Bookkeeping and Taxes Archives

What is bookkeeping?

Bookkeeping is the procedure of recording a business or company’s financial transactions on a regular basis. One of the key aspects of bookkeeping for your business is managing a general ledger. Keep in mind that this is the main document where bookkeepers maintain all their records, receipts, and expenses.

Bookkeepers or business owners record data of business activities by checking the supporting documents and following the company’s accounting principles and standards.

Note that these documents can be receipts, bills, purchase orders, invoices, or financial reports that can give you records of transactions. Based on your needs and requirements, you can store data in Microsoft Excel or a journal.

However, due to modern technology and the growing need to maintain data, it’s best to use bookkeeping software to minimize various risks.

Plus, saving all the accounting data in cloud-based bookkeeping software minimizes the risk of losing data in the future. The best part is that business owners can check the financial records of their business at any time they want.

Importance of Bookkeeping

Whether you have a small startup or a massive corporation, the importance and significance of bookkeeping can’t be ignored. Proper bookkeeping is important for your business as it gives companies a reliable and dependable measure of their profitability and performance. And it also offers information to make key strategic decisions.

Helps You Budget Accurately

This process of storing your data is important for your business because it helps you create your budget. When your expenses and income data are appropriately organized, it will be easier for you to review your costs and financial resources.

Keep in mind that a budget develops a financial roadmap for your company. If you know your monthly or yearly budget, you can determine which expenses you will likely incur so that you can act accordingly. Moreover, if you don’t maintain your books, it will be challenging for you to estimate expenditures.

Makes Tax-filing Simple

We all know that tax preparation can be a challenging and tricky task, especially for small businesses. But it should not be. You will understand the importance of bookkeeping when the tax season comes.

Instead of finding receipts and checking each document in the pile of papers, bookkeeping ensures that you get the information you need in an organized way. Bookkeepers prepare invoices and other documents required for taxes beforehand. This way, you will know any possible tax write-offs and prepare your tax return in less time.

Meets Government Regulations

The state or national government establishes new laws and regulations every now and then, aiming to make taxing businesses and other tasks easier for them. When your records are maintained precisely and accurately through the bookkeeping process, you will not struggle to comply with the laws.
All you need is to have the right information about the company’s finances, which you need to use according to government laws.

Additionally, a trained and experienced bookkeeper can help you follow government rules and laws, as it can be hard for you to understand the regulations.

Protect Small Businesses in an IRS Audit

You need to understand that the IRS can audit small businesses, even if they are fully compliant with the laws. Well, only 2.5% of companies are audited, but you never know when you might have to get audited. Bookkeeping can protect you from IRS fines and penalties.

Well-maintained and accurate books can give answers to all the questions the IRS may have. They can easily determine your losses, income, tax deductions, product prices, and other things from the recorded data.

Helps with Business Analysis

Analyzing your business and its profits, loss, capital, and other things are crucial to estimate its value in the future and make strategies. Bookkeeping is the best procedure that helps you analyze your business whenever you want. You can say that it is a tool that enables you to understand your business performance and profitability.

Furthermore, the most important part of the bookkeeping procedure is preparing financial statements. You need to regularly prepare financial statements so that you can use them for analysis and reporting purposes.

Also, bookkeeping offers you information about which business lines or segments are not operating profitably. Analyzing your company through this method will help you focus on your business’s strengths and work on its weaknesses.

Provides Better Cash Flow Information

Recoding expenses, revenues, receivables, and liabilities regularly allows you to track how much money you have paid your vendors and when your customer invoices are paid.

It is important to pay customer invoices on time. On the other hand, you should pay vendors’ invoices on 3time to prevent penalties and late fees.

Moreover, bookkeeping helps you improve your cash flow by giving your information about your invoices, such as issue date, vendor or customer name, due date, and amount. You can use this information for creating cash flow policies.

Bottom Line

While bookkeeping is an important procedure for any business, not many business owners have the ability, time, and skills to do it on their own. In other words, bookkeeping requires an understanding of accounting procedures, taxes, state regulations, and business goals. Only a trained and qualified bookkeeper who knows bookkeeping can store your data and prepare your financials securely and accurately.

We, My OC Bookkeeper, offer you a broad range of bookkeeping services, such as power BI modeling and financial modeling that help you access organized and well-maintained data. Our team of experts uses modern techniques to record your company’s financial information. Contact us here for more information.

On top of that, we help you file taxes, so you never have to deal with these challenging tasks on your own. So, are you ready to learn how you can improve and strengthen your business with reliable bookkeeping services? Schedule a consultation right now.

