What is bookkeeping? Importance of bookkeeping Service in Business

Bookkeeping, also called record keeping is systematic recording, storing and retrieving company’s financial transactions on a daily basis. It ensures that the records of the individual financial transactions are up-to-date, accurate and comprehensive. Bookkeeping offers information from which accounts are prepared. Every transaction must be recorded, whether it is related to sale or purchase. There are set structures in place for bookkeeping, also called as quality control that helps in ensuring accurate and timely records. Bookkeeping help companies to track all information on its books to utilize it in making investing, operating and financial decisions. Accurate bookkeeping is extremely crucial to external users as well, this includes financial institutions, investors and even government so as to access reliable information to make better lending or investment decisions. In a nutshell entire economy relies on reliable and accurate bookkeeping for internal as well as external users.

Bookkeepers are those individuals who manage all financial data for companies, without whom the current financial position or even transactions occurring within the company is impossible to track. Bookkeepers often have to exercise judgment calls and analytical skills when recording business events since its source for most of the accounting information in the system. Bookkeeping requires knowledge of credits and debits and a basic understanding of financial accounting, which includes the income statement and balance sheet. The data can be entered in the accounting system either manually on a physical ledger pad or electronically in an accounting program.

Common financial transactions and tasks involved in bookkeeping are-

1. Providing financial reports
2. Adjusting entries as well recording depreciation
3. Monitoring individual accounts receivable
4. Processing employees’ pay and related government reports
5. Paying suppliers
6. Recording and verifying invoices from suppliers
7. Recording receipts from customers
8. Billing for services provided or goods sold to the clients

Transaction-related to monitoring asset depreciation, loan payment or customer payment for invoices

Why bookkeeping is important to any business?

Tax preparation- annual taxes are quite taxing as one must have all records that include an organized balance sheet, profit and loss, and cash flow so as to make things easier while filing. Bookkeeping is essential for filing personal tax return too, as a business owner a large chunk of income comes from the business. So to know what you earned, you got to know how much your business earned first. 

Helps your budget- when the income and expenses are organized properly, it becomes easy to review expenses as well as financial resources. A budget sets the roadmap for the business, which helps in planning future expenses and also the anticipated resources that will cover those expenses. 

Analysis and management- cash flow can be analyzed and managed in a better way which aids in paying invoices on time to vendors, keep up with the money flowing in and out and keep track of where the outgoing money is being spent.
 
Stay organized- the IRS, investors, customers, lenders, and employees are few parties who will always be interested in the company’s financial records. Providing information to these parties are essential for ongoing operation, unable to do so might lead to fees and penalties by the IRS. Moreover, lenders or investors might also stop the cash flow if you do not provide records as requested. Staying organized with your books helps in maintaining a healthy relationship with these parties.

For planning- the past financial health is reflected through bookkeeping. When planning for the future, you need to have a clear understanding of what worked and what didn’t in the past. Not just with strategic planning, it plays a vital role in tax planning. It provides the CPA with the necessary information to categorize expenses and revenue accordingly.

Better decision making- in order to make the best decision, one must have access to all information which bookkeeping provides.

Easy reporting to investors- investors in order to quantify the value of their investment would want to know the financial performance of the business. Financial statements provide the value of the business. Bookkeeping enables investors to have accessible and up-to-date information that helps investors in taking informed and better decisions. It is important for prospective investors as well.

Financial management- there is complete control of the business finances as you get to know how you spend the money. You can pay your bills on time, see outstanding invoices owed and receive payment for products timely as well.  

Track growth and profit- bookkeeping reflects the profitability of the business and also helps in tracking growth. The data helps in analyzing how well you are doing and also provide a clear picture of business cycles and helps you compare results across periods.

Mandatory under the law- the law requires you to maintain financial records of the company. As per the legal structure, the law requires you to maintain financial records separate from the personal expenses, failing which can lead to termination of the business.