Are you familiar with the different types of bookkeeping that are out there? Which one is best for your business? Let’s take a look at the different types of bookkeeping in the article below.
If you are a business owner then you will have to deal with accounts at some point. Having an organised system to keep track of what is going on with your business’ finances is an absolute must.
When we talk about this type of system, it is often referred to as ‘formal bookkeeping system’.
What is a Formal Bookkeeping System?
A formal bookkeeping system is a system that allows you to get a quick overview of your company’s finances. This system can be as simple or complex as you need it to be depending on the size of your organisation.
The important thing is that it is, indeed, systematic. Keeping your receipts in a shoebox does not equate to a formal bookkeeping system.
Do You Need a Bookkeeper to Have a Formal System?
Hiring bookkeeping specialists is not essential, but it is certainly useful for a lot of business owners.
If you aren’t confident in your ability to design and implement a bookkeeping system, then it does make sense to hire someone to help you get a robust plan in place.
Once you have a bookkeeping system set up that records income and expenses and shows you your cashflow at-a-glance, you will be in a good position to manage your records yourself.
If your bookkeeping system is well-designed, then maintaining it on a month to month basis should not be too onerous a task.
With that said, many people do hire a bookkeeper to tackle the ongoing management of their books, so that they don’t have to worry about processing payroll and invoices, and doing all of the data entry themselves.
A good bookkeeper will save you a lot of time, and free you up to handle the parts of the business that you are best at, and that you went into business for in the first place.
What Makes A Good Formal Bookkeeping System?
There are numerous different bookkeeping and accounting methods, and no one method will suit all businesses. At their most basic, the different methods can be categorised as being one of two different systems: cash, or accrual.
The cash method involves reporting revenue and expenses when the revenue is received, and the expenses are paid out.
Accrual, on the other hand, involves reporting revenue when it is earned (and the invoice is sent) and expenses when they are incurred (even if they have not been paid yet).
The important thing from a business owner’s point of view, especially when a business is still small, is that you are consistent with which method you use.
Depending on the size of your business, the accounting dates, and the nature of the work that you do, there may be tax advantages or disadvantages to recording your expenses in a particular way.
This is something that a good accountant can advise you on. Consistency is key.
Once you know how you are supposed to record income and expenditure, you should set up a system that allows you to note transactions in exactly that way quickly and efficiently.
For a business that does not do a lot of transactions, that could be something as simple as a cashbook.
For a business that processes a huge number of orders and deals with multiple suppliers, you might find that it is a lot easier to log transactions online in Sage, Wave, Quickbooks or something similar.
The good news is that online accounting systems are generally fairly easy to learn, so once a bookkeeper has explained the terminology to you and showed you how to log your financial activities, you should be able to keep up with the workload fairly easily.
Formal bookkeeping systems should save you work, rather than creating it!
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