Why Bookkeeping is Necessary Todays for Small Business?
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.
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