Bookkeeping: How much did you earn on the last project? What was the cost of your recent office rennovation? It is not possible for a human being to remember every transaction. Whether a small startup or a large firm every business goes through numerous transactions every day. It is important to keep track on the financial activities of your business. Therefore, bookkeeping helps in recording all the transactions systematically.
Bookkeeping is a process in which business transactions are recorded in a proper form and order. Bookkeeping is nothing but a part of accounts it helps in recording all the financial transactions of the business. Earlier it was difficult to maintain books of acounts and physically enter all the business transactions but now it is possible due to latest cloud-based technology. According to Finney Miller — “ Bookkeeping is a process of analyzing, classifying and recording the transaction under the preconceived plan”.
Briefly bookkeeping is concerned with the following
1) Recording business transactions in summarized form systematically in chronological order in a separate book called a journal.
2) Transferring entries from the journal to the account in Ledger and to Tally the account at the end of the year.
3) To prepare a separate trial balance at the end of the financial year.
Why book-keeping is important?
Bookkeeping records are very important to get financial information on profit, loss, asset, liabilities, capital, stock, investment, etc. it helps in decision-making to the top level of management it acts as evidence as it records all the transactions of the business bookkeeping is concerned with classifying analyzing and recording all transaction related to the past and currently, of it helps the business to make a comparison between the records and take steps accordingly.
Following are how bookkeeping helps the business to grow
• To maintain a systematic and permanent record of all business transactions for future reference in a systematic order.
• To know the capital amount invested and profit and loss made by the firm during the financial year.
• To know the number of assets and liabilities of the business.
• To make important decisions regarding the business.
• To know tax payables during the year and to meet the legal requirements.
• Bookkeeping records various financial activities from different sectors of business, so it helps to provide wide information about all the departments of a business such as Marketing, advertising, finance, development, accounting, etc.
There are two types of book-keeping
- Single entry system:- In this, you are supposed to record a single transaction for each financial activity. The single entry method is generally used to generate daily or weekly reports.
- Double-entry system:- This method double transaction for each transaction. The double-entry system is not cash-based. It has to strike a balance between credit entries corresponding to each debit entry. In this, transactions are recorded when revenue is earned.
There are two ways of utilizing book-keeping services in your business
- Hire book-keeper:- You can hire a book-keeper for providing book-keeping services to your business. But this method won’t be much budget-friendly as this not only requires to pay the wages of the staff but providing other benefits of the employee such as insurance, gratuity, etc.
- Outsourcing:- You can also outsource book-keeping services you are just required to pay outsourcing fees. There are numerous cloud-based software from which you can track the income and expenses of your business and take decisions accordingly. This method of book-keeping is a cost-friendly method.
Therefore, a business needs to record all the transactions in chronological or systematically bookkeeping helps the business to do that and help them grow.
Bookkeeping gives you exact figures of the liabilities and assets of your company and helps you to take steps accordingly.
Edited by Sanjana Simlai.