Quick Introduction to BookkeepingManaging finances is always a difficult job. Finances of even a small business can cause a lot of mess. In order to keep things simple and transparent, the concept of bookkeeping needs to be applied. Every accounts department has a set of bookkeeping rules and regulations defined which serve as their building blocks.
What Is Bookkeeping?
Bookkeeping is done by processing, recording, analyzing, and understanding the various financial transactions that happen in any business or even of an individual. The art of bookkeeping eventually leads up to the formation of an accounting department. Bookkeeping basically lays the foundation for all the accounting processes in any organization.
The person who is responsible for performing the task of bookkeeping provides a proper setup for financial statements. This setup then propagates throughout the accounts department. By using it, the accountant can easily handle the financial, legal, and tax matters of the organization.
Importance of Bookkeeping
Bookkeeping plays a vital role in the growth and stability of an organization. The following are the reasons why it is of utmost importance to understand the concept of bookkeeping.
Bookkeeping Helps in Getting Loans
An organization, looking to get loans from a bank, must keep their financial books clear. Without a proper bookkeeping strategy, it becomes impossible to create a financial statement. This financial statement is a necessity to receive any equity, investment seed, or even a loan from any bank. Through bookkeeping, every financial aspect of an organization is transparent. Bookkeeping ensures the revenues, cash flows, liabilities, and many other finances are kept in the clear. This allows investors to easily build trust in the company and provide loans or investments needed by the organization.
Bookkeeping Keeps Money Trails
Understanding the financial health of an organization is of utmost importance. Bookkeeping helps its users keep a financial trail of all the transactions they have made so far. This eases out most issues such as where the money is going? How much money is being received and how much is being spent? Even though these questions seem very basic, they play a vital role in the organization.
Bookkeeping Identifies Mistakes
By keeping every financial statement up to date through bookkeeping a lot of hassle can be avoided. Reconciling finances at the end of a year can cause a lot of problems. Any mistake in taxes or transactions can be caught in the beginning while bookkeeping.
Bookkeeping Handles Taxes
Total income and expenses are required to understand the net profit of an organization. Through net profit, the amount of taxes of an organization can be calculated. In order to pay taxes without any hindrances, bookkeeping must be done. This can be accomplished by updating financial books on a regular basis and easily accomplishing the task.
By knowing the total profit through proper bookkeeping, tax can be calculated easily. This means that no extra deductions or deductions without the organization’s knowledge can be made. The tax return can only be as big as the information provided during the tax season. A whole lot of stress can be reduced in terms of taxes for the organization if bookkeeping is done properly.
Bookkeeping may seem like a simple task but it is far from it. Even the bookkeeping strategies of small businesses require a lot of work. It is estimated that in the U.K. alone organizations waste around 20% of their work hours in bookkeeping. Unless an organization or startup has a resource with experience in bookkeeping, it is recommended to outsource the process of bookkeeping.
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Management of finances in an organization is of utmost importance. This is because the health and wealth of the business depend on the proper management of finances. Hence, the importance of bookkeeping in any organization becomes immense. Even though bookkeeping can be done by organizations themselves, it is recommended to outsource this task. Most organizations fail to spend time innovating since their focus majorly lies in their bookkeeping and its issues. By acquiring proper bookkeeping services, an organization can become tension free and focus on improving its operations. It is vital to pick the right organization for bookkeeping services. Customer companies must co-operate with bookkeeping service providers throughout so that there can be no problem in bookkeeping.