Why Bookkeeping is Beneficial and What it Include?
Every business needs to record their financial transactions in order to understand how they are performing and whether or not they are making any money. It is also required by law to keep these records in case of an audit and to pay the correct taxes. Bookkeeping service is the process of recording, analysing and interpreting every financial transaction within the business. It is the most important part of the accounting process. A bookkeeper needs to maintain a very clear and accurate record of all financial statements so that the accountant is then able to correctly perform the accounting and taxation side of things. Every business purchase, sale, expense and earnings are recorded in order the understand the flow of money coming in and going out of the business.
It benefits the business in the following ways:
- Proper services give a clear idea whether your earnings are enough to cover your costs.
- If the business is in need of extra finance in the form of a loan, the bank will require the business’s financial statements. This is to see whether the business is in a position to make the loan repayments.
- Bookkeeper help the business to track and pay taxes on time. That way, the ATO will be kept at bay.
- Bookkeeping provides the information to help you make clear and concise financial decisions for the business.
- Proper Bookkeeping services will make it easy to prepare balance sheets and profit and loss statements if you have investors that need to be kept abreast of things.
- It is a legal requirement to maintain financial accounts and statements for a business in case of an audit. Good services help with this.
Now that we’ve worked out the importance, the following steps show how it is done and what they include:
1. Deciding on a system:
Day to day business operations will have many receipts, payments, vouchers and invoices. Losing any of these would lead to disaster when it came time to work out the financial position of the business. It is important to decide on a system or process of bookkeeping service by which all these transactions will be recorded.
2. Maintaining a bookkeeping software:
A good bookkeeping software makes the entry of all the financial data accurate and error free. Most of the software packages will have spreadsheets where they can record every detail. These can be easily retrieved without any hassles, at any time, unlike manual entries in books which take a lot of time to look and sort through.
3. Recording transactions on a regular basis:
Bookkeeping services include the recording of expenses, sales, accounts payable, accounts receivable and profit and loss. Recording all these transactions regularly and correctly make the next step of accounting easier. Some businesses still choose to follow the journal-ledger method which is a traditional system. Now, with the progress of accounting software, when transactions are entered they are directly posted into a ledger under different accounts.
4. Preparing trial balance
As a way of checking the accuracy of the transactions that have been entered, most bookkeeping services include preparing a trial balance. This has three columns, first is the account names from ledger, the second is the debit transactions and the third is the credit transactions. The debit and credit balances should be equal. If they are, then the transactions that have been recorded are accurate. If not, the bookkeeper knows to go back to the journal and ledger to find the mistake.
5. Financial statements preparation
A final step in all services is the preparation of any financial statements. These include: Income statement, Profit and Loss statement, Balance sheet, Cash flow statement and statement of Retained Earnings. If all your bookkeeping and accounting information has been recorded correctly, or entered into the software correctly, these statements are very easy to prepare and finalise.
Bookkeeping in any business may appear to be a very small chunk of the overall day-to-day running of the business. But it is the foundation for building a strong and healthy financial position and vital in knowing which direction your business is heading in. It is an essential key to surviving and prospering in today’s tough competitive market. Poor service has been known to make otherwise successful businesses crumble.
Earl Nightengale once said “People with goals succeed because they know where they’re going.”
At JG Accountants, providing professional and expert bookkeeping services is our business! Let us keep your bookkeeping on track so that you know where your business is going!
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