Book Keeping 101 Explained

A free article on Accounting

Book keeping is normally performed by a bookkeeper; you shouldn't confuse bookkeeping with accounting" because they are two very different things! Most times, the accounting process itself is done by an accountant" accountants create reports from the records of the company itself. These records are usually prepared by a bookkeeper.

The most common methods of book keeping are single entry and double entry systems. These are seen by most people as 'real' methods of bookkeeping, but don't get overwhelmed " any process that involves keeping the records of a business's financial transactions classifies as book keeping.

Many small businesses tend to neglect their book keeping, feeling that it's more important to be out of the office generating new sales then sitting inside adding credits or debits to a sheet, or setting up what they see as an unnecessarily complex bookkeeping system.

Don't fall into this trap" don't think that book keeping is something you can ignore, because it's certainly not. Appreciating how bookkeeping really influence your business can make it more of a priority in the future.

Book keeping is simply the recording of your business's financial transactions. Book keepers basically keep track of all things dealing with the finances, including receipts. Recording the entries chronologically, they make sure that all cash transactions, sales, purchases, and more go into a journal, or ledger.

This information then goes to an accountant, who usually processes it, analyzes what's there, and produces a monthly financial statement that helps you get a better idea of where you stand.

Book keeping doesn't contribute directly to your profits " no one is going to pay you to do your books " there are numerous reasons why you should make book keeping a top priority.

- If you're going to be relying heavily on outside financing, you're going to need detailed, and accurate, records of all of your businesses finances. Lenders and investors alike need this information to measure how much risk they're putting into this, and if you don't have the information, you won't get the money.

- At the end of the tax year, when you go to figure out how much you owe the IRS in taxes, you need to look at an accurate assessment of how much you've made. This can't be done without proper book keeping. Moreover, you need to be able to show proper receipts to verify information regarding tax deductions. If you don't have this information and you get audited, you can suffer huge fines.

- Looking at your books is like going to the doctor for a checkup. With an up to date and accurate ledger, you can see who is past due on payments, who has outstanding credit, what is owed to you, and what you owe " right there. The financial reports that come from good bookkeeping help you keep in line with a budget, judge what you're grossing in income, and will help you determine how healthy your business is, financially speaking. Without it, you have no way to anticipate any cash flow issues.

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