What is bookkeeping? Why is it important?

 

That is a great question that many businesses owner’s ask!

In order to talk about bookkeeping though, we have to talk about accounting. As I was once taught, bookkeeping is part of the accounting tree. There are many different branches of accounting: Audits, Managerial Accounting, Financial Accounting, Tax Accounting, Bookkeeping, and maybe a few other small branches I’m forgetting…

Bookkeeping makes up part of the tree of accounting, it focuses on keeping track of a business’s financial records, keeping them up to date to provide accurate financial reports and for filing your taxes. That really makes bookkeeping the foundation of accounting, or the trunk of the tree in my analogy.

Here’s a list that bookkeeping includes:

• Documenting financial transactions (both income and expenditures)
• Recording Debits and Credits
• Sending invoices and processing payments
• Reconciling accounts (bank and credit-card accounts for example)
• Processing Payroll
• Preparing financial statements (Profit & Loss, Balance sheet, Cash Flow)

Without bookkeeping, it would be hard to determine an accurate financial picture of your business. This is important to know especially if you need to take a loan out for example, banks want to have an accurate financial picture of your business, how much you’re bringing in a month, common expenditures, they’ll want to see your Profit and Loss report for year to date and even prior years! That’s why it’s so important to keep track of this information, you may not be able to secure a loan without it!

Bookkeeping can be done by the business owner or by a bookkeeper. Many business owners and bookkeepers use accounting software to keep track of their finances. It helps automate the recording of your transactions and helps by providing you with an accurate financial picture that you can see at the click of your fingers. Another approach could be pen and paper, or the use of spreadsheets to keep track of your information.

If you’re a new business owner and you’re not confident in doing your own bookkeeping, we recommend talking with a bookkeeper or an accountant to help you set-up your accounting framework for your business.

Bonus: If you’re a small business owner and want to manage your books yourself, I recommend you keep your receipts especially if you’re to pay in cash or keep track of your books manually! This way you have a reference or a backup to refer too if need be!

If you’re in need of a bookkeeper or need accounting help, please feel free to reach out to me. You can book an appointment with me here:

Or email me directly here: mikebraunfas@gmail.com or here: mikebraunfas@outlook.com

Thank you for reading, wishing you the best with your journey as an entrepreneur!