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Bookkeeping is the recording of your company’s financial activities. Bookkeeping happens on a daily basis. Bookkeeping includes all actions in your business. Some actions deal with financial transactions. These can be accounts receivable and payable and payroll. Other actions deal with information related to your business. These can be preparing financial statements and working with an accountant for tax preparation. Any time you record financial activities, you are doing bookkeeping. Bookkeeping makes sure that transactions are current and accurate. Accurate bookkeeping is key to the health of your business. It’s important to reconcile your financial activities on a monthly basis. Today, bookkeepers can be hired in-house, but often bookkeepers are freelance and in some cases can be replaced by software.
One type of account that needs bookkeeping is Accounts Receivable. Receivables happen when goods or services are provided to a customer without payment. You need a record of these transactions to make sure you get paid. Another type of account that needs bookkeeping is Accounts Payable. These happen when you receive goods or services for which you have not yet paid. Keeping accurate track of these two accounts helps you know your cash flow. Last, Payroll Account may be the largest account that needs bookkeeping. It is important for tracking your company’s health. It is important because your employees depend on their salary. It is also important because of taxes and other government regulatory processes.
Bookkeeping should not be confused with accounting. Sometimes, the terms are used vice versa. However, accounting involves the managing of finances of a business. Bookkeeping involves the tasks needed for accounting. The most important task is recording transactions. This task must be done daily. Each transaction must be recorded so that there is documentation in the books, or accounting system. The accounting system can be used to keep an audit trail. This audit trail can be used for several purposes. It may be transaction recovery or any audit that may occur.
There are two bookkeeping systems that can be used. One is a double-entry bookkeeping system and has double parts. One part is a debit entry and the other is a credit entry. Each transaction is entered twice. It is entered once into each ledger. At any point, the two ledgers should be equal. If not, you know that an error has occurred. The reporting system uses an accrual reporting. The other is a single-entry bookkeeping system. It is much simpler to use. There is only one entry into a transaction log. The reporting system is cash basis only. Although easier, the double-entry system is used more by business for bookkeeping.
In the past, businesses have used paper books for bookkeeping. Now, most businesses use some type of computerized system. The bookkeeping software involves either the single-entry or the double entry method. The software can record all transactions and store them. They can be used to analyze the transactions as well. These systems can also be used to lower the cost to a business of an actual bookkeeper. The software is the bookkeeper. It can be used by an accountant to manage the financial aspects of the business.