You’ve probably seen the term “bookkeeping” tossed about like it’s candy in small company circles, but what exactly does it entail? You’re aware that it has something to do with money and your company, but you have no idea what accounting is or how to go about doing it. Most small company owners put off their accounting because they don’t know where to begin or what to do to get started. I’m taking a DEEP DIVE into the world of small company accounting right now. What exactly is it? How frequently do you think you’ll have to do it? What should you be doing at this point? I’ll be addressing all of your questions and more!
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Definition of bookkeeping
Bookkeeping is the process of keeping track of your company’s financial records. Here’s the thing: accounting is not the same as a whole corporate finance system, which many individuals believe that accounting encompasses every single financial responsibility in their company, which is just not true.
Bookkeeping is the component of your company’s finances that involves maintaining records of transactions. Keeping track of your income and spending for tax reasons is most likely on your mind right now. Bookkeeping is divided into three categories in my mind: record keeping accounts payable, and accounts receivable.
Keeping records is important.
When taxes, they must provide the government with information about our financial situation. We keep track of their revenue and spending for tax purposes and our internal information about our company. We also utilize our corporate finances to make money-related choices that are more strategic.
When performing your accounting, you’re not simply monitoring for tax purposes; you’re also recording so that you can look at your finances and use them as a compass to make purposeful business choices. Income and spending are tracked to varying degrees of precision depending on the corporate finance system in place.
It is the process of keeping track of the money you owe to other people. If your company strategy and the sort of business that you have are both straightforward, accounts payable may consist of nothing more than paying your virtual assistant once a month. Alternatively, if you have many contractors and workers that you spend every month, things might get more complicated.
To properly manage your accounts payable system inside your accounting structure, whether you own a small business or are in any other position where you purchase items from customers who have terms, you must first understand what accounts. Keeping track of when your payments are due will be essential for maintaining a healthy cash flow in your company.
Accounts receivable is the third part of accounting to consider. It is the debt that you owe to other people. Your invoicing system is the most frequent accounts receivable procedure; however, it can be anything. However, it may be anything that has to do with how you get paid for your products and services.
When it comes to accounts receivable, there are two major stages in the process to consider. You have the billing section, which is responsible for informing individuals of the amount they owe you. Next comes the point when you get money or follow up to ensure that you will receive payments. These two places are separated by a period that varies. If you sell things online, you may notify the consumer how much money they owe you using an online cart. After that, you will receive payment via your checkout platform. The amount of time that elapses between the two points is quite brief.
You will have activities related to creating an invoice, submitting it to the client, and receiving payment if you operate an invoicing-based firm. Depending on your invoicing conditions, the period between the two points might be much longer.
It’s common for people to approach their bookkeeping by simply writing down their receipts– but this isn’t sufficient. Then they wonder why their billing is a complete disaster, why they are always late on their payments, or why their invoices are never paid in full. It’s because they’ve never taken a comprehensive look at the complete accounting process, which is what we’ll be doing in the next section.
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