Bookkeeping is the core of the accounting system for all businesses.
The people responsible for it are tasked with recording and categorising financial transactions as well as the techniques of recording those transactions.
Small business owners are quick to disregard the significance of bookkeeping due to the lack of knowledge of what it entails and how essential it is to their entity.
This article will look into the fundamentals of bookkeeping and help you understand more about it.
Who is An Accountant?
A bookkeeper records and classifies a company’s financial transactions and an accountant takes over from here.
They analyse all these transactions and reviews, reports, and presents this information to the company’s management or concerned people.
A controller, on the other hand, is the chief accounting officer who is tasked with setting up the entire system.
In a nutshell, they respond to the reviews and reports presented by the accountant, and they are mostly hired as a business grows.
Single vs. Double Entry Bookkeeping
Single entry bookkeeping is like keeping a register since all the transactions made are recorded. This method is basic and works for small organisations.
However, a double entry bookkeeping system comes in handy as the transactions increase in volume.
In this form of recording transactions, two entries are made for each transaction, in that a debit is made to one account and a credit to another.
Cash vs. Accrual Accounting
This is another major decision to be made when it comes to bookkeeping.
If you are running a small business, cash accounting stands out as the preferred option since you only record a transaction when money is transferred from one entity to another.
Remember that cash refers to electronic funds transfer as well.
However, as your business grows, you will offer clients credit, and an accrual accounting system comes into play.
This form of accounting is when you record transactions even when cash does not change hands until a later day, for instance, in the case of Accounts Payable and Receivable.
Before you record transactions, it helps to understand the primary accounts, which are assets, liabilities, and equity.
Assets refer to everything the company owns, such as the inventory and money expected from external sources.
Liabilities are what the company owes, such as accounts payables, loans, and mortgages. Equity is the ownership of the entrepreneur or investors.
When recording your transactions, ensure that you record anything that affects these major accounts correctly using the formula assets = liabilities + equity.
This equation means that everything the business owns is balanced with the claims against the company and what stake the investors have in it.
Income Statement Basics
This statement covers the revenue, costs, and expenses of the business.
Revenue refers to all the money a company receives by selling its products and services.
Cost is the amount needed to manufacture these goods and services sold.
The expenses refer to the money spent to run the company aside from what is spent to produce goods and services.
A bookkeeper should identify these transactions and record them correctly.
Hiring A Bookkeeper
It is vital to get your financial processes in order as soon as you start your business. Due to this, hiring a bookkeeper should be a priority.
They are responsible for the first step of your accounting processes, and if this part is not done correctly, it becomes difficult to make business decisions based on the reports.
You can outsource one who works as a freelancer and pay them on an hourly basis if you do not have the resources to hire an in house one.
If you are looking for a blend of truly personal service and expertise, please call us today on 03 9510 2120 or contact us through our website https://numberspro.com.au/contact-us/