Bookkeeping is one of the main processes of accounting within business. Vital for any company, no matter how big or small, it's important to understand the ins and outs of the concept.
We've taken a thorough look into exactly what bookkeeping involves, the different types of bookkeeping, the objectives of bookkeeping, and how it can help your business.
Simply put, bookkeeping is about the recording, storing and retrieving financial transactions for your company. It's as simple as keeping receipts of your business purchases, and recording them in a ledger or your chosen accounting software.
Frequent financial transactions involved in bookkeeping are:
Each of these tasks are vital for an effectively run business, as well as for ensuring that legal requirements are observed.
So, what do bookkeepers do? They're the people who record the day-to-day financial transactions of your business, writing what's known as a daybook, which contains details on any purchases, sales, receipts or payments. The daybook is essentially a financial diary. By keeping on top of things so regularly, it's simple to notice any discrepancies before they turn into a more significant problem.
Bookkeeping can also involve preparing source documents so that they can easily be evaluated or audited at a later date.
It's possible to use computer software such as QuickBooks or Sage as part of the bookkeeping process, but it's generally far better to use a qualified bookkeeper or online accountants to complete your financial reports. It saves you time and effort, as well as avoiding the risk of mistakes being made.
Both bookkeeping and accounting are very similar fields. Kind of like the difference between scaffolders and builders, they tackle different areas of the same issue. When a bookkeeper keeps track of the daily transactions, it's down to the accountant to create reports from that information.
While the bookkeeper brings the books to the trial balance stage, whereby you have a list of all general ledger accounts and details, the accountant prepares the income statement and balance sheet. The latter sounds the more complicated part of the process, but each role is just as vital for your business. It's also where the idea of 'balancing the books' comes about, as the bookkeeper needs to ensure that the books add up without any unusual gap in one's finances.
It's effectively a different branch of accounting and accountancy, so it neatly slots into that valuable role of keeping your finances understandable to anyone with basic financial knowledge.
To simplify it - bookkeeping is the process of recording the daily transactions chronologically, while the account is an information system that can lead to analysis and interpretation for your business. The information you communicate to your stakeholders or employees stems from the analysis of accountants, after the information is gleaned from bookkeepers. Accounting can't exist without the role of bookkeeping.
There are a few different types of bookkeeping within the field, so we've broken them down so they're simple to understand.
A single-entry system is best for businesses that have minimal or simplistic transactions. For instance, if your business is primarily freelancing a service so you don't have to worry about tracking stock. This system records cash sales and business expenses that are paid when incurred.
Using a system like this means that transactions don't match to corresponding accounts, which can make tracing revenues and expenses more difficult, but it's also far simpler overall. Your journal entries simply need to match up with your bank account transactions.
A double-entry system involves turning each transaction into a debit and credit. It's ideal for companies that collect income through accounts receivable, and receive merchandise or inventory on a credit-based system. Bookkeepers post a single transaction as an income or expense item, before creating a second entry which traces it to a corresponding account.
Such a system means there's a far more extensive paper trail, so it's simple to see what's going on and trace back any potential discrepancies. It's also the perfect system for reminding business owners why it's more convenient to hire a professional to undertake such processes.
It's important to keep your financial records in order. What does a bookkeeper do for a small business? Typically, they keep records of what goes in and out of your business, which is exactly what a small business needs to know. However, as your business grows, so do your bookkeeping and accounting needs. The prospect of tax, assets, loans and investments further complicates the matter.
It's possible to do your books yourself, but it makes sense to hire a professional instead. Doing it yourself takes up a significant amount of time that you could be investing in your business (or your personal life). And sometimes thing may go wrong, as bookkeeping probably isn't your forté. Or you could simply take far longer to do the job than a qualified bookkeeper.
Hiring a bookkeeper helps in many ways, such as:
It's important to have accurate details of your business's financial transactions. You don't want to be stressed out for nothing. That's why our services are likely to be better than trying to do it yourself. As experts in the field and paving the way for hassle-free accountancy for over 10 years, get in touch now for a quote and join the gang!