No matter what the industry of your company is, what its size is, or how much its income every month is, every company should have a proper bookkeeping process that is being maintained. Bookkeeping is a crucial part of accounting as it focuses on recording the day-to-day financial transactions of the business. By having thorough bookkeeping, companies can track all information on their books to make key operating, investing, and financing decisions.
How well the bookkeeping process is being managed, will determine the accuracy of the overall accounting process in the company. This is why ensuring that your company bookkeeping process is being properly maintained and able to record all financial transactions in an up-to-date and accurate way is a must!
What is Bookkeeping?
Bookkeeping is the meticulous process of recording, organizing, and maintaining financial transactions, serving as the foundation for effective financial decision-making. Bookkeeping is often confused with accounting, while in actuality it is not entirely the same.
Bookkeeping is the basis of accounting. Meanwhile, accounting itself is a broader part of the financial sector. The main differences between these two lie in their scope and functions. Bookkeeping involves the systematic recording of financial transactions, focusing on day-to-day data entry. In contrast, accounting encompasses a broader scope, analyzing, interpreting, and summarizing the financial information recorded by bookkeepers to make informed business decisions.
Do keep in mind that every business entity relies on accurate and reliable bookkeeping for both internal and external users. Up-to-date bookkeeping records will help to generate accurate financial records, which will be useful for tax reporting and financial management.
What is the Importance of Bookkeeping?
Proper bookkeeping helps companies understand how well they're doing. It offers details of business performance, which can help you to make general strategic decisions and set targets for revenue and profits.
Many small businesses often avoid hiring full-time accountants due to expenses. They underestimate the significance of meticulous record-keeping, while it is really important for your business's well-being. Below are some of the ultimate reasons why bookkeeping is really important for your company.
- Financial Accuracy: Accurate bookkeeping is essential for maintaining precise financial records.
- Business Analysis: Proper bookkeeping gives companies a reliable measure of their performance.
- Compliance and Taxation: Bookkeeping is vital for meeting regulatory requirements and tax obligations. Properly maintained records streamline tax preparation and ensure compliance with legal standards.
What are the Types of Bookkeeping?
- Single-entry vs Double-entry
The single-entry method involves recording one entry for each transaction. It's a basic system used to note daily receipts or generate regular cash flow reports. Single-entry bookkeeping records are typically used in small businesses.
On the other hand, the double-entry system records transactions in two entries for each financial transaction. This system ensures accuracy by recording both debit and credit entries and creating checks and balances. Unlike the single-entry method, double-entry bookkeeping isn't cash-focused. It records transactions when debts arise or revenue is earned - providing increased accuracy and clearer financial insights.
- Cash-based vs Accrual Based
To establish effective bookkeeping, companies must initially select an accounting basis. They have two options, the cash basis or the accrual basis. The difference between these two is based on when the company records a sale (money inflow) or purchase (money outflow) based on timing.
The cash-based system will only record financial transactions when payment is made or received, while the accrual basis method records income in the accounting period in which it is earned and records expenses in the period incurred.
What are the Tasks Included in Bookkeeping?
Bookkeepers are the people who record the bookkeeping process. Some companies might have their full-time bookkeeper, but due to cost-efficiency, some also hire external bookkeeper services - such as what our professional team at WealthBridge offers.
The bookkeeper meticulously records various financial transactions, including sales, purchases, payments, and receipts, ensuring every financial activity is accurately documented. Some of the tasks included in the bookkeeping process are:
- Maintaining separate ledgers for accounts payable, accounts receivable, and the general ledger ensures organized financial records, aiding in tracking transactions and balances.
- Ensuring that records match bank statements and other financial documents.
- Preparing crucial financial reports like balance sheets and income statements, providing a snapshot of the company's financial health.
Leave the Bookkeeping Process to the Expert!
Accurate and meticulous bookkeeping stands as the cornerstone of sound financial management for any company. It serves as the backbone, providing crucial insights into the company's financial health, aiding in decision-making, and ensuring compliance with regulatory standards. Proper bookkeeping services enable businesses to create strategic planning for growth and stability.
Ready to streamline your company's bookkeeping for better financial control and informed decision-making? Trust WealthBridge to handle your bookkeeping process efficiently and accurately. Contact us today to elevate your financial management!