24 Mar The Importance of Bookkeeping
Bookkeeping is the process of keeping completed records of financial transactions and updating them periodically from time to time. Bookkeeping is beneficial to business owners. It helps businesses to effectively manage cash flows, planning for future and being well informed about running of business. Further, it does comply with federal and local tax agencies requirements. The importance of bookkeeping can be explained with the help of following points:
- Aid in Making Routine Business Decisions: How would you determine the amount of money you owe or ought to receive from a person or entity, if you have no bookkeeping? It will be an uphill battle to identify the exact amount. Inadequate record keeping and bookkeeping can lead to many disputes. These issues can be remedied by keeping effective records of accounting records. If you have kept the records effectively, such data can be known within a few minutes. Similarly, other business decisions related to expenses and income can be made effectively.
- Making Business Evaluations: The big question about any business is whether it is growing, and if it will survive. This is often assessed by certain financial reports which are compiled by utilizing the financial records kept in a bookkeeping system. Bookkeeping helps to formulate Trial Balance, Balance Sheets and Income Statements, just to name a few. Performance evaluations of businesses can be made on a quarterly or annual basis by reviewing its profit and growth. This process will allow you to have a fair and objective assessment of the viability of the business and its growth potential.
- Proper Reporting to Investors: Bookkeeping helps to avoid the hassles involved in reporting results to investors. Investors own a part of business. They are most concerned whether their money has been utilized properly or not. They would certainly want to know whether the business is profitable and the potential of the business. These aspects are easily addressed by adequate bookkeeping and reporting. Profit and Loss statements reports the profits and can be integral in determining the value and health of a business by reviewing a company’s income and certain financial ratios. Performance charts and other reports can be created and run quickly when using the right bookkeeping software.
- Managing Cash Flows: Keeping track of cash flows is a critical aspect in any business. To accurately track cash flows a business must have an adequate record keeping system to record the financial data. Bookkeeping helps to make the cash flow management easier as it depicts the sources from where the cash flows is coming and uses where cash is spent. Many businesses get hit by unexpected cash crunch, but businesses can resolve this issue when they ensure that financial records are updated regularly.
- Effective Tax Compliance: Tax returns are prepared to assess the tax payable to the federal and local authorities. Tax returns should be prepared with the help of recorded financial transactions and reports. Effective bookkeeping will keep the tax affairs in order and allow owners to easily calculate the amount of taxes to be paid or owed. The information reported and filed with the IRS MUST be accurate and presented in professional manner. Failure to file taxes or to report financial information incorrectly may have result in serious repercussions such as large fines or litigation. Hence, to avoid such trouble, proficient bookkeeping is pivotal in ensuring that deadlines are met and reported information is accurate and presented.
Functions of Bookkeeping
All businesses whether big or small must manage the financial side of its operations. There are various bookkeeping software solutions available to aide in the recording of financial transactions. Some functions of a good bookkeeping system are:
- Maintenance of Ledgers
- Recording and Maintenance of accounts payable and receivables
- Reporting for Tax Preparation
If you have a growing company and are expanding your internal team, some additional bookkeeping services that may be needed are: a
- Payroll services
- Inventory Services
- Invoice Processing
- Investment or Business advice
For more information on bookkeeping services offered, please complete the contact form for a free consultation.