What is bookkeeping?
Bookkeeping represents the procedure of keeping a record of all documentation of any financial transactions that an organization or business makes from the moment of launching to the moment of closure. Bookkeepers or owners of companies keep track of business activities founded on supporting documentation. This is dependent on the principles of accounting the company enforces. Documents can be represented by papers such as bills, invoices, receipts, purchase orders, or various financial reports that display a transaction.
Transactions can be recorded either manually, by hand, in a journal, or on a Microsoft Excel spreadsheet. Despite all of these variants, a lot of businesses prefer to utilize bookkeeping software to structure and organize their financial histories.
Bookkeepers can record a company’s financial transactions utilizing either single-entry or double-entry bookkeeping. When it comes to single-entry bookkeeping, revenue and costs for the entirety of expenditures in a cash register are being reported. As for the double-entry method, it commences with a journal, the journal is being followed by a ledger, a trial balance, and then financial statements come into play.
In order to summarize, bookkeeping represents solely one side of doing business and maintaining adequate financial records. Having appropriately managed bookkeeping, a company can closely keep track of its financial abilities and progress toward increased revenue, breakthrough growth, and well-deserved success.
Why is bookkeeping important
Whether we’re talking about just getting started on a small business or about an owner having a brilliant vision, everyone must enforce some inherent bookkeeping techniques. The way a company structures and records their finances is up to them. The work can be outsourced to a professional bookkeeper, or a business could do it by itself. Whatever is decided, it must be noted that the company has to maintain a good track of business transactions.
It is crucial for companies to invest a lot of time and revenue into maintaining good financial reports. After all, when a business has a balanced bookkeeping system, it can rest assured that it also has a good benchmark of measurable success. When doing as such, companies of all ages and sizes can create strategic plans and advance realistic goals.
In addition, organizations have to act in accordance with the IRS’s legal regulations and systems that govern their finances. Some of the most common documentation businesses must provide to the federal government include:
What is the purpose of bookkeeping?
Bookkeeping is known to have two main goals:
- To adequately record the entirety of financial transactions that result from company activities utilizing best practices.
- To deduce and analyze the financial results of company activities.
To accurately record all business-related financial transactions, bookkeepers usually need a robust catalog of all trades and associated costs. They may group transactions into categories like goods or services, wages, taxes, or other general business operations.
The two key reports that bookkeepers provide are the balance sheet and the income statement. Both reports should be easy to comprehend so that all readers can grasp how well the business is doing.