Many entrepreneurs are afraid of bookkeeping, although it provides you with crucial financial information on the state of your business.
It’s the equivalent of driving a car while wearing blindfolds. Even if the automobile is still moving, you won’t know when you need to pull over, slow down, or speed up.
Small business entrepreneurs and freelancers don’t have to struggle with bookkeeping. We’ll go through the basics of bookkeeping, why you should prioritize it, and other things you should know in this article.
What is bookkeeping, exactly?
Bookkeeping is the process of keeping track of your company’s financial transactions from the beginning to the present. A bookkeeper is required to document all transactions with financial repercussions. This could be a receipt, purchase order, invoice, or some other type of financial document.
Bookkeeping transactions can be manually entered in a diary or entered into a spreadsheet tool like Microsoft Excel or Google Sheet. Many companies employ customized software to display their financial operations.
The Importance of Bookkeeping
Many small business owners and freelancers make the mistake of believing that the primary value of bookkeeping is to help them stay organized. However, its benefits are significantly more extensive.
It provides you with a detailed accounting of your financial transactions.
Every business owner has to know where their money is coming from and going to. This is where bookkeeping comes in.
You should hire a bookkeeper if you want to know how much you spend on electricity bills, rent, office supplies for your employees, or even how profitable new customers are compared to old ones.
When you meet tiny and big differences between vendors, staff, and consumers, this record will come in helpful.
It aids with budgeting.
Another reason bookkeeping is important is that it assists business owners in appropriately allocating finances. You can quickly analyze your financial resources if your expenses and revenue are structured.
You can use this information to develop a better financial plan for your company’s growth. All of your expenditures will be guessing if your books aren’t up to date or accurate.
You can make tax preparations.
Tax preparation may not be the most exciting aspect of running a business, but it is required. You can have your financial information available when your bookkeeping is in order, and the government won’t be breathing down your neck.
It will assist you in making future plans.
Every firm strives to expand. However, with insufficient financial records, this is impossible.
When your brand’s bookkeeping is in order, you can eliminate the guesswork when it comes to defining financial goals for your company. As a result, you can plan your next moves properly.
It gives you peace of mind
Running a business is difficult enough without adding to the pressure. When you prioritize your bookkeeping, you can rest assured that all of your financial data will be available for government examination at any time.
As a result, you’ll have more time to focus on other parts of your organization, such as marketing.
Accounting and Bookkeeping are two different things.
If you’ve never ran a business before, you could mistakenly believe that bookkeeping and accounting are the same thing. Despite the fact that accountants and bookkeepers have similar goals, they serve different reasons.
Because it deals with the recording of financial transactions, bookkeeping is highly transactional. Accounting, on the other hand, is more subjective. It provides business owners with information about their financial health based on bookkeeping data.
We’ve summarized the primary tasks of both procedures below to better show the differences.
- Keeping track of and classifying everyday payments and expenses
- Sending invoices to consumers and keeping track of funds received
- Organizing bank reconciliations
- Creating financial statements every month
- Payroll processing
- Bookkeeping for accountants
- Providing accountants with financial and tax papers on an annual basis
- Making adjustments to entries
- Cost of operation analysis
- assisting business owners in making smarter financial decisions
- Financial Statement Analysis
- Examining your financial situation
- Creating financial projections
- Conducting audits
- Filing tax returns, assisting with tax planning, and offering tax advice
Types of Bookkeeping Books
Here are some books to help you with your bookkeeping. .
Traditional Accounting Books
These novels are frequently authored by hand. Because it is less expensive, it is the most typical sort of book filed by small business owners.
Accounts in loose-leaf format
This is a term used to describe bound ledgers and journals made up of printed excel sheets. Business owners may have to explain why they picked this strategy over traditional books.
Before submitting printouts to BIR, you may need to book-bind them.
Computerized Accounting Records
Without a doubt, this is the most easy and efficient method of keeping track of your financial records. If you want to use this system, you must choose a BIR-registered system.
This form of accounting book can be created in a variety of software programs, including Quickbooks, Xero, Wave, Excel, and others.
Different Bookkeeping Methodologies
The various sorts of procedures for recording business transactions are listed below.
Double-entry vs. single-entry
Single-entry bookkeeping is ideal for organizations that are small and straightforward, with little activity. It’s also a good option for freelancers with a small client base.
This strategy is similar to keeping track of your bank account. All you have to do with single-entry accounting is keep track of transactions like taxable income, cash, and tax-deductible expenses.
It’s termed a single entry because each transaction only requires one entry, comparable to check registers. The entries are classified as negative or positive in one column.
You might also keep a two-column ledger, one for expenses and the other for revenue. Because each transaction has only one life, this is still single-entry.
Accrual vs. Cash
Expenses are recognized when money is paid, and revenues are recognized when money is received. It does not, however, recognize accounts payable or receivable.
Because it is simple to maintain, many businesses utilize the cash basis of accounting. It’s also straightforward to figure out when transactions happen. If you want to keep track of how much cash a business has at any particular time, this cash approach is ideal.
Meanwhile, the accrual system records expenses and revenues as they are incurred, regardless of whether they are paid or received. For example, when a project is completed, rather than when it is paid, it is recorded as revenue. In comparison to the cash technique, it is also more widely used.
Maintaining Important Bookkeeping Records and Documents in the Philippines
- Book of Cash Receipts
- Book of Cash Disbursements
- Journal of Subsidiary Sales
- Journal of Subsidiary Purchases