The 8 Bookkeeping Basics Every Bookkeeper Should Know

What is Bookkeeping?

Bookkeeping is the process of documenting,  categorising and tabulating a company’s financial transactions. These include purchases, sales, receipts and payments by the company. It can include billing,  the collection of money, payments, payroll and more. This process assures that all the financial transactions of any company are recorded and organised in a systematic manner, so that it is easier for the accountant to track and check them.

Why is Bookkeeping Important?

The book keeping system comes are necessary for several reasons. Foremost it is important according to the tax and legal perspectives. It is compulsory to keep up the financial records according to the law of every state. It is obligatory for all companies to keep there records so that they could face no fines , penalties and even could be sent to jail. Accurate book keeping is also required for tax purposes. It is  key for the companies to know how much tax they have to pay and file their tax returns correctly in the terms of time set by the law.

However, it’s not only to comply with the tax laws and pay tax;  bookkeeping is also useful for running and operating your business financially. Precise accounting helps you to check your financial performance of your business, cut business overhead compared with others and make right business decisions. Cost savings can be realised from financial records. Moreover, bank statements let you borrow against your business or invest in your business. True to form, external parties   creditors and financiers   will always want to see accurate financial information before they lend you money or invest in your business.

Bookkeeping Methods

There are different types of bookkeeping such as single entry bookkeeping as well as double entry bookkeeping.

In single entry bookkeeping,  every financial transactions are recorded only once (either income or expenditure).

In double entry bookkeeping,  every financial transactions are recorded twice (as debit and credit). this method provide a holistic picture for a company’s position financially and is comprised by accountants and financial experts.

The Difference Between Bookkeeping and Accounting

Whoever owns a business knows how critical it could be to monitor some financial expressions because they are certainly the key to the successful path of a company. Terms that play an important role are clearly bookkeeping and accounting. As these two terms are utterly similar in sound, it causes misunderstanding more  a lot of the time than one may think. For this reason, let’s see what the difference between them is. After identifying and understanding the difference, you will be able to understand which service you need and hire the right professional person for the job.

Bookkeeping

Bookkeeping records cash received into and disbursed from the business   the business’s financial flows, or inflows and outflows. The business’s bookkeepers will  a lot of the time clerk the business’s sales, among other financial flows (receipts and payments). Bookkeeping is the foundation of the accounting system and it also covers the recording and categorising of financial figures.

Bookkeepers record the financial transactions of a business, entering into the company’s accounting system at the right times the purchases, sales and cash payments and inflows the organisation has made. Bookkeepers also reconcile an organisation’s accounts, in order to make sure that its accounting journals are properly ‘balanced’. To give owners of businesses a general view of the organisation’s financial fitness, bookkeepers also prepare financial statements, such as a balance sheet and an income statement.

Accounting

Accounting includes bookkeeping,  but it has now come to have the expanded meaning of the ‘interpreting,  analysing and reporting of financial information’. Meanwhile, bookkeeping is also more accurate. It refers to;   A verb referring to the activity of keeping a record, more specifically;   the correct accounting and  correct maintenance of the record of assets and their disposals. Accountancy is the name of a profession, the profession of an ‘accountant’;  the one who is involved in bookkeeping and auditing etc, analysing the financial information and reporting the analysis to business organisations for their decision making. Hence, although bookkeeping could be rightly included in accounting,  the key work of accounting,  in the expanded meaning,  exceeds the domain of the keeping of the records of money in and out of the business.

Today, many jobs for accountants may involve reporting on financial data or advising financial strategy such as analysing financial data to explain a business’s current financial position, its historical trends or its future forecasts. But it could also involve assisting and informing the tax preparation process, or ensuring the financial statements of a company are prepared in accordance to the correct standard of accounting regulations.

