Why Bookkeeping is Necessary Todays for Small Business?

by Benny Gala DNS Accountants

With increasing industrialization and an expanding market for so many products and services, more and more companies are cropping up every day in the United Kingdom. These companies have fresh ideas and extremely profitable business plans. Thus, if everything goes right, these new companies or start ups can give a major boost to the economy of the United Kingdom. However, it cannot be denied that most of these companies have young managers and people with relatively lesser experience in this field. Even if they do, working in a company is not the same as running your own company. There are a million things to take care of and a hundred departments to look after. Thus, it is natural to get baffled by the number of new things one experiences and learns about. It is also likely that a lot of things will be extremely difficult for you to understand. And again, it will not be surprising if you miss out some of the most important things in the huge pile of important tasks. Hence, here, we discuss one of the most important and basic aspects of running a business- accounting and taxation.

For any business, small or big, to run efficiently and smoothly is the first and foremost necessity is a proper maintenance of the transaction records. Accountancy is a very important section of any firm and under this very section comes the concept of bookkeeping.

So what exactly is bookkeeping, you would ask?
Bookkeeping, in the simplest of terms is an organized maintenance of records of all the day to day transactions of a company or firm or any business in general. Any financial transaction is classified and recorded in an organized way and forms a part of bookkeeping. It is one of the most important parts of accounting, and typically, no proper accounting can be done without bookkeeping services. Thus, bookkeeping is like a preliminary task, one that cannot be ignored or done carelessly. It is based on this bookkeeping that financials are made, an analysis of reports is done and performance of the company in the future is predicted.

How is bookkeeping different from accounting?
An accountant is primarily responsible for analyzing the financials of the company, qualitatively and quantitatively assess the profits, review it and suggest ways to improve the performance of the company. This, the accountant does on the basis of the profit and loss accounts, balance sheets, etc. of the company. Now these important papers are what stem from bookkeeping. Bookkeeping is the primary task under accounting based on which the financial statements are created.

What are the types of bookkeeping?
Bookkeeping is primarily divided into two categories, based on the entry system that a company uses. These two categories are as follows:

· Single entry bookkeeping system
This system of maintaining a record of transactions is very simple and is the same as the one used by an ordinary individual to keep track of his or her expenses. Here, there is a single entry of the transaction, in one account and under one head, only telling you whether there is an addition or deduction of money. This system of recording represents the revenues and the costs on a daily basis at one place or in just one account. That is, there is a single entry of the transactions under this system. However, this simple method is not error free and hence is used only by very few small business.

· Double entry bookkeeping system
This system is much more complicated than a single entry system and yet, is the one adopted by most companies owing to its effectiveness. This system has double entries of a single transaction. For example, a sale will be recorded both in a credit as well as a debit account. This system helps to tally the records on a regular basis and find out if there is a discrepancy in the accounts.

Thus, it is essential to weigh the various pros and cons of each system before deciding a system to use for the bookkeeping of your company.