Simply put, bookkeeping is inputting financial business operations. Bookkeeping is for creating a record of a business’ financial activities in the form of summaries. Bookkeeping systems range from very basic including recording payments and deposits to more complex processes for ledgers and journals that are used by corporations. Usually, small businesses use a basic bookkeeping system to meet their requirements such as information for taxes and investments. Also, the kind of business can dictate the system design. As an example, a retail business’ bookkeeping would include inventory records regarding purchases and depreciation.
The Value Of Bookkeeping
Bookkeeping is a critical part of running a business to analyze the financial transactions and then create a report. In most cases, financial transactions involve sales, revenue, expenses for operations, tax payments, any loans for the business, sales, payroll expenses, and other needed information that is critical to business operations. Many companies present their bookkeeping entries as financial statements. In general, statements cover the many activities of a business which includes its earned revenue, data on its cash flow, and assets..
As a small business, you probably use ledgers or journals to keep track of your transaction. Some small businesses prefer to rely on computers as well as paper records.
There are several software options that are created specifically for accounting and bookkeeping that are extremely easy to use and are quite popular with small businesses. If you have a very small staff of employees, this might be a good option to look into in order to keep up with your bookkeeping system. This software will automatically calculate, categorize, adjust, and retrieve information in various forms.
On top of that, the software can be customized with tax rates and other data that has an effect on a business’s financial transactions. In some cases, a small business owner might take care of the bookkeeping themselves, have a bookkeeper on their staff, or handled by a fellow employee. There are businesses that will hire an outside source to take care of their bookkeeping. Whatever approach works for you, it’s important you choose the bookkeeping process that works best for you and your business.
A Company’s Accounting Period
The days of manual bookkeeping has been replaced using computers and software. As a business owner, you should have your accounting period in place. This is a crucial part of your bookkeeping for keeping your financial books up to date. Your accounting period will affect all your finances including taxes and analyzing your financial history. Many companies use the calendar year January 1 through December 31 while others use the fiscal year which is the accounting period that ends on the last of the company’s chosen month except for December. A good example, most government’s fiscal year will start On September 1st and stops on August 31st. In some cases, there are businesses that sell seasonal items so they might wish to a certain time frame to reflect their expenses and revenues. The IRS requires the use of specific accounting periods for some companies including corporations and partnerships.
While some businesses will use a combination of both kinds of bookkeeping systems, others will choose one or the other.
If you opt for a single-entry system, you can only record one entry per each financial transaction. This is a pretty basic approach that is used to record receipts on a daily basis or provide weekly reports to record your cash flow.
A double-entry process requires a double-entry for each one of your transactions. The bookkeeping system requires a corresponding credit entry for each one of the debit entries. The dual or double-entry is not based on cash. Transactions are entered when revenue is earned or debt is incurred.
The cash-basis accounting procedure simply records transactions when payments are received or made. This procedure recognizes revenue or income during the accounting period when it’s received and occurred expenses in the period they are paid. This is a strict procedure that records cash flow exactly when it occurs while a modified cash flow uses elements of accrual-basis accounting procedures. This procedure is a more favorable choice for accounting as it documents income during the time it was earned and then documents the expenses at the same time. Both cash-basis and accrual-basis require very specific financial statements that include all single-entries and/or double-entries.
Documentation, Postings, And Ledgers
Ledgers are used to document financial transactions by providing information that has been gathered from receipts or other documents. Ledgers then summarize the recorded transactions. Bookkeeping software offers customizable ledgers. Businesses will either post their transactions daily or post them in groups. There are other companies that opt to send their information on to an accounting service.
In order to generate current financial statements and reports requires regular posting. The documentation of financial transactions requires the maintenance of files including receipts and other documents which are an important part of your company’s bookkeeping system. It’s totally up to the individual company how long it wants to keep their documents on file which also includes any legal or tax concerns
You can create a very extensive system by including other accounts from different areas of your financial activities. The accounts will take financial transactions that are classified in similar categories and group them together. Your account charts can have several components including balance sheets and statements of incomes.
Balance sheet accounts include assets, stockholder and/or owner equity, and liabilities. Income statements are for both operating and non-operating revenues, other expenses, gains, and losses, etc. Yo will probably need accounts for different customers, departments or inventory, depending on your kind of business. As a small business owner, you might prefer to use only a few specific accounts. You should sit down with your accountant to decide what accounts you should use to create your accounts chart or if you do not have an accountant, hire an outside firm.