Keeping accurate financial records allows a business to manage and control assets, liabilities and incoming and outgoing money. A business can help control its financial future by utilising its bookkeeping system to make informed business decisions. Information relating to financial transactions can be used to prepare budgets, set financial goals and make essential business decisions about the running of the business. Businesses need this information to help answer a number of questions, such as:
• Will the business have enough cash to pay its bills and wages?
• How much are the assets of the business worth?
• Can the business afford to borrow money?
• Is the business financial enough to expand its operation?
• Should the selling price be changed? Are the price points being charged suitable for maximum profit and financial gains, or does it need to be adjusted?
• Does the company have too much stock it needs to sell to make more money?
• Are there any ways in which the company can cut costs?
• How does the business make plans to grow or contract in the future based on the current profit or losses it is making?
• Are sales goals and business goals and targets being met?
The purpose of a business is to make a profit ultimately, bookkeeping helps businesses keep track of their money to make informed decisions in order to make a profit.
WHY IS RECORD KEEPING IMPORTANT IN BOOKKEEPING?
Record keeping is essential in any bookkeeping practice. Keeping track of money that is coming into and out of a business by keeping a paper trail is essential to accurately tracking transactions.
Legislation also stipulates that companies lodge their profit and losses and submit a tax return annually. The kinds of records that are kept may differ from paper receipts and ledgers to electronic copies of receipts and utilising online accounting software. Legislation also mentions that records need to be kept for a certain amount of time.
The most basic reason to keep a paper trail in bookkeeping is to ensure that there are sufficient records and information for any audit that might be required. There are lots of ways you can electronically keep paper receipts including phone apps and online software.
A business’s list of books includes the following:
• General Ledger – this is a summary sheet which shows all of the business account positions and summarises the transactions that occurred. It provides an overview of the business’s financial position.
• Chart of Accounts – this is a list of all the accounts used by the business with a description of what the account is used for. These descriptions tell you where to record any transactions. The chart of accounts is always done in a specific order: it starts with everything required to make the balance sheet and follows with everything required to complete an income statement.
• Balance sheet – this shows your detailed financial position at a specific time. The balance sheet shows both your income and your expenses. It’s called a balance sheet because it is based on this equation:
Assets = total equity + total liability
Where assets are all the items owned by the company, liabilities are all the debts owed by the company, and equity is the money invested in the company by owners or shareholders.
• Income Statement – this shows your income. Your income statement will appear slightly different depending on whether you run a cash based or an accrual system. The income statement shows what you have earned, minus the cost of goods sold (any discounts) and any expenses. At the end of the income statement, you can identify the net profit and loss for the business.
• Expenses statement – this provides details of your expenses at any one time.
• Profit and Loss statement – this shows how much the business has made or lost during any time period. It frequently includes details of all the expenses made in any category
What Do You Need to do Bookkeeping?
Bookkeeping used to be done with a pen and paper; but it is much more common fhttps://www.sustainablelivingcoursesonline.com.au/product.aspx?id=6048or it to be done on a computer today.
If you know how to use a computer, have reasonable basic skills in maths, and get yourself an appropriate computer program to use; it shouldn't be too difficult to undertake your own bookkeeping.
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