Any business that takes itself seriously needs to keep accurate records of its finances. It’s known as bookkeeping, which categorizes a company’s financial data and inputs it into an accounting system. From that, a report is generated to help business owners make sound business decisions.
Bookkeeping assists companies in remaining compliant with accounting and tax rules; to avoid any potential fees and penalties that could arise.
The problem is the complexity of bookkeeping, with hundreds of accounting rules that must be legally abided by. On top of that, your individual and business tax returns are dependent on the data in those bookkeeping records. Besides legality issues, bookkeeping ensures better business decisions.
If you want to expand your business (and what business owner doesn’t?), you need to use a bookkeeping program that will help you grow and thrive. Should you handle the bookkeeping for yourself? Do you need to hire someone to handle the accounting for you? Or, is a bookkeeping service the better deal?
Whatever you decide, know that four critical steps of bookkeeping will help you to succeed.
4 Key Steps Behind Using A Bookkeeping Service
Attain Source Information
Bookkeeping boils down to business transactions – be it a service or product. The evidence of this transaction is known as source documentation. Such documents include receipts, sales orders and invoices. These documents include the date, amount, buyer/seller and service/product purchased.
However, in most cases, people use their bank accounts to track business transactions.
A bookkeeper will need access to source documentation to keep accurate records of your business transactions.
A bookkeeper will classify transactions in five main categories – assets, revenue, expenses, equity and liabilities – which can then be broken down into subcategories. Each category designates where transactions fall. For instance, assets are resources with impending economic benefit (cash), whereas liabilities are a future obligation (bank loan).
The majority of bookkeepers use accounting software (not pen and paper) to keep track of these transactions.
Review Transactions Against Software
Good bookkeepers will ensure transactions are classified correctly, and then review transactions against the software to ensure everything is matched up. Since you may have hundreds of transactions, it’s possible to double up or miss something. By reviewing transactions, bookkeepers can catch mistakes.
Prepping Financial Statements
The last thing to contend with is preparing financial statements such as balance sheets, income statements and cash flow statements.
- A balance sheet includes equity, liability and asset transactions.
- An income statement includes expense and revenue transactions (you’ll know if you’re making or losing money with this statement).
- Cash flow is made up of three parts – cash from operations, financing and investments. This shows how transactions affect the cash account. You cannot sustain a business if you have no money.
Be sure to review the financial statements yourself to get an insight into what’s happening in the business and make sound decisions based on this information.
How To Find A Reliable Bookkeeping Service
When it comes to bookkeeping services, you want one that will keep in-depth records of your financial statements. Whether you hire a single bookkeeper or a company, you want to be sure they have the following:
- Customized services
If you hire a company, find out if their employees are in-house or outsourced. Some companies will hire freelancers to handle the accounting specs, which comprises your financial data. Avoid companies such as these.
Bookkeeping can be a very tedious process, and if you don’t know how to do it yourself, you need to hire a reputable company to handle it all for you. After all, your business’ survival and is dependent on those records being as accurate and tax-compliant.