Now, before we get to the definition of bookkeeping. Let’s go back in time, to 1494 in Italy where a man by the name of Luca Pacioli wrote and published a book, called “Details of calculation and Recording” which defines the “summary of Arithmetic, Geometry, Proportions, and Proportionality”.This has become the basis for modern Double-entry Accounting, In fact, On the history of Accounting, many of the terms you will hear in accounting like Debit and Credit, journal and ledger all originate from this 1494 text by Luca Pacioli.
This was the birth of double-entry or known as Bookkeeping in accounting today. Bookkeeping was handwritten and still is used by many small businesses today, but as businesses grew and transactions were becoming larger on a regular occasion, most of the big firms invested heavily in to electronically recording and storing their accounting data on computer software.
Ok, the history lessons over, for NOW,
Book=So, Book refers to Books of Accounts,
Keeping =Keeping refers to maintenance in systematic manners.
So, Bookkeeping refers to Book+Keeping“Recording of Business transactions systematically”.
Let’s now have a look at the definition of bookkeeping,
Bookkeeping is described as it is the art of recording the financial transaction of a business or an individual in terms of money in a set of books accurately and systematically in order to obtain necessary information relating to the financial transactions in the accounting books of an entity.
To understand better: Watch This Video:
Best Tips To Successful Book Keeping For Beginners
What are the purposes of Bookkeeping?
The purpose of maintaining bookkeeping is to it has been in practice for hundreds of years because, it accurate, it clarifies, how much is owed to an entity and how much the entity owes to others. In other words, it can help businesses pay their bills on time and identifies who’s owes them and by how much. If a business has poor Bookkeeping records then this could be a big problem because it would not know what they owe and are owed and in some cases can cause businesses to fail and become bankrupt.
Why Bookkeeping Really Matters?
Bookkeeping Matters Because,
- Bookkeeping helps you get more tax deduction=
It helps you catch more tax deductions when you record and categorise every transaction in your business you’ll be able to see which expenses are tax-deductible so that nothing falls through the cracks without year-round bookkeeping you forget about one-off the deductions like lunch with a client 8 months ago that you could have deducted even with the best of intentions deductions will always all through the cracks at tax time unless you have bookkeeping in place.
2. Bookkeeping can help you get a business loan=It can help you get a business loan if you’re applying for a small business loan banks are going to need to see financial statements.
3. Bookkeeping helps you to catch financial mistakes=It can help you catch financial mistakes. When you Bookkeeping you are keeping a close eye on the transactions in your business which means you’ll be able to catch things like Bank errors, invoicing mistakes like paying somebody twice and sneaky subscription fee for services that you forget to cancel.
4. Bookkeeping shows you where your money is going=It shows you where your money is going when you have bookkeeping in place you’ll be able to keep track of your expenses so you can budget better. You’ll also be able to understand your cash flow so you can see what’s and expense versus payment to a loan or a credit card.
7 Steps to doing your own Bookkeeping
These 7 Steps to doing your own bookkeeping that follows...
- Separate business and personal expenses
- Single entry vs double entry
- Cash vs Accrual
- Choose a Bookkeeping system
- Categorize Transactions
- Organise and store the documents
- Make it a habit
- Separate business and personal expenses= Separating your business and personal expenses you’ll want to make sure that your business and personal transactions are not intertwined.
So it’s clear to what your business is earning spending and then what your bottom line net profit is this is especially important for corporations to have separate bank accounts for business and personal finances. Corporations open themselves up to legal problems when their finances are not separate from personal transactions.
The Second Step is…
2. Single Entry vs Double Entry= Double access is a device of accounting that tracks where your money comes from and where it’s going. To essentially you record every transaction twice taking assets from somewhere called Credit and putting it somewhere is called a Debit.
Your debits and credits ought to always same every other that’s how you understand that your books are balanced.
For example,= Say you buy a new laptop for your business and it cost $1000 you had subtracted $1000 in cash from your credit account and add it cost $1000 in assets to your debit account. You may have lost $1000 cash but you gained $1000 in the form of new assets.
Double-entry accounting is kind of like double-checking your homework and helps you create financial statements which you will need to make a smart financial decision. So, what’s a single entry method? In this method, both sides of the transaction, are not be recorded. If your business is a sole proprietorship with no inventory and no employees you can use the single entry method.
The third step is…
3. Cash vs accrual=On a cash basis you only recognize revenue when you receive it.
On Accrual basis, you recognize revenue when it earned.
For example=Once you complete the project and write the invoice. If you are a small business or just getting started you can probably you to the cash method. It’s easy to switch from Cash to Accrual if you need to if your business is more Complex,
For example=If your business earns more than 5 million per year in revenue or if you manage large assets or investments you’ll probably need to use the actual method, either way, you should talk to your accountant to figure out which method will be best for your businesses.
The fourth step is…
4. Choose a Bookkeeping System=There are several options for you to do it manually using like (Microsoft Excel), or just paper or use accounting software like, there are few options for small businesses Such as Tally ERP 9, Quickbooks, Marg etc.. or wait you will pay an annual renewal fee for the software which you can use to produce simple financial reports. Keep in mind though you may need to have an Accountants help to learn how to properly use the software.
The fifth step is…
5. Categorize Transactions=To categorise your transactions categories are essentially classifications for your transactions to understand what you’re spending on these styles of categories let you understand what your tax deductions are not all transactions are similarly Tax deductible so you’ll want to you know what you are spending on office supplies versus what you are spending on meals.
For example=If you buy a box and pens for the office you will categorise it as office supplies at the end of the year you will able to see the total amount you are spent on office supplies and you will able to deduct that cost on your taxes.
The sixth step is…
6. Organise and Store the Documents= You need to keep organise and store your documents records for your bookkeeping however there’s a chunk more to it than just storing all your receipts in a shoebox.
The last step is…
7. Make it a habit= what keeping isn’t the most exciting thing but if you do it consistently, you will have a smart financial insight into your business every month of the year and you will save yourself a lot of time in the last time of tax season.
So, Good luck on your entrepreneurial journey and Happy Bookkeeping.
How to Start Your Book Keeping Business
Top 5 Tips To Successful Bookkeeping
Can a bookkeeper prepare financial Statements?
Yes ,a bookkeeper can also prepare financial statements of a company.
What is the diffrence between accounting and bookkeeping?
1.Bookkeeping:It is a primarly stage. Accounting:It is a secondry stage.
2.Bookkeeping:The bookkeeping function is routine and clercial in nature.Accounting:The accounting function is analytical in nature.
3.Bookkeeping:Limited level of knowledge is needed.Accounting:Higher level of knowlwdge is needed.
4.Bookkeeping:The book-keeper is not required to poses analytical skills.Accounting:The accountant is required to posses analytical skills.
What are the types of bookkeeping?
There are two styles of bookkeeping .
1.Double entry machine and
2.Single entry machine.
what is the hourly rate of a bookkeeper?
Here you can see what was the rate of a bookkeeper in detailed.Just Click Here.
Why is bookkeeping important?
The Reasons behind why bookkeeping is important.
1.Business planning is easy:By checking Balance sheet you can start your bussiness planning.
2.Fulfilment of tax obligations: Bookkeeping Keeps track on any records and record with a purpose to accomplish annual taxes.
3.Reporting to investors is easy: Reporting to your investors has become easier.From charts graphs to list of data,can present anything.
4.Proper document preserving: Bookkeeping keep document retaining properly organised from small to large invoice.
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