September 27, 2021

What is Bookkeeping and Why It Is Important?

accounting bookkeeping

accounting bookkeeping

Bookkeeping definition is a common, systematic way of obtaining financial information, sorting that information, including it in the accounting system, and making reports that decision-makers use to make better financial decisions for their business.

That mouth!

Simply put, bookkeeping.

Have you ever considered expanding your business? You already have it!

Most entrepreneurs would like to grow their business to the next level. But the reason most people don’t do it is because they are not sure how. How can you grow your business? The answer lies in your bookkeeping and your bookkeeping should be completed on a monthly basis.

Now that we understand what bookkeeping is and why it is important, let us discuss 6 steps that make bookkeeping a reality.

Simple 6-Step Preservation Process

Bookkeeping can be broken down into 6 steps. The online bookkeeping service is usually responsible for the first 4 steps but you can do it yourself. 2 steps to keep your responsibility but the fun part.

As mentioned earlier, small business savings are there to help you make decisions.

Step 1: Assemble Source Documents

Source documents are the original records containing transaction details. Examples include an invoice, sales order, or receipt. All of these documents have a date, buyer / seller, price, and product / service provided. This is information that you or your librarian has stored up to start the process of bookkeeping services.

In today’s world of online communication, most people do not take portable copies of all their source material. Instead, they rely on their bank statements to tell the story. In most cases, bank or credit card statements contain all the information needed to prove a business transaction.

Keep in mind that money transactions do not appear to be based on bank statements.

If you have money to spend, you should keep a clear receipt or remember the purpose of the transaction and report it to your accountant if you have one. Your bookkeeper can easily distinguish those types of transactions.

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As a tip, it is a good practice to use credit or debit cards to make and accept all payments. In this way, you or your accountant can rely heavily on your bank statements to separate transactions that make step 1 a lot easier.

Step 2: Divide your transaction

To understand that archive is to understand that everything that is done needs to be categorized. It is the backbone of the bookkeeping process.

In Step 2, you or your accountant will need to classify your transaction according to the purpose of its business.

There are five main stages to transactions:

• Goods

• Debts

• Equality

• Net worth

• Cost

Each of these categories can be categorized into sub-categories. For example, you could have a lower inventory section that could fall under a larger asset class.

The first step in classifying is to identify which category the transaction belongs to.

Assets are defined as instruments that have certain economic benefits in the future. For example, money can be property. It is a resource and can be used in the future to benefit your business.

Debts are future obligations. Examples are loan repayments or loans from a bank.

Equity is the interest of ownership. Income increases with revenue and main contributions. Fees are reduced in cost and distribution.

Revenue is generated from the sale of products or services.

Expenses are costs incurred to make money. Costs can be the cost of goods sold or goods.

Most bookkeepers will use accounting software to assist with organization and transaction planning. Bookkeeping is no longer a process of pencil and paper.

Step 3: Synchronize Your Transaction

A good bookkeeper will distinguish between good and bad. The bookkeeper will cover the transaction to ensure that everything is accounted for.

The concept of reconciliation is simple. It is a process of matching all your activities in your bank statements with what is in your accounting software. When you or your accountant faces hundreds or thousands of transactions, it can be easy to double the number of transactions. Or I missed one.

But reconciliation helps to catch all the mistakes.

Start with the first balance in your statements (which should be in line with your accounting plan) and look line by line that everything that is done is calculated.

Step 4: Preparing the Financial Statements

The final step for the bookkeeper is to prepare financial statements.

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