Successful businesses follow certain bookkeeping practices. The practices track a business entity's financial position and regulatory compliance. Building and maintaining bookkeeping and accounting records takes considerable effort and time.
It is the practice of recording and keeping track of financial transactions. The function of a bookkeeper is to summarize business activities into financial reports. These reports aim to show the fiscal position and performance of a business. Other services include the following:
Cleaning up books of accounts
Tracking performance indicators
Preparing tax returns
Reconciling bank statements with financial statements
Maintaining accounts payable and accounts receivable
Cash flow analysis and budgeting
The former relates to collecting and maintaining daily fiscal records. These records are essential to preparing books of accounts or financial statements. The latter relates to preparing, analyzing, summarizing, and reporting fiscal information collected by bookkeepers.
It is important to record transactions from opening to closing your business. Bookkeepers use either the double-entry or single-entry bookkeeping system to record transactions. Annual bookkeeping generally involves the following process:
The first step is to understand the concerned business's accounts and transactions. These include:
You should understand business transactions and record them under the appropriate accounts.
Business transactions involve original paperwork. These include invoices, credit notes, receipts, petty cash vouchers, and more. You should keep these original documents safe for future reference.
Record the details of the original paperwork in the original books of entry. These include cash books, petty cash books, and sales books. Then, transfer the details recorded to a ledger. That is the basic book of account containing records of all the credits and debits in the business.
Next, it is important to record all transactions in the books of account. You want the bookkeeping system and financial statements in place. That will help you record the transactions under the correct information. Otherwise, there will be a mismatch in the balances, leading to the non-closure of the books.
The next step is to compile the complete list of accounts, known as the adjusted trial balance. You must ensure that the credits and debits are equal. Make adjustments in case of any discrepancies in the final balance. Record them as journal entries and tally the credits and debits. The balancing or tallying of the credits and debits usually happens yearly.
Having balanced the books, it is important to summarize the flow of funds in each account. The aim is to provide a clearer picture of the company's financial health. Standard financial reports are typically grouped into three. These include balance sheets, profit and loss accounts, and cash flow statements.
Bookkeeping is foundational to running a successful business. After all, you need to know how much money you are making and where it is going. Otherwise, how will you find ways to increase your profitability?
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