Digital purchases, credit buying and subscriptions have made spending easier, but they also make keeping track of your money more complex. Fortunately, bookkeeping software and technology are rapidly improving to keep pace, helping to accurately record the comings and goings of money through your business. That doesn’t mean you can ignore your bookkeeping responsibilities, there is still a lot of work to be done.
What is bookkeeping?
Bookkeeping is a record of your daily business transactions, intended to give you a snapshot of your overall balance once income and expenses are accounted for. Without it, you can easily lose track of how much you are spending or accidentally work into the red.
Bookkeeping vs Accounting
Accounting is a more complex system with a focus on the big picture, which is why business owners are happy to outsource accounting tasks (including their taxes) to professionals. Many businesses don’t realise that bookkeeping is just as important. You can keep your accounts in line well before tax time by appointing someone to gather receipts and payment records to monitor a business’s profit and loss balance day-to-day.
Types of bookkeeping
The bookkeeping system you choose will depend on how complex your finances are. For simple transactions, smaller businesses can use single-entry cash bookkeeping but a larger business with more complex sales and spending will need the double entry and accrual-based accounting method.
Single-entry accounting requires bookkeepers to record transactions as either an expense or income. You can add up an overall sum of expenses and an overall sum of income to view weekly, monthly or annually.
With double-entry bookkeeping, all transactions are listed twice, as income and expenses, which can be reconciled for accuracy. It’s more thorough so you may need an accredited bookkeeper on hand.
Accrual-based vs cash-based
Using the cash method is more accurate as every translation is locked in when the cash trade takes place, however, accrual is favoured by professional bookkeepers as it gives a well-rounded picture of the company standings by recording all credits and debts even if they haven’t been paid and received yet.
As you build your financial records you have the opportunity to compare and analyse different finance patterns using financial statements. Bookkeepers use these to recommend changes and create better money management practices.
Statement of cash flows
This statement monitors cash flow to see how successfully your business is handling financial obligations for sustainable profits and growth.
Profit and loss statement
This statement selects a timeframe to summarise current assets and liabilities and also takes into account any shareholder equity.
What are your biggest income streams and how regularly is the money coming in? Knowing your income sources and patterns can help target your most successful projects and campaigns to see further growth.
When you have an accurate record of your income and expenses you can check your records against the bank to highlight discrepancies and correct errors in your paperwork. It gives you confidence that your records are accurate so you can rely on your bookkeeping data for ongoing budgets and strategic planning.
Bookkeeping best practices
It’s important that your bookkeeping records are accurate. To manage this there are some best practices to follow:
- Keep to deadlines
- Maintain proper records
- Store receipts
- Keep personal and business accounts separate
Bookkeeping is a small task that has a big impact on your ability to manage and control your business finances. Taking the time to appoint a bookkeeper will help your business run more smoothly.