The Business Dictionary defines Bookkeeping as keeping a detailed record of the business transactions for a person or business. Businesses get information for making important financial decisions from bookkeeping, so it is very important to keep accurate books of accounts.
Accounting methods
There are two basic accounting methods from which companies can choose to implement bookkeeping. The accrual basis and the cash basis of accounting. The main difference between the two methods lies in the timing of when revenues and expenses are recognized.
The cash method recognizes revenue and expenses when cash exchanges hands. In the income statement, revenue is reported only when cash is received, and expenses are recorded when cash is paid out.
The accrual method recognizes and records revenue and expenses when they occur.
Importance to your business
Both both small and large organizations require bookkeeping. Keeping accurate business transactions is important to a company’s financial management and reporting. Additionally, a company’s transparency and accountability depend on how great its bookkeeping system is.
Below are six reasons why it is important to keep proper books of accounts:
- The company’s financial management and analysis are improved.
- Records and documents required in compiling tax obligations are kept up to date.
- The auditing process, a statutory requirement by the government, is enabled.
- Evaluation /trend analysis is enabled, making it easy to make comparisons for decision-making.
- The business maintains a clear picture of health.
- The business runs smoothly since it is easy to follow your daily business transactions and cash flows.
Therefore, to run a business stress-free, implement a good bookkeeping system.