Sources

https://lyfeaccounting.com/blog/bookkeeping-is-important/

https://corporatefinanceinstitute.com/resources/knowledge/accounting/bookkeeping-definition/

https://quickbooks.intuit.com/r/bookkeeping/what-is-bookkeeping/

https://www.easybooksapp.com/blog/reasons-why-bookkeeping-is-important-for-your-business

https://www.nationalbusinesscapital.com/importance-bookkeeping/

What is bookkeeping and why is it important?

Today we ask a very simple question: what is bookkeeping? On its most basic level, bookkeeping is the recording of day-to-day financial transactions. Whether for a business, nonprofit, government agency or individual, bookkeepers ensure that every financial activity related to a specific entity is documented in a consistent and accurate way. Some of these transactions include sales, purchases, payments, and expenses. This documentation is important because it helps business owners and accountants understand the financial well-being of a company.

What is the Difference Between Bookkeeping and Accounting?

Whereas accounting refers to comprehensive financial management and planning, bookkeeping is the specific task of recording and categorizing each transaction. While bookkeeping and accounting and are often referred to synonymously, bookkeeping is actually a subset of accounting. However, bookkeeping is more than simple financial data entry. It is a through storytelling of financial health, both at present and historically. By using the numbers you have recorded, you can analyze your current situation and compare how it looks over time.

What Can Bookkeeping Show A Small Business?

As bookkeepers know, if companies don’t record and understand their numbers, it is very difficult to grow them. The cycle of money coming in versus going out is known as cash flow. Keeping track of cash flow is one of the most important jobs of bookkeepers. Say for example you own a brewery and know only the total number of beers sold instead of how each type of beer is selling individually. Maybe you are making money, but you don’t know specifically where your money is coming from and therefore cannot grow your business. If you don’t know what your strengths and weaknesses are, you can’t strategically plan for continued success. In the case of a brewery, it’s important to note each individual beer that you pour in order to know which beers are selling better than others.

While this may seem obvious, often times businesses allow their books to fall months (or years) behind. This is dangerous because companies may be unable to see they are in financial trouble until it’s too late. Or, they may miss opportunities for expansion because they are unaware of their current strengths. Or, they may be unprepared come tax time. (More on this below.) Say you run out of your best-selling beer without realizing it’s your best seller. By the time you brew another batch your business may have lost out on revenue simply due to a lack of planning. Therefore, one of the major benefits of diligent bookkeeping is the ability to make better financial decisions and to plan for the future based on concrete numbers.

Basic Bookkeeping Categories

When you start to monitor each transaction individually, it’s easy to become overwhelmed by the sheer amount of activity. This is another important function of bookkeepers: keeping everything organized. Bookkeepers use five top level categories to achieve this organization. This creates a universal language that all bookkeepers can read without requiring additional knowledge of the business.

The categories are: assets, liabilities, equity, income, and expenses. (There are also a large number of subcategories, but we will address those in a follow up post.) These categories are used to create three financial statements: the balance sheet, the statement of cash flows, and the income statement (also know as profit and loss statement). You need all three to understand the overall financial health of your company, and they all start with the diligent categorization work by your bookkeeper. (For more detailed information on bookkeeping categories see our Basic Bookkeeping Categories blog post. And if you still want to learn more, check out this blog post to learn some income statement basics and check out this blog post for an introduction to balance sheets.)

Bookkeeping and Taxes

Bookkeeping is essential for tax purposes. As we have already noted, bookkeepers organize a business’s transactions. This means having all of the pertinent information at one’s finger tips come tax time, and being confident that it is correct and supported by a digital paper trail. Otherwise you will find yourself in a mad scramble for financial data and be far more likely to make costly mistakes, or even get audited. Forgot to include a $2,000 expense back in July? Too bad, you’ll have a higher tax bill. Don’t know how much money you spent on your work automobile? Can’t write that off anymore. Accidentally double counted your expenses? Time to prey for forgiveness.

If you do happen to get audited having organized and up-to-date bookkeeping records will make your life far easier. Because IRS agents will be able to access all of your financial records easily, the audit will be quicker and therefore less painful than it would be if your numbers are not up-to-date. (Looking for more information on taxes? Check out the IRS website here. Or, take a look at all kinds of great websites for small businesses here.)

What is Bookkeeping – Summarized

So, what is bookkeeping? Bookkeeping is the systematic recording of each financial transaction that affects an entity. To organize all of this information bookkeepers use established categories that are combined to create financial statements. Bookkeeping is important because it allows you to track your company’s financial behavior showing you where you are making money and where you are spending it. It also paints a picture of the financial stability of a company, which allows for better planning and decision-making. And finally, bookkeeping is essential for taxes because it ensures that every transaction has been recorded appropriately.

Tag: Bookkeeping and Taxes

What is Bookkeeping, and Why is it Important for Business?