What is Bookkeeping?
Bookkeeping is recording financial transactions or information that pertains to business operation. It entails creating a filing system that categorizes income to the appropriate accounts as well as differentiating types of expenses.
Businesses and individuals need bookkeeping! People do this without even realizing it’s bookkeeping. Examples are when someone creates a budget or system that tracks money going in and out of the account, so they can be better prepared during tax season.
In most cases a business has a bookkeeper to stay in compliance, manage cash flow, perform multiple clerical duties and tell how the business is performing. By tracking the money that comes in and out, it leaves little room for error and fraud. Bookkeeping tells the business owner and individuals how much they will owe or get back from taxes. Not only that, bookkeeping is the proof behind the numbers.
Bookkeeping also entails knowing some tax laws; what’s tax deductible, what are the limitations, and usually paying payroll taxes. Bookkeepers prepare invoices, financial statements, pay bills on behalf of the business, reconcile bank and loan amounts to provide up-to-date balances.
Bookkeeping is a subcategory of Accounting. Bookkeeping as apposed to Accounting doesn’t deal with auditing . There is a common misconception that bookkeepers don’t do taxes, and some do, some don’t. According to the law, anyone over the age of 18 can prepare tax returns. Taxes are complex and require extensive research, knowledge and understanding.
Two Types of Bookkeeping
- Single Entry
- One entry is made for each transaction into a journal or log.
- Only one account is affected; the account balance will increase. or decrease.
- It’s easy to maintain with little requirements; favorable among small businesses.
- Double Entry
- Two entries are made; a debit and a credit.
- Two or more accounts are affected and the entry must balance.
- These are usually called Journal Entries.
- This is a great system to avoid error.
Bookkeeping is necessary in every business! It’s the recording of a business’ financial transactions from accounts having anything to do with business. Bookkeeping and Accounting work closely together to ensure your business is in compliance and ready for tax season. With software like QuickBooks, single entry bookkeeping makes managing your books easier!