What is Bookkeeping | and Why Does It Matter?

Finances are an essential part of any business, whether big or small. How the company manages its money and financial transactions have a significant impact on its operations. All those incoming and outgoing transactions need to be documented and this is called bookkeeping. bookkeeping helps one to understand the flow of money and the business deals of the company. It is not just essential to note down those transactions, but also make sure that the documentation is done accurately.

What Is Bookkeeping?

Bookkeeping is the recording and storage of financial transactions for a firm, organization or an individual business. The financial transactions recording is a part of the accounting process and includes purchases, sales, and payments.  The financial accounting is recorded, and all transactions and any other events of business are documented.

 A Bookkeeper

A bookkeeper is a person who is involved in bookkeeping and records all those financial transactions. His job is to document each and every record of sales, note down every payment and receipt. Whether cash or credit, each financial transaction enters the correct day book and the general ledger. The accountant creates financial reports based on the bookkeeping records. The bookkeeper must carry a basic understanding of financial accounting and debits and credits knowledge. He should be well versed with an income statement and balance sheet.

As a business grows, so does it's business volume and number of financial transactions. All those daily transactions need to be tracked and noted down. Moreover, it is not simple and easy especially when the business is growing and getting more complicated. One needs bookkeepers who can take care of their financials and keep things under control. Everything has to be appropriately handled as even a tiny mistake can lead to a lot of confusions and can result in expensive mistakes.

Common Financial Transactions

Everyday financial tasks involved in bookkeeping cover receipts from customers, billing, recording invoices, employees' pay processing, suppliers’ payment and provide financial reports. The bookkeeper verifies invoices and payments as well as records any depreciation. He can follow either the Single-entry and double-entry bookkeeping method, based on the size of the company and needs.

Single-Entry and Double-Entry Bookkeeping

The two standard methods used for bookkeeping are single-entry and double-entry. Single-entry is more suitable for small businesses while the double-entry is appropriate for the bigger firms. Small businesses often make use of only income and expense accounts. These are documented in the revenue and expense journal. However, in the case of the double-entry system, for each financial transaction, two accounting entries need to be adequately documented. Single-entry bookkeeping often makes use of bookkeeping software in order to save time. The double-entry system records financial information in two different nominal ledger accounts and is much more complicated.

Computerized Bookkeeping

Computerized bookkeeping makes use of computers and software. It gets rid of any paper and registers. Relational databases are used to document the financial transactions, but these still follow the norms of the methodology used for bookkeeping, whether single-entry and double-entry bookkeeping. Computerized bookkeeping systems are supervised by certified public Accountant so as to minimize any documenting errors. After all, there are so many business activities and transactions that go on within a firm or organization.

Now that you have understood what bookkeeping is, it is essential to take your business seriously and hire an expert bookkeeper. You can get a complete picture of your financial situation if you have those financial statements and ledgers in place. Keep in mind that bookkeeping takes time and needs effort. So, do not neglect it at any stage if you want to take your business forward and know where it stands financially. Hence, bookkeeping is worth all that effort as it saves your time and money as well as a lot of headaches which may arise due to wrong recordings. for knowing more information about bookkeeping, please visit here for further information.