The documentation or recording of day-to-day activities is necessary for running a business smoothly. An organisation must overcome any financial issues immediately that come across during regular work. For this purpose, it must have proper records of its financial transactions to understand and find a solution to the problem.
Bookkeeping services help to manage the cash flow, track the record of financial data, and reflect your financial position to investors/banks. The recording of transactions can be either electronic or paper. However, the ATO recommends you apply an electronic mode rather than choosing a documents/paper mode.
While applying the bookkeeping process, there are steps you should use to maintain bookkeeping. Record transaction under bookkeeping is more effortless than preparing accounting statements like profit and loss accounts (income statements), cash flow statements, and balance sheets. A non-professional can be a bookkeeper, but an accountant should be professional and duly qualified.
What is bookkeeping?
In general terms, bookkeeping is the recording of monetary transactions in the books of accounts of an organisation. A bookkeeper is a person who operates the process of bookkeeping. The requirement of bookkeeping for small business accounting help is vital as small businesses generally can not afford an expert accountant to maintain their financial statements.
We use the accounts maintained by a bookkeeper as input for preparing end-to-end financial statements. A bookkeeper records the transactions in the books of accounts, while an accountant analyses the books of accounts.
The bookkeeping process includes verifying receipts, balancing the accounts, ensuring the payment of suppliers, collecting unpaid bills, and preparing/distributing invoices.
You can understand the uses of bookkeeping as follows -
Management of cash - Bookkeeping helps manage the cash flow in the business. As it records day-to-day transactions, you can know the cash availability or balance available in the bank to bear the organisation’s expenses. Handle accounts receivable/payables - A bookkeeper ensures the payment to be made or received is on time. It helps to maintain strong relationships with the suppliers and other parties to the transactions. Monthly reports - In the bookkeeping process, the bookkeeper records transactions regularly and allows owners or users of the books of accounts to review how the business is doing month-to-month.Reconciliation statement - A reconciliation statement shows the accuracy of the books of accounts. The reconciliation of bank accounts or cash can be possible if the recording of business transactions is prompt.Payroll and HR functionality - The booking is a handful in managing expenses, payment of salaries/wages, and others. So the scope of bookkeeping also covers payroll and HR. Complying with tax requirements - A bookkeeper ensures that his client meets all the tax compliance requirements. It can avoid payment of late fees or penalties and provide accurate tax.From the above points, it is clear that bookkeeping is the preliminary step for further accounting to analyse the financial statements and other data. The methods for maintaining bookkeeping are single entry system, double entry system, and cash/accrual basis. A small business organisation that does not have complex transactions can use a single entry system or cash basis. However, large entities should apply a double-entry system and accrual-based accounting.
Steps to maintain bookkeeping
The steps involved in recording the transactions under bookkeeping are straightforward. A bookkeeper should use the steps, whether the bookkeeping process is manual or electronic. The steps are as follows -
Maintaining Your Receipts
Your receipts/invoices/bills are the pieces of evidence of the sale, purchase, and other transactions of the business. Collecting and maintaining these documents is the first step in the bookkeeping process. A bookkeeper uses these source documents to record the transactions.
The bookkeeper should gather cheque records, deposit records, and bank statements for banking transactions. The collection of receipts is the requirement of a company to record transactions.
A small business can easily store and manage the receipts, while for a large entity, it becomes complicated because of the number of transactions. If the business organisation uses software for bookkeeping, it must maintain receipts in a soft copy as proof of a transaction.
Write journal entries
After collecting, the bookkeeper should pass journal entries of the transactions that occurred in day-to-day work. The basis of journal entries will be the source documents. He should credit and debit the appropriate accounts to understand the effect on the ledgers.
Ledger Setup and Posting
The next step is to create ledger accounts and post the transactions according to the receipts. To set up the ledgers, a bookkeeper should analyse the financial information received from the source document.
After analysis, he will classify the information in different accounts/ledgers and pass journal entries in respective headings. Now he will post the journal entries to the ledger accounts.
For example, to record cash transactions, create a cash account, and to record sales transactions, create a sale account.
If you are using accounting software, then the work of a bookkeeper becomes smoother as the software will create the ledgers automatically. The final reports on financial data will update as soon as you post them in ledger accounts.
Creation of basic financial reports
The Financial reports are the summary of books of accounts prepared by a bookkeeper. With the help of bookkeeping records, we can make final reports on profitability ( profit and loss statement/income statement ), cash availability ( cash flow statement), or value statement (balance sheet ) of the company.
Accounting software generates these reports automatically through the fundamental information/input consistently. So bookkeeping helps you prepare your financial statements that will depict your company in an open market by updating different ledgers regularly.
A bookkeeper must use all the above steps to maintain the bookkeeping. However, he should know some basics of bookkeeping process. The fundamental bookkeeping principles ensure that an organisation has up-to-date and comprehensive financial transactions.
