Well Balanced Bookkeeping is a crucial business process that impacts every aspect of your company. From importing and reconciling transactions to preparing financial statements, it’s essential that all businesses keep their books updated.Bookkeeping

A well-executed bookkeeping process enables precise financial tracking, informed decision-making, and compliance with tax regulations. For example, a small graphic design studio can gain insights into profitability per project through diligent logging of client payments and overhead expenses.

Bookkeeping involves recording financial data for a business. This includes sales, purchases, cash payments and receipts as well as the associated accounts payable and receivable. Bookkeeping tasks may vary based on the needs of a particular company, but all businesses must maintain accounting records for tax filings, auditing and strategic decision making.

In the past, books were maintained in physical journals where each transaction was recorded chronologically. Today, a computer software program or spreadsheet handles this task for many businesses. Regardless of the method of recordation, accurate classification is key to creating useful reports. A good bookkeeper must understand the accounting equation and apply it to each entry. This ensures that each account impacted is recorded in the proper financial segment.

For example, a sale is recorded as debit revenue and credit accounts payable or cash. The balance in these two segments must match. The use of a double-entry system is an effective way to prevent bookkeeping errors. This system requires each entry to be made as both a debit and a credit and is balanced at the end of an accounting period.

Recording each of these transactions in a journal allows a bookkeeper to make a note of the event for future reference. The information from each journal is then rolled up into the general ledger. The general ledger provides a breakdown of each accounting activity by account, which allows the bookkeeper to monitor company finances from a variety of perspectives.

Another important bookkeeping function is to reconcile the recorded transactions with bank and credit card statements. This helps to identify any discrepancies and prevent fraudulent activities. It is also an opportunity for a business owner to evaluate the data recorded by the bookkeeper and consider any expense cutting, investment opportunities or other strategic decisions that could improve profitability.

It is recommended to perform a quarterly review of the recorded transactions by an accounting professional. This can help to identify the strengths and weaknesses of the company’s financial statements, as well as any tax remittances that are pending or overdue. During the review process, an accountant can also analyze data and recommend changes to company processes, procedures or policies.

Reconciling Transactions

Account reconciliations involve comparing the financial information in a business’s internal records with the details included in its bank statement. This process confirms that the amount of money coming into one account matches the corresponding amount leaving another, such as cash receipts. It also ensures that the amounts spent are documented and recorded, as well as catching any discrepancies in transactions that could lead to fraud.

For a business, this is done by comparing the general ledger (GL) balance with the amount of money in the business’s bank account. The GL is an accounting tool that lists each business activity in an easy-to-read format. Its accounts are classified as assets, liabilities, equity and revenue to track value coming into and going out of a business. A company might use multiple GLs to track inventory, receivables and payables, among other things.

Reconciling a business’s bank account is similar to balancing a personal checkbook. The accountant compares the balance in the GL with the bank statement and checks in the business’s checkbook register, looking for items that don’t match up. The accountant then makes the necessary adjustments to bring these two records into agreement. These adjustments might include fees charged by a merchant service provider, petty cash withdrawals that weren’t documented and a number of other factors.

Using accounting software can help streamline the account reconciliation process by reducing the need for manual entry of data. However, human intervention is still required to catch erroneous information or errors in coding that can occur when entering a transaction. To make a thorough comparison, the accountant should have access to all relevant documentation for both sets of data, including bank statements, invoices, payments received and payments made.

Depending on the size of the company, the accountant might perform the analysis alone or with a team. The analytical process usually involves reviewing each debit and credit, substantiating them against outside documentation and adjusting opening and closing balances for the accounting period being reviewed. Once the reconciliation has been completed, a controller or accounting manager will review the results and ensure that all adjustments have been properly recorded.

Filing Taxes

Bookkeeping is a critical component of accounting. In fact, many accountants begin their careers as bookkeepers. This is a great way to gain experience in the field while also earning a decent wage and secure job security. However, the longer-term goal of most bookkeepers is to become an accountant. This is because the career offers much greater opportunities for upward mobility and income potential. Those seeking a career as an accountant must obtain the necessary education and certification while also demonstrating proficiency in bookkeeping and other accounting processes.

When it comes to filing taxes in bookkeeping, it is important that you keep accurate records of all your company’s financial activity. This can help reduce your tax burden come filing season. Having accurate and up-to-date books will also help you better understand the financial health of your company, which can be helpful when making key business decisions.

A common mistake that many small businesses make is not keeping up with their bookkeeping. Typically, these companies are busy and don’t have the time or resources to hire an external bookkeeping consultant. They may even be tempted to use software to manage their books, but this can lead to errors that can be costly.

To avoid these mistakes, you should always cross-reference your bank statements with your company records. This will help you catch any discrepancies and ensure that all transactions are accounted for. You should also get in the habit of keeping receipts for business expenses, as well as any personal income. This will allow you to claim all of the deductions that are allowed under federal and state law.

Once your books are in order, it is time to prepare your tax return. Having accurate year-round bookkeeping will make this process much easier for you and your accountant. If you do not want to handle the paperwork yourself, you can contact an enrolled agent (EA) to file your returns for a fee.

The benefits of reliable bookkeeping are numerous, and the need for accurate, up-to-date financial documents is a necessity for every business. Whether you are an independent contractor or operate a large corporation, consistent recordkeeping is vital to the success of your company.

Preparing Financial Statements

Bookkeeping is the first step in preparing your company’s financial statements. It is also the most time-consuming task. It involves confirming that all of the information recorded in your spreadsheets or accounting software matches up with bank statements and other external documents to verify accuracy. The final goal of this process is to create a summary of your business’s financial status that you can use for internal reporting purposes.

Once your financial books have been closed and reconciled, you can compile the various reports that form part of your company’s annual fiscal reports. These include the adjusted trial balance, the income statement and the balance sheet. Each of these summarizes activity from your assets, liabilities and equity accounts. The income statement reports your business’s net profit or loss and the balance sheet summarizes total assets, current liabilities and accumulated depreciation.

You can make informed business decisions based on the results of these monthly reports, which are useful in measuring your company’s profitability. The statements can also indicate which initiatives have worked and which ones may not have had the desired impact, making it easier for you to plan for the future.

The accuracy of your financial reports is key to securing loans, attracting investors and meeting tax filing obligations. A competent bookkeeper can help you ensure that your financial records are in order, and comply with legal and regulatory requirements.

Although bookkeeping is only one part of the overall accounting process, it’s an important element that can be a key to your success. Up-to-date books can be used to back up expense claims, support applications for tax deductions and provide detailed financial data when comparing the performance of your business over time. In addition, accurate and complete bookkeeping can also assist your accountant in performing critical tasks such as preparing audited financial statements, providing reliable and timely tax estimates and helping you meet deadlines for submitting required financial reports. The best way to make sure your bookkeeping is as strong as possible is to work with a certified professional bookkeeper who can help you set up and manage your accounts, reconcile transactions and prepare financial statements.