13 Reasons Why Bookkeeping is Important

Because the funds are accounted for in the bookkeeping, you use the data to determine growth. Bookkeepers can take a huge weight off the shoulders of business owners and leaders when it comes to the company’s finances. Most business owners can rest assured knowing that bookkeepers care for a variety of tasks and responsibilities to ensure that the company remains in good financial standing. The double-entry system of bookkeeping is common in accounting software programs like QuickBooks.

Its this delicate balance of cash inflow and outflow that will keep your business going. As stated previously, the product of bookkeeping is financial statements. Bookkeeping allows investors to have up-to-date and accessible information. Investors will be able to make better, well informed, decisions which is the ultimate purpose of bookkeeping. While any competent employee can handle bookkeeping, accounting is typically handled by a licensed professional.

Now that you’ve got a firm grasp on the basics of bookkeeping, let’s take a deeper dive into how to practice good bookkeeping. There’s no one-size-fits-all answer to efficient bookkeeping, but there are universal standards. The following four bookkeeping practices can help you stay on top of your business finances. At the end of the accounting period, take the time to make adjustments to your entries. For example, you may have estimated certain invoices that are later solidified with an actual number.

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While the basics of accounting haven’t changed in over 500 years, the practice of bookkeeping has. Bookkeeping was once done manually using actual books called journals and ledgers. Because bookkeeping is based on double-entry accounting, each transaction affects two accounts — one gets debited and the other is credited. By regularly updating financial records, bookkeeping helps businesses stay prepared for tax season.

Accurate Bookkeeping Keeps You Prepared for Taxes

As a business owner, a large part of your income comes from your business. In order to know how much you earned, you have to know what your business earned first. Without bookkeeping or accounting, you are blindly bookkeeping for nonprofits driving your business.

1. It is important to note that companies can do everything correctly and still be subject to an audit by the IRS.
2. Bookkeeping serves as more of a preliminary function through the straightforward recording and organizing of financial information.
3. If the IRS feels that your books are disorganized or outdated, they have more motivation to impose penalties.
4. Many small companies don’t actually hire full-time accountants to work for them because of the cost.

You should be able to find information regarding your business at any time. If you enjoy organization and numbers and have experience with bookkeeping, starting your own business offering this service might be a smart career choice. We provide third-party links as a convenience and for informational purposes only.

Embracing bookkeeping technology can help businesses thrive and dedicate resources to more pressing priorities. The information outlined in these reports plays an important role in providing the information needed for leaders to make informed decisions that drive the business forward. Here are the top reasons why bookkeeping is essential for all how to monitor and understand budget variances businesses. If you find yourself needing to implement a bookkeeping process, consider hiring a bookkeeping professional to help.

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If you don’t provide records requested the IRS, that could mean penalties and fees. If you don’t provide records requested by investors or lenders, that could mean a stoppage of cash flow and so on. Being disorganized with your books could cause your relationships with these parties to be compromised or terminated altogether. As a business owner, it is important to understand your company’s financial health. Bookkeeping puts all the information in so that you can extract the necessary information to make decisions about hiring, marketing and growth. This means that you don’t record an invoice until debits and credits it is actually paid.

Accounting takes that information and expands on it through analyzing and interpreting the data. This content is for information purposes only and should not be considered legal, accounting, or tax advice, or a substitute for obtaining such advice specific to your business. No assurance is given that the information is comprehensive in its coverage or that it is suitable in dealing with a customer’s particular situation. Intuit Inc. does not have any responsibility for updating or revising any information presented herein.

In these documents, transactions are recorded as a single entry rather than two separate entries. Consider using one of the best bookkeeping services to make managing your books a breeze. When manually doing the bookkeeping, debits are found on the left side of the ledger, and credits are found on the right side. Debits and credits should always equal each other so that the books are in balance. Whether you do the bookkeeping yourself or hire someone to do it, certain elements are fundamental to properly maintaining the books. Some of these elements are done more regularly than others to ensure that the books are always up to date.