Most owners of small businesses know that it isn’t easy to maintain their company’s financial records, however, keeping such records help your business to run effectively and smoothly. But one might ask, is it a wise idea for the small business owner to do their own bookkeeping?
If you are an owner of a small business and have enough time to do your own bookkeeping that is excellent but doing so reduces the time you’ll have to do what you do best and that’s running your business.
Bookkeeping is the part of accounting used for collecting, classifying, and recording the commercial and financial operations carried out by the company. It is the record of financial transactions and information related to a business every day operation.
A bookkeeper is responsible for:
If you insist on doing your own bookkeeping here are some financial transactions to be mindful of while doing the books:
One of the most important aspect of bookkeeping is maintaining an accurate and up-to-date record of all information. Accuracy is an essential part of this entire process. It ensures that the record of individual financial transactions is correct, up-to-date, and comprehensive. For this reason, accuracy is vital to bookkeeping.
The process of bookkeeping focuses on providing preliminary information, which is necessary to create financial statements. Transactions are entered in the books, and all changes in the financial records are continuously updated. The building blocks of bookkeeping requires a knowledge of debits and credits and fundamental understanding of financial accounting, which includes the overall balance sheet, cash-flow statement and the income statement. The bookkeeping process involves the preparation of accounting records, which enhances an evaluation of the company’s present position and allows the business owner to forecast with relative certainty the future position.
One of the main principle of bookkeeping is that the transaction log records all transactions that occur within the organization on a daily basis. For each transaction, there must be documentation describing the business transaction. This may include a sales invoice, sales receipt, payments to a supplier, a bill from a supplier, and payments made to a bank. These accompanying documents provide the audit record (any item that gives the documented history of a transaction in a company) for each transaction. They are an essential part of maintaining adequate audit trail in the business.
Modern accounting consists of a cycle of seven stages. The first three refer to bookkeeping, that is, the systematic compilation and recording of financial transactions. Bookkeeping is vital to manage your business resources properly. Also, you will need these records for tax purposes. Whether you prepare them on your own or outsource the process, you must understand the importance and basic principles of bookkeeping.
Keeping accurate records of transactions will help you identify and spot any problems in the flow of money, that is, the inflows – receipts and the outflows – payments.
These are some basic principles that should become a standard practice of your books.
If you decide to do bookkeeping on your own, please consult an expert in the field of accounting, especially at the beginning, to make sure that you are doing the right thing because it can cost you more in the long run to fix a problem than to avoid a problem initially. And as your business grows, you may want to hire someone or implement a more sophisticated bookkeeping software.
Another primary benefit of bookkeeping is that it helps eliminate the need to hire a full-time accountant for your business. The business owner only has to pay when accounting work needs to be done, which is considerably cheaper than employing a full-time accountant.
This process is found useful mostly for small businesses in that, it helps in saving money that you would typically spend on training an accountant for your firm. The small business owner also save in other employee related costs, such as health insurance, employer portion of employment taxes, sick days, vacation pay, time off delays , unemployment taxes, workers compensation insurance and overtime pay.
User | 2/09/2020