Understanding Bookkeeping: The Basics for Beginners

Attention small business owners! Do you think that only production and selling are the factors that are essential for running a small business? The answer is no! 

Running a small business includes tracking the financial data. Without proper maintenance of financial data, you will be in a situation of facing serious challenges. 

So, recording the financial data is crucial in a business. But this process is not as tough as you think. This blog will explain the bookkeeping concept and why they are crucial for a business's success. Continue to read and get valuable insights. 

First, let’s know what bookkeeping is. 

Bookkeeping is the process of recording the financial transactions of the business in a coordinated account. It is the most crucial step in the accounting process of your business. The goal of bookkeeping is tracking the expenses, measuring the income, and making effective financial decisions. 

The instant updating of the financial records—the accurate financial reports will be generated. 

Now let’s explore why bookkeeping is important.  

The bookkeeping is important for several reasons.  

• It helps in knowing about the money that you have spent on business.  
• This plays a major role in identifying the current market trends.  
• It helps in managing the cash flow of your business and leads the way to making perfect decisions. 
• It results in a proper tax filing and prevents overlooking the process.  
• It helps in identifying the areas of maximum profits.  

There are some common bookkeeping terms you should know as a small business owner. They are mentioned below.  

Income: It is the money earned from the goods or services.  

Cash flow: It is the cash that moves in and out of your business.  

Profit and Loss: It is the money that is spent and made by your business over time.  

Assets: They are the resources that your business owns. 

Expenses: The cost spent on running your business.  

Liabilities: This is the condition of legally being responsible for paying the debts the business owes.   

Each bookkeeping system is used for different-scale businesses, and some of them are:  

Single Entry Bookkeeping System: It is the method of recording one entry for each transaction. The business sectors that use single-entry bookkeeping systems are small-scale businesses and self-employed, etc.  

Double Entry Bookkeeping System: This bookkeeping method records transactions in two accounts. The error occurrence in this system will be less as the double-checking process takes place here. The large-scale businesses can make use of this double-entry bookkeeping system.  

Cash-Based Bookkeeping System: This system simply records the income and expenses only in case of physical cash exchange. This implies that even if the cash exchanges happen, the sales or purchases made will not be recorded in the book. 

If you are a beginner in bookkeeping, then here are some essential tips for bookkeeping.  

• Choose the best software to record all the financial transactions. If this recording process is done manually, it may take much time. But using automated software for this recording process results in a quick and accurate process.  
• Choose the bookkeeping system according to your business size. If you are a startup or a small business, then you can choose a single-entry bookkeeping system; meanwhile, if you are running a large business, then utilise a double-entry bookkeeping system.  
• Maintain a financial blueprint for your business, which makes the process of financial reporting easier.  
• The most crucial step is tracking the incoming and outgoing of your business and undergoing the comparison process of the bank statements with the recorded finances.  

Accurate bookkeeping takes the business in a successful way. Maintain accurate records with InvoiceTemple, and stay on top of the financial stability.