Businesses, no matter how big or small, have tons of transactions every day. If you own a business, you need to keep track of the cash inflow and outflow for various reasons, such as filing tax returns, etc. This is why you should take the necessary measures to record and track the finances of your business. This is where Bookkeeping comes in.
So, what is Bookkeeping? Bookkeeping is the practice of recording and tracking a business’s finances, irrespective of its size. There are two types of Bookkeeping, single-entry and double-entry. Bookkeeping has a smaller scope of work than accounting and only handles administrative tasks based on finances.
Let’s take a look at what Bookkeeping is and how it works.
What is Bookkeeping in business?
When you are the owner of a business, you have to deal with a lot of transactions on a daily, weekly, monthly, and yearly basis. You have to both record and keep track of these transactions for various purposes, such as decision and policy-making, as well as filing tax returns. For this, you have to have an efficient method of keeping track of the finances, which is Bookkeeping.
But what is Bookkeeping? Bookkeeping tracks both the cash inflow and outflow for your business and also records them. For instance, as a business, you will have payments from your customers as a cash inflow, while you have to pay your vendors and other parties, which is a cash outflow.
All this information about small business bookkeeping is crucial for your business, and Bookkeeping helps you record and track them.
What does Bookkeeping include?
Now that you have a basic idea about “What is bookkeeping?”. But what does Bookkeeping include? Which aspect of a business’s finances does Bookkeeping deal with? Here are a few aspects of Bookkeeping.
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- Recording transactions using various methods, such as software and spreadsheets.
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- Collecting financial records
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- Organizing financial records
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- Tracking different accounts’ credits and debits
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- Making income statements as well as balance sheets
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- Generating invoices and receiving payments
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- Reconciling financial statements
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- Completing payroll
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- Filing tax returns for the business
What is bookkeeping and accounting difference?
Usually, people use the terms bookkeeping and accounting interchangeably. While to the naked eye, the scope of both Bookkeeping and accounting work might seem the same. Accounting has a much broader scope of work.
So, what is the meaning of Bookkeeping? As mentioned earlier, Bookkeeping works with the basic ways of tracking and recording the finances of a business. It only deals with the administrative side of finances. They don’t make decisions themselves, only provide the data that helps make various decisions and policies.
Accounting, on the other hand, is an umbrella term that also includes Bookkeeping. Apart from simply recording and keeping track of the income and expenditure of the business, accounting also makes crucial decisions for the business. It analyzes the data put together by Bookkeeping and analyzes the financial condition of the business. Accounting is also well equipped to perform audits, unlike Bookkeeping.
How many types of Bookkeeping are there?
There are two kinds of Bookkeeping, both of which have different scopes of work. These are:
Single-entry Bookkeeping
If you have a smaller business or you are just starting up, then single-entry Bookkeeping is the perfect type of Bookkeeping for you. This type of Bookkeeping makes only one entry for every transaction. Also, a transaction gets entered by single-entry Bookkeeping when it actually takes place, so credited transactions are not entered here.
Double-entry Bookkeeping
Double-entry Bookkeeping is a more detailed type of Bookkeeping. So, what is the meaning of double-entry Bookkeeping? Unlike the previous type of Bookkeeping, double-entry Bookkeeping is a type of Bookkeeping that enters every transaction into two different accounts, the credit account as well as the debit account. All of the expenses, revenues, equities, assets, and liabilities are recorded by double-entry Bookkeeping.
What are the benefits of Bookkeeping?
Why should you invest in Bookkeeping? What are its benefits? Let’s take a look at how you can be benefitted from Bookkeeping.
Getting access to all transaction details
Since Bookkeeping keeps track of every single transaction related to your business, such as wages and taxes, you have detailed access to all of these. So, whenever you need detail about any transaction, you can easily avail it. This comes in especially handy during an audit, as you can provide the details of your balance sheet and income statement whenever they are needed.
Being able to make informed decisions
You need financial records whenever you need to make a strategic decision regarding your business. And what better way to get these records than having a bookkeeping department? By looking at the transaction records, a business can make proper strategic decisions regarding the business’s future.
Bookkeeping also helps you identify the problems your business might be facing. By doing so, you can also overcome them. If you find any errors in your business finances, you can quickly work to fix them because of proper Bookkeeping.
Helping in filing tax returns
When filing your tax returns, you must adhere to the rules and regulations of the ATO (Australian Taxation Office). To do so, you need access to all of your transactions for the past year, which will be duly provided by Bookkeeping. You have to provide your financial statements, financial transactions, tax compliance, and cash flow reports to the ATO, all of which are provided by Bookkeeping.
Final words
One of the questions we often face while talking to new business owners is, “What is bookkeeping?”. Read the analysis, and assess your options. Then, decide whether you need a bookkeeping service. If so, you should contact us and hire our bookkeeping service.
FAQs
What are the five elements of Bookkeeping?
The five key elements of Bookkeeping are:
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- Assets
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- Liabilities
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- Revenues
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- Expenses
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- Owner’s equity
What is another name for a bookkeeper?
You can also call a bookkeeper or a recorder. Unlike an accountant, the recorder is a perfect alternative to a bookkeeper as it denotes that a bookkeeper also records the transactions of a business.
Is bookkeeping a type of accounting?
Yes, Bookkeeping is a type of accounting. But the scope of Bookkeeping is narrower
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