Most business owners have a unique vision – a product or service they want to provide to the market. However, not everyone is an accounting expert or have the training to perform necessary financial processes such as bookkeeping. If you’re a start-up or small business owner, you might be wondering what bookkeeping exactly is and what it entails.
Different financial transactions and tasks comprise bookkeeping. This includes a lot of activities. A few of them are:
- billing for goods and services provided to customers
- recording receipts from customers
- tracking invoicing from suppliers
- paying suppliers for goods and services provided to you
- processing payroll and compensating employees
- creating and updating financial reports
Importance of bookkeeping
As you can see above, bookkeeping is the summation of financial transactions and tasks that a company has to perform on a daily basis. It tracks cash flow, accounts receivable and payable, appreciation and depreciation, etc. Therefore, since a business is mostly an income-generating endeavour, bookkeeping is a reliable way of measuring how a company is performing. It helps you analyse business performance and track profit and growth. In addition, bookkeeping also helps you:
- create and maintain a budget
- prepare your taxes
- keep financial records organized
- make better business decisions
- plan future financial endeavours
- report to investors
- create business strategies
Because bookkeeping is so important, you need a certified accountant in your team to keep your books and track financial transactions. It is up to you to decide whether you’re going to have an accountant in-house or if you’re going to outsource from another firm. No matter what your decision is, if you’re a business owner, it would also be beneficial to take bookkeeping training courses from registered training providers such as e-Careers.
Basic bookkeeping accounts
There are ten basic bookkeeping accounts that every business owner should be familiar with. Let’s go over each of them quickly:
- Accounts Payable – bills to pay or amount owed to suppliers and vendors for goods and services acquired
- Accounts Receivable – money to receive or amount owed by customers for goods and services you have provided
- Cash – a company’s current assets or assets that will be turned into cash within a given period, usually a year
- Inventory – a list of items that a company owns such as property, equipment, goods in stock, etc.
- Loans Payable – a liability account charging interest, computed by the unpaid principal balance as of the date of the balance sheet
- Owner’s Equity – an owner’s share of the company’s total assets
- Payroll Expenses – labour costs including but are not limited to salaries, health insurance, employee benefits, bonuses, etc.
- Purchases – an account recording purchases of inventory or merchandise during a given period of time.
- Retained Earnings – profits earned minus dividends paid to investors
- Sales – any operating revenues earned through business activities
Bookkeeping is a vital part of the accounting process. Aside from being required by the law, it also plays an important role in the overall success of a business. Hopefully, this bookkeeping guide for beginners has helped start-up and small business owners out there understand this financial process better.