With every business and start-ups busy combating other businesses and competing with them to win the corporate’s race to success. However, without being well-versed with the knowledge of financial and bookkeeping, the business falls into a backtrack. Therefore, it is imperative for businesses to embrace the skills of finance to take their start-ups to a path of success.
As both accounting and bookkeeping form an essential part of finance and is vital for any business to grow and succeed, they are generally used interchangeably. However, the basics of bookkeeping is the need of the hour for all the firms, bookkeeping is the process of tracking and recording of financial statements of incomes and expenses. This process encompasses keeping a track of all the financial records that term back to the very beginning of the business.
Start-up’s Guide to Bookkeeping
Every business needs to have a structured method of bookkeeping which entails recording the money coming in and going out of your business. This will help you monitor revenue and expenses, track budgets, and take action if problems arise. Here’s the basic guide to bookkeeping:
Keeping Records of Documents: Keep track of documentation that shows income, expenses, deductions, and credits shown on your tax returns. These can include: Receipts, cash transactions, bank credit card statements, bills and canceled checks, invoices, proof of payments financial statements from your bookkeeper, previous tax returns, and other forms.
File and digitalize all the transactions bookkeeping software or Excel spreadsheet: This can be accomplished in a more streamlined manner if your financial records are integrated with the software which keeps all the records of the documents updated and helps in analyzing business transactions.
Reconcile with bank accounts: To safeguard your bookkeeping reconciling the statements every month to ensure your financial statements are accurate. In case the amounts in the bank statement and internal records do not match, adjusting entries are made to modify account balances so that they more accurately reflect the actual situation at the end of an accounting period.
Posting to Ledger Accounts: A wide collection of all the linked accounts is known as a ledger which includes accounts payable, accounts receivable, and general ledger. If the entry in the journal indicates a change in the accounts, the account balances are changed in all its respective ledger accounts. The chronological information in the journal is summarized in the ledger on an account-by-account basis.
Trial Balance: To ensure that all the entries are accurately recorded and posted correctly, the business can make trial balances which ensures that the debit balances and credit balances in the ledger accounts are a match.
Closing Accounts: Most businesses have temporary revenue and expense accounts that provide information on the income statement. At the end of the accounting cycle, these accounts are closed which makes the balance of the temporary accounts equal to zero. An account called Profit and Loss is created to show the net income or loss in a period. An accurate bookkeeping provides detailed, accurate, and timely records that assist in their decision-making process and audits.
