method, your business bookkeeping will mainly involve managing your transactions on a day-to-day basis.
This means ensuring that transactions are recorded properly and categorizing them as income, expenses, assets, or liabilities.
Pro-tip – We recommend recording transactions either daily or weekly so that by the end of the month, we have a fair idea as to how the business is running.
5. Accounts Receivable and Payable – In addition to the overall process of managing transactions, bookkeeping also tends to the important aspect of accounts receivable and accounts payable.
For accounts receivable, this would include preparing and sending invoices for services provided or goods sold, as the case may be, and providing regular statements to our debtors.
On the other hand, bookkeeping and accounting will also make sure that we don’t delay our payables. Therefore, your accounts payable will include making timely payments to your vendors or landlords, or banks, for any loans taken.
Pro-tip – We recommend a quarterly check on our receivables and payables. This will lead to lower problems in the future while finalizing the books of account.
Hence we can see how important Accounting And Bookkeeping Services are for a business. If the above steps are followed, our financial statements would be error-free to a large extent.