Following are the basics of bookkeeping a beginner must know-
Assets/Liabilities - includes Cash/bank account, inventory, fixed assets, Accounts receivables/payables, and loan payables.Single/Double entry bookkeeping - Single entry for minimum and elementary transactions and double entry for complicated and large size organisation Cash/Accrual basis of accounting - cash basis only record transaction where the element of cash/bank is available, while accrual basis of accounting records transaction when they occur despite their monetary effectEquity - the investments of the company along with the owner's capitalRetained earnings - that part of the profits which a company keeps aside to use in emergency circumstancesIncome statement - it is a profit and loss account that measures the profitability of the firmTo provide high-quality services in bookkeeping, a bookkeeper must know about all these basic terms.
Tips to improve your bookkeeping
Tips to maintain bookkeeping and accounting helps a bookkeeper or a beginner understand the bookkeeping process and prepare and present accounting statements. Following are the tips a bookkeeper must consider -
Business and personal records
A bookkeeper should bifurcate business and personal transactions separately. A business bank account only records transactions relating to your business. A business account can help organise accounting records and ensure the revenues/expenses are aligned with the budget.
Identify the software that the business needs
Choose an appropriate software as per the requirements of the business. Cloud-based bookkeeping software keeps your data at high security. It also provides access to your books of accounts at any time from anywhere in the globe.
Many bookkeepers use data encryption to keep the information/data safe. Online data always have an up-to-date backup.
Conducting tasks in advance
There are some bookkeeping tasks that a bookkeeper must complete on a daily/weekly basis. A bookkeeper must maintain a system where he can make a schedule to finish the assignments on time. Payment of bills, making deposits, sending reminders to the debtors/suppliers, recording and tracking the inventory, and reconciliation of bank accounts are some tasks that a bookkeeper should do.
Avoid procrastination at all costs
As a bookkeeper, you should know how to reverse or avoid procrastination. Procrastination is usual but to a limit. If the bookkeeper thinks it affects work productivity, he should consider driving back it. He can also follow some tricks, like using time management techniques, setting small targets, and minimizing social media or gadgets.
Keeping up to date
A bookkeeper must keep the ledger accounts, journal entries, and recording of transactions updated. For the success of your business, it is necessary to maintain financial data in a row. It can only be possible if a bookkeeper adds a business transaction regularly.
Regular maintenance and review of books of accounts
A bookkeeper must fix a time to review and update books of accounts. A deadline for the tasks or time limits can help him complete the bookkeeping functions timely. Deadlines and regular updates are necessary for the maintenance of the statements.
Leaving Audit trails
An audit trail can become a handful to simplify the bookkeeping process. These audit trails can help to prevent fraud, find mistakes in budgeting, or find missing transactions. It is the responsive way to maintain the books of accounts accurately.
Hire a professional bookkeeper to help you with your finances and maintain bookkeeping
If an organisation can afford it should outsource bookkeeping to professional bookkeepers. They know about creating the proper accounts, fundamental bookkeeping principles, and experience in setting up books of accounts. They handle with responsibility payrolls, cash flows, accounts receivable/payables, and taxes.
A professional bookkeeper not only manages your day-to-day finances but also provides a clear view of the business’s cash flow. A bookkeeper is more affordable to a small business than an accountant. Hiring a professional bookkeeper to manage finances and maintain bookkeeping will be advantageous to you. You can understand the advantages by the following points -
Error/mistake minimisationA professional bookkeeper takes all the details, such as recipes number, bills, invoices, and other papers, and enters these pieces of information into your software correctly and timely. He will keep your books well-organised, updated, and correct. An accountant is an expert whose work is to minimise the chances of fraud. A bookkeeper maintains information that when the bookkeeper changes, you can send the information to your accountant as it is.
Reducing/avoiding tax or other penaltiesAn experienced and qualified bookkeeper knows expenses that are tax deductible. He also knows how to file taxes as per federal or state laws. You don’t have to appoint any person to calculate your payroll taxes. He will take care of all the needs of the business relating to taxes. When the filing of tax returns and other legal proceedings will be on time, then there won’t be any tax or other penalties.
Affordable than an accountantA bookkeeper’s charges are lesser than the fees of an accountant. Outsourcing a bookkeeper is also more cost-effective than in-house bookkeeping. Professional accounting services hired from outside are fully confident and devoted to their work. Because working free of cost is the worst thing a person can do nowadays. So an outsourced bookkeeper will do his work with more interest because he will also grow with the business.
Managing cash flowA professional bookkeeper manages the cash flow of the company efficiently. An efficient bookkeeper ensures you that there are enough funds to bear your current expenses and invest shortly. He will send invoices to your customers on time as a reminder of the payments that can help in the collection.
Reduction in costA company can save money by outsourcing a professional bookkeeper to complete your bookkeeping work. An experienced bookkeeper can handle every matter relating to taxes, accounts receivable/payables, bank reconciliation, and others. So you don’t have to pay additional charges to an accountant for any irregularity found in books of accounts.
From the above discussion, it is clear that a professional bookkeeper is an asset to a company. An experienced bookkeeper can maximize the tax deductions/exemptions, improve the cash flow, and save time and money for your business.
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