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Irrespective of the size of a business, bookkeeping is one of the most basic responsibilities within a company. It involves tracking expenses and financial transactions that have occurred on a daily basis.
Bookkeeping differs from Accounting in that an accountant is dependent on the bookkeeper’s records. The bookkeeper is responsible for making accurate records of sales, purchases, payments made, etc. These entries are recorded in designated ledgers or books that are then balanced to insure that the financial figures match.
A small business may perform its own bookkeeping to defray expenses. However, without a trained bookkeeper performing this function in-house may turn out to be a very expensive decision.
Bookkeeping is often confused with accounting work. They are different in that bookkeeping involves maintaining records of financial transactions that have taken place. Different records are maintained in different, designated books. Thus, there are separate sales ledgers, ledgers for payments receivables, and record books for functions such as sales and purchases made, as well as records of issued bank checks.
These books further contain multiple columns to indicate payments due or made, together with the balance noted at the time of the transaction.
All of these functions define a bookkeeper’s areas of responsibility.
Because the bookkeeper deals with matters that reflect the financial health of the company, there is very little room for error. Finally, the company’s accountant depends on the bookkeeper’s work to prepare financial records and communication.
As with other business functions, there are several bookkeeping “best practices”, which when implemented can significantly impact a company’s overall productivity and efficiency.
1. Maintain records diligently.
It helps to maintain different records for different transactions in a timely and exact manner. When you have multiple daily transactions, it is essential that they are all recorded. The bookkeeper’s work determine show easily an accountant can file the related income statements and communicate expenses to the company’s shareholders.
2. Hire a trained bookkeeper.
Performing this function by assigning it to another staff member or having the business owner perform the bookkeeping may work in the beginning when your business is small. However, as your client base increases, this can become unwieldy to the untrained bookkeeper. Without a knowledge of bookkeeping practices, you run the risk of recording errors which could have long lasting negative implications.
3. Invest in high quality accounting software.
High caliber accounting software is essential to your company’s financial infrastructure. Poor bookkeeping can lead directly to loss in earnings and worst cases loss of clients. For small businesses, this domino effect can be fatal. Although several off-the-shelf accounting software solutions exist, if you cannot afford to make this type of investment for your business, tap into a provider who offers you high quality bookkeeping services.
4. Keep your forms and records handy.
Make sure you are audit-ready and not remiss in filing important forms etc. When you are ready with the essentials, your bookkeeping will be better organized.
5. Back up all your data.
This is one of the most important rules. As a small business, if you are finding it difficult to maintain safe and dependable back-ups, then you should consider choosing a vendor who can manage your bookkeeping functions. Ensuring data security in times of crisis or accidents is an important factor for both your business and your clients’ businesses.
Satish Patel, CPA
President, Analytix Solutions
Satish Patel, Founder-CEO of Analytix Solutions, has more than two decades of experience as a CPA. He has also advised small and mid-sized businesses on diverse matters such as valuation, accounting, and finance. His experience extends to raising capital and arranging for finance from angel investors.
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