Are you wondering what the importance of bookkeeping is? Bookkeeping can be confusing and time-consuming. If you’re not an expert in this field, you may end up spending more time correcting mistakes than you spend recording your profits. But there are some basics that you need to know if you want your bookkeeping to be good. Here are some bookkeeping basics. Get started with these tips.
Why is Bookkeeping Essential to your Business?
Bookkeeping is essential for helping you keep track of your finances. Aside from the fact that you’re required by law to keep accurate accounts and records, accomplishing this also will save you hassle in the future. A well-implemented bookkeeping or accounting system creates a detailed financial roadmap for your company. It provides you with the information you need to make crucial decisions regarding your finances.
Personal and Business Accounts
When it comes to accounting, you should remember to have separate files for your personal and business accounts. If you have individual bank accounts, you’ll be able to determine your profit and loss situation quickly at tax time. You can also make use of them during audits. For instance, if you have separate books for your personal and business use, you’ll be able to use them as a legal defence when anyone probes into your accounts.
In keeping your financial records clean and neat, you must make sure to create a standard bookkeeping process. Keep all your receipts and payments in excellent formats that are easy to read. Also, label each document with the name of the person who received it, the date, and the amount. If you’re using a computerised accounting system, mark each document too. This will allow you to match your company’s accountants and bookkeepers’ names to each financial record.
Hiring a professional bookkeeper
A professional bookkeeper can provide many valuable services that will make your bookkeeping more efficient. The most obvious one is to eliminate errors caused by missed calculations or data entry. An experienced bookkeeper will make sure that all of your accounting documents are error-free. He or she will make sure that all the financial records are up to date and that all of them are presented correctly.
If you want to improve your bookkeeping practices, you might consider hiring a company specialising in electronic bookkeeping. An electronic bookkeeping system can streamline your bookkeeping practices because it removes the paper from the picture. Instead of recording financial information manually, an electronic system will record everything in digital format.
Using an electronic system means that all of your financial statements can be downloaded immediately, rather than having to send paper records back and forth to your accountant and bookkeeper. This convenience has resulted in more people taking advantage of electronic bookkeeping, which has led to their increasing use across the country.
Manual vs Electronic Entries
When it comes to bookkeeping and accounting, there is a considerable difference between what should be done for business finances and what should not be done. One of the best ways to avoid the mistakes made when it comes to your finances is to make sure that your receipts are correctly entered into your computer records.
The problem with making manual entries into your accounting system is that it’s easy to accidentally enter wrong amounts, which then causes the incorrect item to appear in your ledger. If this happens, your tax return will be invalid, and you’ll end up paying a lot more tax than you should have been paying. By using a professionally designed accounting program, all of your receipts will be entered appropriately, and you can ensure that you don’t accidentally double write anything.
If the bookkeeping is up to date and you are using a good accounting system, you will be able to get reports instantly. It is important to see the position of the business. Have you got enough money to pay outstanding invoices? Who owes you money? How much do you owe suppliers? If your bookkeeping is not up to date, it can be easy to miss a customer that owes money.
The Importance of Bookkeeping for Business Planning
By having your correct bookkeeping figures, you can plan. You can produce cash flow forecasts, which will help you to review the plans for the business. There may be times when cash is tight and financial plans need to be put in place. Perhaps you are looking to expand the business, producing the reports will enable you to decide the best time.
There are many different business taxes it doesn’t matter if you run a limited company or self-employed. Ensuring you have enough money to pay for taxes is important. By providing your financial figures, you can calculate the taxes that need paying.
Importance of Bookkeeping – Required by Law
All business are required to keep financial records by law. Most businesses need to keep records for six years. When providing figures to Companies House or HMRC, you will need to keep backup records as well. These can be either paper or electronic records. HMRC may carry an inspection of the records.
When all your bookkeeping is complete, the figures can be used for financial analysis. Financial analysis is used to see how well the business is performing during a period.
How often should I complete Bookkeeping?
It will depend on the size of business you run. It is normally better to complete bookkeeping little and often. It makes it easier when you need the reports and figures. It is important to get at least your sales invoices sent on time.
To help with bookkeeping on a regular basis, good accounting software is recommended. If you are self-employed QuickBooks and Xero, both offer excellent software that can be used on your mobile device.
If you are still wondering about the importance of bookkeeping for your business, read our bookkeeping basics section.