Running a business can be extremely exciting, as you get to finally do what you want – and you’re the one calling the shots. However, one fundamental aspect of business that often gets overlooked is the bookeeping basics. And yet, maintaining organised and accurate financial records is paramount for the success of any business, regardless of its size.
In this blog post, we’ll explore the basic principles of bookkeeping bascis and highlight the importance of good record-keeping. We’ll also examine practical ways to streamline your bookkeeping processes and manage your finances effectively.
Bookkeeping: the basics
Bookkeeping is the recording and tracking of all financial transactions of a business. You can then regularly summarise this activity into reports to show how well the business is doing.
It’s different from accounting, as a bookkeeper collects the financial information that an accountant analyses to create deeper reports.
There are some basic bookkeeping concepts and definitions that you should know for you to fully understand bookkeeping:
- Ledger: Where business business transactions are recorded and categorised.
- Accounts: The categories under which business transactions fall.
- Assets: Things the business has bought and owns and money owed to the business.
- Liabilities: Money the business owes in unpaid bills, taxes, wages, or loans.
- Equity: Money put into the business that can be withdrawn by the owner or shareholders.
- Revenue: Money that comes into the business through sales, interest or dividends.
- Expenses: Money you pay out to keep the business running.
- Financial statements: Reports that show the financial activities and performance of a business.
- Balance sheet: This lists everything your business owns and its value, as well as what your business owes.
- Profit and loss statement: This shows the total revenue and expenses for a set period of time, ultimately demonstrating how your business is trading.
- Chart of accounts: Also known as general ledger codes, these list all the accounts you use to record financial transactions in your ledger.
- Journal entry: The name given to any record made in the accounts.
Importance of organised and accurate financial records
Organised and accurate bookkeeping serves as the backbone of sound financial management. They can provide insights into the financial health of your business, helping you with your decision-making and strategic planning.
Organised bookkeeping also enables you to manage your cashflow more effectively, as you’ll have a clear picture of how much you’re making and spending. With these records, you’ll then be able to analyse your activity to forecast your future cashflow.
Lastly, well-maintained records help you comply with tax regulations and financial reporting requirements, minimising the risk of penalties and audits.
Practical tips for streamlining bookkeeping processes
There are lots of ways to streamline your bookkeeping processes. Here are the best things that you can start doing right away:
- Establish a structured workflow: Be consistent with your bookkeeping rather than leaving everything to the last minute. That should help with accuracy and save you time in the long run, as the jobs should be easier to complete.
- Regularly reconcile accounts: Similarly, regularly reconcile bank statements, credit card statements, and other financial accounts to ensure accuracy and identify discrepancies promptly. This practice helps prevent errors and fraud, providing peace of mind and financial transparency.
- Utilise digital tools and software: Software can seriously help with your bookkeeping. Cloud accounting software is particularly good for this, as these platforms can automate repetitive tasks, streamline data entry, and offer features like bank reconciliation, invoicing, and financial reporting.
The uses of an outsourced accountant
Bookkeeping basics are an essential part of business, but it’s a complex job that takes time. That’s why our main advice is to outsource your bookkeeping to a bookkeeper who can take on the job for you while you focus on what you do best—running your business.
If you need help with your bookkeeping, contact us today. We’ll see how we can help.