All You Want Know About Bookkeeping and Accounting | Savage & Palmer

All That You Wanted To Know About Bookkeeping And Accounting

by | Sep 2, 2021 | Information | 0 comments

Although business owners across the globe use the terms “bookkeeping” and “accounting” interchangeably, the two differ in practice. Most people confuse these two phrases bookkeeping and accounting, and it isn’t until they establish a business or design a financial plan that they discover the two aren’t the same.

Just in case you are looking for a simple definition, bookkeeping is the process of recording a company’s day-to-day transactions, while accounting is the process of analyzing financial records. 

What is Bookkeeping?

The act of keeping financial records is referred to as bookkeeping. Bookkeeping entails, at a bare minimum, the following tasks:

  • Making and keeping a list of your company’s debits and credits
  • Keeping track of your company’s financial dealings
  • Making key financial statements such as income statements, cash flow statements, and balance sheets

You can do these activities with bookkeeping software or hire a bookkeeper to do these tasks for you so that as a business owner you can focus on more important tasks concerning your business venture.

What is accounting?

Accounting, at its most basic level, is the process of assessing financial data in order to make informed financial decisions regarding your company. These are some of the things that accounting entails:

  • Examining and analyzing financial documents to determine what the data signifies for the profitability and future of your company
  • Using available financial data to make suggestions about future business plans and operations
  • Tax preparation and filing

To summarise, bookkeeping provides you with clear and precise financial data. Accounting aids in the comprehension of data so that sound financial decisions can be made.

Bookkeeping And Accounting options for business owners

You can understand why bookkeeping and accounting are important for your business’s performance based on the descriptions explained above, but how do you actually accomplish these tasks?

You can always take care of things yourself as a small-business owner using accounting software, which provides financial reports for you and helps you interpret the data in the context of your organization. Don’t worry if you don’t feel comfortable performing your own bookkeeping and accounting, or if you just don’t have the time. 

A professional can do it for you, and it will cost considerably less than most of the bookkeeping and accounting software available in the market.

Getting Started With Accounting And Bookkeeping

When it comes to setting up your bookkeeping and accounting system, one of the first considerations you’ll have to make is whether to use a cash or accrual accounting system. You might wish to stick with cash accounting if you’re running a small, one-person business from home or even a larger consulting practice from a one-person office.

When you choose to move forward with the cash accounting system, you record your transaction when cash changes occur. When you use accrual accounting, you’ll require to record purchases or sales right away, even if the money doesn’t change hands for a while. Cash accounting is sometimes used to establish a business and then switched to accrual accounting as it grew.

If you want to extend credit to your customers or request credit from your suppliers, you’ll need to employ an accrual accounting system.

As a new business owner, you also need to select whether to use single-entry or double-entry bookkeeping. Single-entry bookkeeping is similar to holding a chequebook. You keep track of transactions when you pay bills and transfer money into your business account. It only works if your firm is small and your transaction volume is minimal.

Double-Entry Bookkeeping System

A double-entry bookkeeping system is required if your organization is larger and more complex. For each transaction, you need to maintain at least two entries. There is at least one debit account and at least one credit to another account.

When companies set up bookkeeping for their organizations, they also need to set up their computerized accounting systems. The majority of businesses use accounting software to keep track of their accounting journal and bookkeeping entries.

Basic Of Accounting And Bookkeeping you should know

Cash Account

Cash is the lifeblood of any business, and every transaction goes through it. This ledger displays how much cash a company has on hand. To comprehend the financial status of the business, the owner should properly analyze the cash account.

Before investing in any stock, equities, or bonds, you can get a sense of how much money you have in your cash account.

Accounts Payable

In any company, the overdue amount is like a termite. It is vital to keep track of outstanding invoices and to have a clear understanding of the payments that must be made.

Quality bookkeeping enables you to make on-time payments.

Accounts Receivable

The money borrowed from you is referred to as an account receivable. Every company needs to maintain track of its obligations and make every effort to reclaim the money as quickly as possible.

Poor accounts receivable can cause a company’s liabilities to rise, resulting in bad debts and the debtor’s insolvency.

Bank Reconciliation

The term reconciliation in accounting refers to the verification of financial statements, therefore bank reconciliation is the verification of your financial statements and bank statements.

Inventory Account

Inventory is the stock of products that are stored before being sold; it has a distinct entry in a separate column in the books because it is the principal source of revenue-generating in the company.

Payroll Expenses

Managing payroll expenses is a critical duty, as you must adhere to the government’s tax policy and other obligations. And processing each employee’s compensation, leave, and other benefits are something you can’t afford to overlook.

Owner equity shares

An owner’s equity share is an investment made by the business owner in the firm’s assets. These investments are recorded in the capital account, and any funds withdrawn for personal use are recorded in the owner’s drawing accounts.

Sales Account

In order to keep track of your constantly shifting sales, you’ll need to keep track of them in your book of accounts. This will help you in increasing sales and business productivity.

Loans Payable

If a small business owner borrows money for their company from a financial institution like a bank, this account will assist them to keep track of the money owed to them.

Retained Earnings

Beware of tiny expenses; a small leak can sink a huge ship. Every small business should be vigilant about spending in order to prevent financial risk, and the easiest method to do so is to re-invest the money created by the company from its inception.

Conclusion

Many small businesses believe that accounting and bookkeeping are their worst enemy, but if you understand the fundamentals and importance of accounting and bookkeeping, it can become your best friend. 

You should also ensure that your company’s accounting services are handled by using high-quality software or a trusted bookkeeper and accounting service provider, as they always need to generate accurate and high-quality financial data.

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