Bookkeeping is more important than you might think; it enables you to strategise, prepares you for auditing, and allows you to budget effectively. However, bookkeeping is often confused with accounting, so in this guide we teach you everything you need to know.
Let’s start with the definition- bookkeeping is the systematic practice of recording, organising and tracking a business’ financial records; with the aim of managing and maintaining an organisation’s overall financial health.
How is Bookkeeping Different to Accounting?
Whereas bookkeeping is primarily concerned with the recording and tracking of financial transactions, accounting is broader, involving the analysis of financial data. Bookkeeping focuses more on the day-to-day, ensuring all financial data is accurate and up-to-date.
As a compliance service, typical bookkeeping tasks include recording sales, purchases, receipts and payments, maintaining ledgers, and reconciling bank statements. This provides the basis for the records accountants use to prepare financial reports and statements. Essentially, bookkeeping provides the foundational data needed for more advanced financial analysis.
Accountants will use bookkeeping records primarily for decision-making, utilising the insights provided to influence business decisions and strategies. They’ll also use the data provided to prepare income statements, balance sheets and cash flow statements, as well as tax returns; ensuring compliance with financial regulations.
The Key Components of Bookkeeping
- Recording all financial transactions, such as sales, purchases, receipts and payments
- Categorising transactions to ensure financial data is organised and portrays a clear financial picture of the business
- Maintaining ledgers, the general ledger is a master document that provides a complete record of all financial transactions over the life of the company
- Financial statements – although these are typically prepared by accountants, bookkeepers often compile preliminary financial statements by providing the financial data
- Reconciliation of the company’s accounts to ensure the recorded transactions match the actual bank statements and financial records – this helps to identify and correct discrepancies
- Compliance – to ensure the company’s financial practices comply with relevant laws and regulations
Why is Bookkeeping Important?
1. Organisation of Accounts
Bookkeeping ensures all financial transactions are recorded, and done so accurately and systematically, which is essential for reliable reporting.
Organised records help to manage cash flow, track expenses and monitor profits and losses.
2. Allows You to Budget Effectively
The data provided by bookkeeping is crucial in financial forecasting and budgeting,
which involves identifying trends and addressing financial challenges that may arise.
3. Enables You to Strategise and Meet Business Targets
Precise financial data is needed to create an effective strategy, making informed decisions regarding operations, investments and future planning.
It also allows you to keep track of how close you are to hitting your businesses financial targets.
4. Ensures You Meet Government Regulations and Stay Compliant
Bookkeeping offers you peace of mind that you’re staying compliant with financial regulations and tax laws.
Accurate records are essential for preparing tax returns and avoiding penalties.
5. Prepares You for Auditing
Well-maintained and accurate records ensure that you’re prepared in the event of an audit.
It offers a clear trail of financial transactions, so that you’re able to verify financial statements and activities.
6. Investor Confidence
If you’re seeking investment, it’s crucial to have transparent and accurate financial records,
as investors rely on this data to assess the viability of their investment.
Why Hire a Bookkeeper?
While some business owners tackle bookkeeping themselves, there are a lot of perks in outsourcing to an accountancy firm.
- We Save You Time – It takes a lot of time to collect and organise receipts, verify invoices and ensure that everything is recorded accurately. We save you time byhandling the financial day-to-day so you can concentrate on business operations.
- We Help You To Avoid Mistakes – Staying on top of financial data can be a lot, not to mention the regulation laws you need to ensure you’re compliant with. We help you to avoid mistakes which could cost you more money in the long run.
- We Ensure Cash Flow Is Steady – If you’re not aware of outstanding payments, these can impact cash flow. We stay on top of these and will send you reminders to keep cash flow consistent, which helps when seeking funding or investment.
- We Can Save You Money – When maintaining your financial records, we assess spending trends and catch any unnecessary charges. Plus, we’ll help you to avoid any late penalties that could be incurred if financial data isn’t processed correctly and collated in a timely fashion.
What We Do
We take all your receipts, invoices and other transactions, recording and sourcing the data using Xero. We’ll deal with all the admin tasks, like ensuring bills and invoices are reconciled correctly and keeping account codes up to date.
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