Bookkeeping is an essential part of the business that helps you keep track of your spending and income. However, Knowing where to start a new business or maintaining your books for the first time can be difficult.
Bookkeeping is the process of recording transactions and summarizing them into financial statements, which are used for future analysis.
There are three main bookkeeping systems: cash-based accounting systems, Accrual-based accounting systems, and Modified cash-based accounting Systems.
Small businesses use cash-based accounting with simple operations. Accrual-based accounting is more complex and operated by larger firms with complicated processes. Modified cash-based accounting combines features from both systems.
Why do you need Bookkeeping?
Because of its significance, the bookkeeping class has been elevated to a higher position in the business world.
Nowadays, accounting is an integral part of any business. Businessmen need more time to keep track of every single transaction that takes places in their company. They need a third party to help them with this task. This third party is called a bookkeeper, and he is responsible for taking care of a company’s financial records. He keeps track of all the monetary transactions by recording them in ledgers and journals.
When you start your own business, you need help remembering all the deals in your company. So most people hire a bookkeeper to keep track of all the monetary transactions in their businesses.
The primary function of a bookkeeper is to keep tabs on all the financial information related to your business and to give accurate reports regarding your sales, profits, expenses, and taxes due on these transactions.
Ways of bookkeeping help business
1. Clarity on the payable account and receivable accounts
One of the essential functions of a small business is to keep track of all the money that comes in and goes out. As a business owner, it’s your job to ensure you know exactly how much money you have coming in and leaving your company.
While this may sound simple, keeping track of everything can be difficult if you don’t have sound systems. So it’s essential to know how to use accounts payable and receivable to keep track of your company’s finances.
Accounts Payable (AP) will help us monitor everything we spend more clearly. This account should be considered the money our business owes to vendors in the form of invoices or bills.
The opposite of accounts payable is Accounts Receivable (AR) if we sell something and get paid later or simultaneously, our the receivables, which we keep track of in this account.
2. Bookkeeping to check tax costs and payroll costs
Bookkeeping to check payroll costs. A small business is one with fewer than 50 employees. If this is the case, this could be your highest cost, especially if you have a lot of employees. The cost of paying employees can be as high as 40% of your sales revenue.
To keep track of payroll costs, you need to know what each employee earns in wages and benefits every month, plus any other costs associated with them (such as insurance premiums). For example, an employee with a medical condition requiring additional insurance coverage will increase their monthly benefit costs.
Bookkeeping for taxes. You must also keep accurate records to pay your quarterly federal and state employment taxes on time and accurately report this information to government agencies and your employees. For example, if your business has ten full-time employees earning $30,000 per year each (or $1 million in annual sales), then you’ll owe $2 million in employment taxes yearly — or $400,000 per quarter (assuming 26 weeks in a quarter). You’ll also need books to comply with state unemployment insurance requirements and federal income tax laws.
Bookkeeping to monitor cash flow and profit margins. You should always know how much money is coming into the company.
3. Bookkeeping for inventory management
Keeping a record of your inventory is vital in any business, whether running a small company or a large corporation. Bookkeeping will help you keep track of your Inventory and manage it effectively.
Inventory management is essential to every business. It involves tracking the flow of goods and services in and out of your company so that you can plan future stock requirements. This process involves recording all incoming and outgoing items, including their quantity, price, and date.
If you want to manage your inventories efficiently, you must have a sound system to record all your transactions. It can be done using accounting software or even just by using pen and paper if you still need more funds for software.
There are many benefits of keeping accurate records of all your transactions, including:
- The ability to see what products are selling well at different times during the year so that you can plan accordingly
- Being able to identify trends in spending so that you can make changes if necessary (i.e., if there’s a sudden increase in sales for one particular product)
- A better understanding of which products have high-profit margins so that you know where to focus most of your marketing efforts
How will Professional Bookkeepers help an organization?
As we all know, most Small and Medium companies don’t like to maintain in-house full-time employees or professionals for bookkeeping activities because of various reasons like
- Outsourced professionals can deliver the tasks faster due to the deadline they agreed on
- Control of Workload
- lowering the cost with increased efficiency
- Gain access to new technologies and innovative ideas.
I hope you like this information which I provided best of my knowledge. Kindly provide your suggestion, Feedback, and Comments if you have any.
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