The differentiating factor in Bookkeeping and Accounts.
How do you define accounting?
Accounting is based on the financial information that you get from bookkeeping.
Accountants create financial statements, review costs, and ensure that your company is ready to file tax returns.
They can also provide budget suggestions and can help you plan your future investment plans. If you decide to do your small-business accounting, however, you are able to automate the bookkeeping process or let them outsource to freelancers.
Bookkeeping: What exactly is it?
Bookkeeping is the basis of accounting. It involves administrative tasks such as daily cost tracking, record-keeping reconciling accounts, and expense categorizing.
Bookkeeping also includes handling payments, managing invoicing, along making payments to your vendors. In this way, business bookkeeping is a vital operational aspect of running a company. Still, the best aspect is that you are able to automate the majority of your small bookkeeping tasks to cut down on time.
Here are some steps to follow with regards proper accounting for a company.
Managing Process Accounting.
The processes we’re talking about here are divided into a variety of categories. One example is orders to cash. From the time you receive an offer from a buyer up to the point at which you are paid, there are a number of stages to take and this is where managing the process of accounting takes place.
Record Every Step of Your Payment Path
It is important to ensure that each step is recorded during the process since all the people you employ internally to carry out this work for you has to follow this procedure to ensure auditing.
In the event, for instance, you are required to audit your company that you can give to an acquirer, later on, having a well-established process is one of the factors they will look at to make sure that there’s no fraudulent activity such as, for instance, or that you’ve considered the way that your business manages the funds.
Choose a method for bookkeeping.
If you are planning to manage your own books at home instead of outsourcing them to an accounting or bookkeeping company, You must make a key decision before you begin setting up everything. Do you plan to make use of single-entry bookkeeping, as well as double-entry bookkeeping?
In single-entry bookkeeping, you have to enter every transaction just once. If a client pays you the amount you want to record, you must enter the amount into your asset column. This is logical, This approach is feasible in the case of a business that is simple, as in, extremely easy.
If you operate from your home and don’t have any equipment or inventory to sell, and you don’t often go into the world that involves cash, you may want to look into single-entry bookkeeping.
However, the majority of bookkeeping tasks are performed by using accounting at the double-entry method, that’s sort of similar to Newton’s Third Law of Motion, however, for financial transactions.
Newton’s law says that “for any step (in the natural world), there is an equal and opposite reaction.” Similar to double-entry accounting, each transaction in one account needs the same entry in a different account. This isn’t about the same as physics, but when it comes to managing the business, it’s just as crucial.
In the double-entry bookkeeping system, it is necessary to record two entries for every transaction that includes the debit (Dr) and credit (Cr). Credits and debits are entered as journal entries in the ledger. The debit is typically noted first (on the left) then followed by that of the credit (on the right).
Make sure to record every financial transaction.
You’ve established your own account for financials and have chosen a bookkeeping program. Now you’re ready to document what’s happening to your money.
It’s essential that every credit and debit transaction is documented properly as well in the correct account. If not, your balances will not match, and you’ll be unable to close your accounts.
To track a transaction, first establish the accounts to be debited and credits. As an example, suppose that you’ve recently purchased the latest point-of-sale device to run your retail business. The system has purchased that cost you $2,000 in cash.
The transaction will impact two accounts that are cash (an account for assets) as well as the equipment (also considered an asset). As you’re decreasing your cash balance and increasing your equipment, you’ll create a debit of $2,000 (on the right) for the account that is used to purchase equipment and a credit of $2,000 for your cash account (on the right).
Be aware that journal entries don’t contain specific information about an item’s vendor or the biller. You simply keep track of credits and debits by accounts.
Balance the books
The final step of basic bookkeeping is to weigh as well as close out the book. When you add up the credit and debits of your accounts, often at the close of the year or quarter–the totals must be in line. This means that your accounts have been “balanced.”
You’ve been recording journal entries for accounts as credits and debits. When you’ve finished the time, you’ll “post” the entries to the accounts’ general ledger and then adjust the balances of your accounts accordingly.
For instance, during the month, your cash account was debited $3,000 (increases) along with $5,000 credits (decreases). You would change the balance in your cash account by the sum of $2,000 (as a decrease).
Use this procedure to adjust the balances of each account that you have in the ledger. After this process, you’ll be left with what’s known as the “adjusted equilibrium.” If you mix accounts of different types and balances, the adjusted balances must be in line with the accounting equation:Capital = Liabilities = Assets + Equity
If the two aspects of the equation don’t coincide, you’ll have to review journal entries and ledger entries to identify any mistakes. Correct entries into the ledger and journal and then repeat the process to ensure that the accounts remain even. Once you’ve finished, you can close the books and create financial reports.
Follow a plan
At least once per week, take note of every financial transaction, including invoicing, bill payments or sales, as well as purchases. Make it a point to regularly close your books, also you can do this every month and at minimum, make sure you balance and shut your books each quarter.
Another suggestion? It is important to work on your business when your brain is alert and fresh, for instance, at the beginning of the day prior to when you even open your doors than later in the evening, after you’ve closed.
You’ll want to be in the best shape when reviewing figures that will help you understand the profitability of your business and aid you in charting the course of your business’s growth.
Also, completing the bookkeeping earlier in the day will make it less tempting to postpone your bookkeeping until the following day. And the day following that.
Don’t take it on, all by yourself.
If you’re not trained specifically in accounting concepts, bookkeeping isn’t an easy job. Therefore, consider seeking help – whether that’s employing a bookkeeper or outsourcing the task to an accounting company, or using accounting software.
The Key Takeaway
If you’d like to ensure that your business’s books of accounts be precise, ensure that they are organized and current.
Not the most organized? No worries. Follow these suggestions to ensure your books are in top form:
1. Know the basics of accounting prior to recording transactions in your book
2. Make use of accounting software that can streamline procedures
3. Separate personal and business finances Separately
4. Keep track of all transactions as quickly as you can or regularly (e.g., every week)
5. Find a way to keep accounting receipts as well as other documents
6. Check your financial records often to keep up-to-date with your finances
7. Don’t delay the recording of transactions until the final minute