Key Differences

Bookkeeping and accounting are two different functions but not quite opposing. Bookkeeping is like unto gathering fruits in a field and accounting is like creating a deliciously eaten dessert from the prepared fruits. Bookkeeping works only towards organisation and record making exclusively and limiting itself to schedule jobs. Accounting,  in contrast, involves careful evaluation and multistep analysis. It, in effect, builds within the realm of bookkeeping,  using its work in order to present a picture of the business’s financial affairs accurately. Further, accounting is a broader field than just Indian Accounting. There are accounting practises in different other countries and understanding all of them may need an entire lifetime, drawing an analogy to the limitless streams in a fast flowing river.

The second difference is level of competence. Bookkeeping involves attention to detail, accuracy and a grasp of basic accounting ideas. Accounting likewise requires attention to detail, accuracy and knowledge of basic accounting ideas, but in addition requires greater familiarity with financial analysis, tax law and financial reporting standards.

8 Basics of Bookkeeping Every Bookkeeper Should Know

Some time or other the main part of any business is its books which is called “bookkeeping’. The bookkeeping means the recording of the financial transaction of the financial enterprise, at the same time, the bookkeeping is also one of main sources which the information is extracting and Create the financial reports of enterprise. Each report will give a conclusion on how the enterprise is performing financially. In order to become a professional of bookkeeping,  must Learn thoroughly the bookkeeping basic principles. Due to that, in this article, we are going to discuss the different bookkeeping basics.

• Understanding Debits and Credits

Everything every human bookkeeper has ever done follows from the fact that a debit represents an increase in an asset or a decrease in a liability, while a credit represents a decrease in an asset or an increase in a liability. Without an unwavering grasp of that intuitive idea, a bookkeeper or accountant will never correctly and consistently record the financial transactions of the enterprise in which she works.

• Creating a Chart of Accounts

An account chart is a tabulation that include all accounting heads that will be used by a business for the purpose of entering each and every type of transaction that related with financial units of the business. A proper, well organised and detailed chart of accounts is a  key need for entering the financial transactions in a financial registered so that it will help the distribution of financial statements and financial reports.

• Recording Transactions

You can add bookkeeping records for basically any transaction involving money. Every transaction should be entered into your bookkeeping system, either by hand or using bookkeeping software. The key is to describe the transactions in detail. Most importantly, you should describe everything and enter every transaction correctly.

• Reconciling Accounts

The practise of reconciling the records consists in matching what is recorded on one to what is recorded on the other, such that every receipt and issue is duly accounted for in every book.

• Generating Financial Statements

Financial statements are kinds of reports which will gives information’s about how operations of a company does. A company has three types of financial statements includes balance sheet, income statement and cash flow. These statements have all information of operating,  investment and financing of a business. First, as a bookkeeper one of the main duties is to make these statements. There after we will be able to see the financial image of the company.

• Managing Accounts Receivable and Accounts Payable

Accounts payable and accounts receivable are two key  integral parts in a business’s book keeping. Accounts payable is the money that a business owes to the suppliers and accounts receivable is the money that a business owes to its customers. Thus, it is  key that the two are well managed by the business in order that the business remains in a positive cash flow.

• Understanding Sales Tax

It is tax that your business adds to the price of the goods or services you sell and a necessary understanding of legal requirements for sales tax are important and sales tax remitted accurately for each sale in your jurisdiction.

• Staying Up to Date with Bookkeeping practises

Actually, bookkeeping standards and regulations evolve continuously. Being aware of ongoing changes in bookkeeping norms, regulations and practises will help a good bookkeeper to always prepare the most accurate and up to date financial information.

As stated in the first paragraph, since bookkeeping is a sought after service of each business, a bookkeeper needs to be familiar with the core principles behind bookkeeping to  make sure smooth operation of the bookkeeping system. Such principles would include a grasp of debits and credits, preparing and completing a chart of accounts, recording entries, reconciling accounts, using the information to create financial statements, understand accounting terms like accounts receivable and accounts payable, mitigate penalties from incorrect sales tax filing,  know when to contact accounting professionals and staying abreast of new changes and improvements in the field of bookkeeping.

These eight bookkeeping basics will help a bookkeeper to keep businesses’ financial records current and provide the business with a clear picture of its financial health.