What Small Business Owners Should Know about Bookkeeping

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What Small Business Owners Should Know about Bookkeeping Image Credit: ksbookkeeping.com.au

Bookkeeping is the recording of financial transactions, and its part of the process of accounting in business. It is also the recording, on a day-to-day basis of the

financial transactions and information pertaining to a business. In other words, bookkeeping is the means by which data is entered into an accounting system. An example of bookkeeping is the process of documenting bank statements each month. To wrap it up, bookkeeping is the recording of all financial transactions, including financial records of purchases, sales, receipts and payments, as well as accruals for payables or receivables.

Bookkeeping is one of the most essential tasks of any business. It is usually performed by a bookkeeper. Bookkeeping is part of the accounting process. Bookkeeping isn’t just historical processing, but integrated business system management.

The double entry system of bookkeeping is based upon the fact that every transaction has two parts and that this will therefore affect two ledger accounts. At the core of double-entry bookkeeping is the concept that every transaction will involve at least two accounts, if not more. Single-entry bookkeeping is adequate for many micro small businesses, as a result of their scale of operation and the volume of their transactions. While the double entry system of bookkeeping will be appropriate for small and medium enterprises.

Now, paper-based bookkeeping is fast fading away and becoming a thing of the past. Today bookkeeping is done with the use of computer software. In a world where virtually every business task is performed on a computer, it is no surprise that most bookkeeping is now done electronically.

Some people think that bookkeeping is the same as accounting. Bookkeeping is only an indispensable subset of accounting. But the principles of accounting rely on accurate and thorough records, bookkeeping is the foundation of accounting. As you can see, bookkeeping is only a small part of the broader definition of accounting. In short, the difference between accounting and bookkeeping is that bookkeeping focuses on repetitive business transactions, and so is a subset of the much larger set of tasks that can be encompassed by accounting.

Bookkeeping is constructed to provide the preliminary information needed to create accounting statements. As a result of this, the most important aspect of bookkeeping is to keep an accurate account of all records and keep them up to date. The biggest difference between accounting and bookkeeping is that accounting involves interpreting and analyzing data and bookkeeping does not. Accounting actually starts before the bookkeeping process and continues after the bookkeeping is complete. if the bookkeeping is accurate, then the advice provided by the accountant will be accurate. A good accountant must first be a good bookkeeper, bookkeeping is just one aspect of accounting that you will need to know.

In this part of the world, bookkeeping mistakes are rife in small and medium enterprises accounts because they rarely give attention to having proper books of accounts. Couple with the facts that small businesses do not realize the importance of bookkeeping in financial planning and management. They do not also realize that a good bookkeeping helps when it comes to taxation. If your bookkeeper or accountant lacks understanding of how tax works. There is possibility of bookkeeping mistakes. That is why it is so important to make sure that bookkeeping mistakes are not resulting in overpaid taxes.

Eventually, things tend to slip, bookkeeping mistakes are made and that can actually hurt a business drastically. By understanding what the most common bookkeeping mistakes are, your small business can work to avoid them. Most of the common bookkeeping mistakes are pretty easy to avoid, and just as easy to set up the right way within your accounting software. Over my years of experience, I’ve seen a lot of journal entries and I’ve seen what can happen to businesses when bookkeeping mistakes are made.

Bookkeeping mistakes are very common but easily avoidable, even if you have separate business and personal accounts. Often, many bookkeeping mistakes are a result of improper classification, putting too many or too few expenses in the wrong categories. Bookkeeping mistakes are inevitable and expensive to fix. In fact, bookkeeping mistakes are one of the main sources of end of year tax problems.

For small businesses, accurate and diligent bookkeeping is necessary. It not only establishes compliance with the law, tax regulations and bank lending rules but also improves your ability to make operational decisions.

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John Taiwo Popoola

Managing Consultant & CEO of TAISHA ASSOCIATES. He holds a B.Sc in Management & Accounting from University of Ife (now Obafemi Awolowo University). He is a Fellow of the Institute of Chartered Accountants of Nigeria. He passed through the training mill of KPMG Peat Marwick. He has core competencies  in accounting, finance, management and tax.

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