Bookkeeping is the activity of keeping records of the financial affairs of a business. Sounds thrilling, right? The process consists of categorizing business transactions. The purpose is to use the data to understand the business accounting and finances.
Keeping the books can be done in a number of different ways across various different platforms. For example, some small business owners "keep their books" using a haphazard method involving receipts, bank statements and an extensive and tedious spreadsheet. Sound familiar? This method is painful and time consuming.
Please, Use Bookkeeping Software
The main function is to keep consistent records of the daily accounting transactions.
Bookkeeping is comprised of:
Recording financial transactions
Posting debits and credits
Maintaining and balancing general ledgers and historical accounts
Even though all of those things above sound really boring, bookkeeping is also pretty using for generating reports and financial statements. This comes in handy so you can understand how your business is doing and when you need to file taxes.
Your bookkeeping software makes it really easy to generate your company's financial statements. If you keep the books accurately and regularly, you have the data to look at your income and expenses for the previous month, week, quarter, year, etc.
Bookkeeping organizes your company's transactions for you. You enter the information into the database and the database can easily sort the figures into accurate reports.
Taxes & Such
The taxes your accountant files for you are based on your financial transactions throughout the year. Keeping accurate books on a regular basis helps ease the pain of this tax prep. Think back to last April. You were probably looking through bank statements, trying to figure out what that $68 dinner back in November was for. What is for a client? What about that $98 charge for Amazon - was it a gift, was it office supplies?!
All the financial and accounting transactions for your company are recorded in the general ledger. Maintaining this general ledger is one of the main components of bookkeeping. The general ledger is where your bookkeeper records the amounts from sale and expense receipts. You can view the general ledger within your bookkeeping file.
All of your company's sales and purchases need to be recorded in the ledger and certain items need supporting documents. The IRS clearly lays out which business transactions require supporting documents on their website. It's all very riveting material, as I'm sure you can imagine.