Bookkeeping in simple words means preparing and keeping record of business transactions in form of books of accounts. In general, all businesses or professions requires to do bookkeeping of all their financial transactions. In this blog, we will explain How to do bookkeeping, its types, benefits, need etc.
What is bookkeeping?
In every business/organization there are multiple transactions that take place and almost every transaction involves a monetary value in it. Bookkeeping is to record the monetary value as per the standard methods and keep the supporting documents for those transactions.
While the question “How to do Bookkeeping?” is certainly an important aspect however, before we jump on to it, one should also understand why it is important. Just like when we study for the entire year, we wait for the result to know how good we performed, in case of business, the entire ecosystem works for a period (say quarterly or yearly) and the businessman wants to know the outcome in the form of profit earned. It is the way to record transactions in such a way that the business owner can check the outcome of running the business. In addition, bookkeeping also helps with various other reports required to conduct the business in easier, efficient and compliant manner.
How to do Bookkeeping?
There are two popular and standard methods of bookkeeping:
Single entry bookkeeping system is a process of recording transaction wherein transactions recorded in cash ledger. As the name suggests there are no two balancing sides of the transaction. Therefore this method lacks internal control and it is difficult to find error or track transaction in this system.
Double entry bookkeeping system, on the other hand is a process wherein every transaction while recording has two sides i.e. debit side and credit side. These two sides are always equal in amount. Therefore, this method is more reliable and accurate.
Steps to set-up and start bookkeeping in an organization
- Chose the method of accounting: There are two methods of accounting i.e. cash-based accounting and accrual-based accounting. Business owner needs to chose one of the two methods based on size and nature of business. Generally, accrual-based accounting is recommended as some compliances requires this method.
- Create Chart of Accounts (CoA): In this step business owner/accounting head sets up groups and ledgers in order to categorize transaction like sale, purchase, expense, assets, liabilities etc.
- Record transactions: once the CoA is setup, bookkeeper should start recording transactions. To record the transaction, it is very important that bookkeeper understand the concept of accounting and he/she categorises the transaction in correct transaction type like Journal, receipt, payment, sale, purchase etc.
- Reconcile with bank transactions: While it is not mandatory but it is highly recommended that accountant reconcile and compares the books of accounts and bank statement, timely and frequently. This helps in identifying errors and frauds and take timely action on them.
- Inventory tracking: For the businesses selling products, managing inventory is very important because both excess and shortage of inventory cause loss to the business. Bookkeeping help in maintaining the inventory accurately and efficiently by recording sale and purchase transactions.
- Financial reporting: Financial reporting can be considered to be the outcome of bookkeeping process. Bookkeeping helps the business by providing P&L, balance sheet, debtors, creditor reports etc.
Benefits of Bookkeeping
Accuracy: Bookkeeping certainly helps in keeping the record of transactions in accurate manner. While the output is as good as the input. But, at the same time it is generally much more accurate than the records that the business would have prepared without bookkeeping.
Controls: Bookkeeping can provide the business owner with many reports to control the expenses, cashflow, profitability etc. which are the key controls that business owner would like to see.
Compliances: Bookkeeping also helps in ensuring the compliances. While setting up the the system, CoA, recording transaction and setting up reports, accountant should envisage the detail/reports required for various compliances purposes e.g. P&L, Balance sheet, Tax reports, specific expense reports etc. This makes compliances much easier to handle.
Decision making: Business owner highly rely on financial data for decision making. Which means the timing and accuracy of financial data is very important which is controlled through bookkeeping.
Improved relationship with customers and suppliers: Bookkeeping helps in improving relations with customers and supplier, as this helps in timely payment, resolving dispute in timely manner, which in turn strengthens the relations.
Benefits of outsourcing:
Scalability: With time and efforts of business owner businesses grow and that increases number of transactions, compliances etc. to avoid and mitigate the risk of this volatility it is a wise decision to outsource the bookkeeping activity. With outsourcing of bookkeeping, you get flexible setup to handle the needs even in changing environment.
Focus: Outsourcing of bookkeeping service, helps the business owner focus on the core business activity. Outsourcing generally provides better compliant environment which keeps business owner free from non-compliances.
Saves time: Outsourcing agencies have resources which are expert in different activities within bookkeeping and accounting, which reduces the time taken by them as compared one or two accountant handling entire span of accounting activities within the company.
Reduce cost: In case of in-house bookkeeping and accounting department, business owner is required to manage/arrange many things like office space, salary, benefits, hiring, firing, leave records, attendance records etc. Also, the compliance cost for complying with various labour laws. While in case of outsourcing, cost is reduced substantially because of specialization, time & resource sharing.
Reduce fraud risk: Outsourcing firms are independent and unbiased hence provide greater safety from fraud and errors due to oversight.
Why Onlinecorpserv.com?
At onlinecorpserv.com we provide great standard of quality service at a reasonable cost. Following are some key reasons for you to choose Onlinecorpserv.com as your bookkeeping outsourcing agency:
- Affordable
- Skilled & experience professionals
- Reliable Government registered OPC company
- End to end business support services (including, payroll processing, bookkeeping, GST filing, TDS return filing, Income Tax Return filing, Audits etc.)
- Quick turnaround of required reports
- Easily contactable
- Secured and confidential transactions
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