Bookkeeping is the process to keep track of each financial transaction a company or business firm makes. It is about recording all the financial transactions along with supporting documentation such as a purchase order, an invoice, a receipt, or some sort of financial record that shows the transaction is made and it depends on the kind of accounting system the business uses.
Difference between bookkeeping and accounting
Bookkeeping is certainly very important for a business. Bookkeeping services collect the documentation for financial transactions, file them in the accounting journal, classifying every transaction as single or multiple debits and single or several credits, and finally organizing the transactions following the account chart of the company.
Once, all the financial transactions are recorded, they need to be abbreviated after a certain period. Some firms need quarterly reports while others may need reports at the year-end to prepare for taxes.
After the adequate period, accountants take over for analyzing, reviewing, interpreting as well as reporting financial information for the company. The accountant is also responsible for preparing financial statements and accurate accounts for the business firm.
Things you require to set up bookkeeping for your company
While setting up bookkeeping for your company, the first thing you need to decide is whether to consider a cash or accrual accounting system. If it is a small or one-person company that you are operating from home or a richer consulting practice, you might go with cash accounting.
In cash accounting, transactions are recorded when cash switches hands. If you use accrual accounting, you record sales and purchases immediately, even though the cash does not switch hands. Some business firms consider starting with cash accounting and over time change to accrual accounting.
Accrual accounting system would be the perfect option for businesses that offer their customers credit or request credit from their suppliers.
Another very important factor to consider is whether to use a single or double-entry bookkeeping system. Single-entry bookkeeping is similar to maintaining the check register, recording the transactions, and making deposits into the company account. This system is suitable for small businesses having low transaction volume.
If you run a larger company with more complexities, you should consider a double-entry bookkeeping system where at least two entries are made for every transaction. The key to double-entry bookkeeping is to make a minimum one debit to one account and one credit to another account.
Consider the right accounting system
Make sure to set up a computerized accounting system while considering bookkeeping for your company. Usually, companies prefer computer software for keeping track of accounting journals along with bookkeeping entries.
For small businesses, Microsoft Excel can be a solution, but larger businesses need to think of more sophisticated options for keeping track of their accounting journals. You can always seek external help and HeySara is one option that you can positively consider, they also provide services like company incorporation for foreigners.