WHAT IS BOOKKEEPING?
Bookkeeping is the process of recording your business’s day-to-day financial transactions into organized accounts. It can also refer to different registration techniques that companies may use. Bookkeeping is a basic portion of your commerce. By keeping up exchange records, you’ll create exact monetary reports that offer assistance in degree commerce execution. Detailed records will moreover be valuable in the case of assessment reviews. This direct will instruct you on the distinctive bookkeeping strategies, how to record sections, and the vital money-related explanations included.
Before you start bookkeeping, your business needs to decide which method you will follow. When choosing, consider your business’ daily trading volume and the revenue you earn. If you are a small business, a complicated bookkeeping method designed for business can lead to unnecessary complications. Conversely, more robust bookkeeping methods will be needed for large companies.
SINGLE ENTRY BOOKKEEPING
One-time bookkeeping is a simple method in which an entry is made for every transaction in your books. These transactions are usually kept in the cash book to keep track of incoming income and outgoing expenses. You don’t need any formal bookkeeping training for the single-entry system. The single-entry strategy would be appropriate for little and private businesses that don’t purchase or offer credit, claim small or no physical resources, and hold a little sum of stock.
MORE POWERFUL DOUBLE-ENTRY BOOKKEEPING
It follows the principle that each transaction affects at least two accounts, and they are credited to the debit side and the credit side. In a double-entry system, total credits should always equal total debits. When this happens, your books are “balanced.”
Utilizing the twofold section strategy for bookkeeping makes more sense in case your commerce is huge, open, or buys and offers on credit. Companies often choose the double entry system because it is less likely to make mistakes. In a way, it “checks” your books because each transaction is recorded into two corresponding offset accounts.
CASH OR ACCRUAL
The next step is to choose between cash or accrual for your accountant. This decision will depend on when your business recognizes income and expenses.
In case, you recognize revenue when you receive money for your business. Expenses are recognized upon payment. In other words, every time cash enters or leaves your account, it is recorded in the books. This means that purchases or sales made on credit will be recorded in your books once cash is exchanged.
Likewise, expenses are recognized when incurred, usually with the corresponding revenue. You can instantly mark your sales and purchases made with credit.
Cash bookkeeping and accrual bookkeeping can work with single or double bookkeeping. In general, however, the one-time method is the basis of cash bookkeeping. Transactions are recorded as single items as cash inflows or outflows. Accrual bookkeeping works best with a double-entry system.
Bookkeeping for your business can be as inspiring as keeping a budget for your personal expenses. Annoyingly having to record each exchange, precise bookkeeping isn’t a choice when running a trade. Your accountant can help you keep your books and will also help you prepare financial statements.
Income and expense analysis
Keeping your ledger involves tracking every transaction. If you have just recorded the details, you might be surprised to find out how much money your business spends on different things. It’s not uncommon for business owners to underestimate some costs while overestimating others. With bookkeeping, you don’t have to guess. And because you keep the books every year, you can better estimate future income and expenses, even if your sales tend to fluctuate seasonally.
Another important part of bookkeeping is making payroll. Although you don’t have to withhold state taxes for your employees, Florida businesses are still required to withhold federal income taxes, Social Security, and Medicare payments. Employers must file these deductions with the employer’s share on a quarterly basis. You should take this obligation seriously, as the IRS will only give you time to file payroll taxes in a timely manner.
To stay in business, your company must be diligent in invoicing and collecting money from customers. Your bookkeeper can handle both of these processes for you, although some companies may need additional staff to handle accounts receivable. The flip side is the bills your business has to pay to stay in business. From the utility company to your suppliers and contractors, it’s important to stay on track to pay your bills on time. This can save your money on late fees and ensure you have a good relationship with your suppliers.
MAINTAIN YOUR INVENTORY
Whether you sell supplies, make tools, or provide services, many companies have raw materials, finished goods, and other items in stock that they need to keep track of. With bookkeeping, your inventory is always up to date as new purchases and sales are recorded. Although you want to perform regular physical inventory, you can estimate the damage and other inventory loss by looking at your records from previous years. If you discover an unusual inventory loss in your books, you can take steps to prevent it from happening again.
KEEP THE GENERAL LEDGER
In addition to tracking income and expenses, your accountant maintains a general ledger for you. The general ledger shows you the balance of each of your asset and expense accounts. The general ledger can be used as a snapshot of the financial health of your business, but keeping track of accounts over time is also important.
Your financial records are a requirement to produce accurate financial statements. By recording each transaction and making the necessary adjustments at the end of the financial year, your accountant will prepare a profit and loss statement, balance sheet, and cash flow statement. These financial statements can give you a lot of information about your business and help you identify areas for improvement.
Your profit and loss statement plays an important role when you file your taxes. Your balance sheet can be more attractive to bankers when you apply for a loan or to investors if you decide to expand your business. Finally, the cash flow statement helps you determine the cash life of your business.
UNDERSTANDING FINANCIAL DECISIONS
Good accountants are needed to understand and make better financial decisions. If you don’t know how much money your business earns each month after all expenses are paid, you may not even be able to take advantage of sales and stock opportunities when raw materials or goods drop in price.