Bookkeeping is the method used to track your company’s income and expenses. It informs you of your cash flow situation as well as the overall well-being of your firm. It is critical to stay on top of your bookkeeping so you do not have any surprises regarding accounting balances and costs. A quickbooks accountant in Phoenix can help you grasp the fundamentals of small business bookkeeping.
Why is bookkeeping important for small businesses?
Bookkeeping is an important obligation that any business owner must perform. It is important because:
- Bookkeeping organizes financial data for simple comprehension and analysis.
- The IRS asks that you maintain the following information on file: You will need accurate data about your gross receipts, purchases, costs, assets, entertainment and travel expenses, and employment taxes when filing your taxes.
- It aids in budgeting. Understanding your cash flow allows you to dedicate resources to new product releases and projects to help your company develop.
- It allows for better decision-making. When your books are in order, you have a clear image of your company’s health. This enables you to make more informed judgments about both growth and operations.
- It helps in profit tracking. Of course, you want your company to be as profitable as possible. Bookkeeping allows you to keep track of your growth and revenues.
Accounting vs. bookkeeping
There are important differences between accounting and bookkeeping, which are sometimes confused. Bookkeeping is fundamentally about recording financial data, whereas accounting is about understanding financial data. Accounting cannot exist without proper bookkeeping. There would be no data to evaluate if bookkeeping did not exist.
In general, bookkeepers help collect data and organize it and may be certified to do so for your company. Accountants, on the other hand, typically have an accounting degree and are sometimes state-certified CPAs. Most bookkeepers maintain the general ledger and accounts, whereas accountants are responsible for creating and interpreting more complicated financial statements.
How to manage bookkeeping
When handling bookkeeping, you should follow the four steps below to ensure the books are accurate and up to date. Remember that every transaction is allocated to a specific account that is eventually reported to the general ledger. Posting credits and debits to the appropriate accounts improves the accuracy of reporting.
- Step 1: Assign transactions to specific accounts.
- Step 2: Make journal entries to credit and debit accounts.
- Step 3: Post entries to the ledger account.
- Step 4: Adjust the entries at the end of each accounting period.
Not sure if you are up to the task? Consider hiring a bookkeeping professional to help you manage your books.