As we all know, bookkeeping is the way that businesses and accountants record their finances in order to keep organized and stable. Today, you will see businesses using high-tech software that makes it easy for their clients to understand each and every transaction that goes through, upcoming bills, and budgeting plans.
It is clear that the process of bookkeeping isn’t new, but it has changed and become a more streamlined and effective process over the years. Companies like JDM Business Services put analytical and organizational skills to the test and are able to take a slew of information and turn it into something useful. Without appropriate bookkeeping, a business might be spending more than it is making, which is a surefire way to drive a business into the ground just as quickly, if not faster than it was built up.
Origins
It isn’t too clear when bookkeeping began officially. We do know that it dates back to the ancient city of Babylon, where clay slabs from 2600 BCE have been found depicting transactions, receipts, and budgets.
Of course, we didn’t go from clay slabs to modern programs like QuickBooks overnight! Bookkeeping in the US used to be written in temporary books called “wastebooks†until entered in a ledger to balance the accounts and transfer budgets and transactions over to a permanent journal.
From here, businesses have started for the sole purpose of helping other businesses with their bookkeeping. The move from written to electronic bookkeeping has made the process of bookkeeping much quicker and more efficient allowing for business owners to keep up with the fast-paced business world.
Bookkeeping can be a full-time job if done properly, and many successful business owners lack the time and energy to focus on that over their clients, products, and advertising. Bookkeepers are able to combine useful and intelligent software with their own creativity and vision to make detailed yet simple documents to keep a business owner informed.
Process
In most cases, bookkeeping is done whenever a transaction occurs. This could be something small to help with everyday conveniences, or it could be when a big business deal occurs. A bookkeeper will review invoices, receipts, and deposit slips and implement the information into existing data to ensure that all finances are up to date.
The first step of bookkeeping is to write down all details in a daybook, a multi-column journal that will keep initial purchases and sales organized before being implemented into a record. Bookkeeping is similar to balancing a checkbook on a larger scale. It is common for a bookkeeper to have several different daybooks, including a purchase journal, a sales journal, a cash receipts journal, a purchase return journal, a cash payment/disbursement journal, or even a general journal for transactions that don’t fall under the categories of their other daybooks.
Oftentimes after a month, each column in a daybook is totaled and posted into a ledger, which is the permanent record that will be found in an account book or computer file. Information posted in the ledger is then entered into an unadjusted trial balance, a three-column list depicting non-zero balances, debit balances, and credit balance. The debit and credit balances must be equal if the data was recorded and posted correctly. This requires the bookkeeper to go back into the daybooks and ledger to find the error and start the process over.
Subsequently, the bookkeeper will make adjustments and changes to inventory, asset, and expense accounts to keep them in line with numbers counted in a stocktake, which records the amount of stock held by a business. This creates an adjusted trial balance, which will be used to create financial statements. Financial statements often include income statements, balance sheets, cash flow statements, and statements of changes in equity.
Reasons to Bookkeep
As you can see from reading a bit into the process of bookkeeping, it isn’t simple. A business owner who is not currently bookkeeping would be shocked to see how many transactions made that aren’t recorded because they seem too small to record. Lots of small transactions build up to a lot of money, and this could severely impact the financial status of the business.
Bookkeeping is essential to prepare for filing tax returns, reporting to investors, and being ready for the chance that your business is audited. Bookkeeping has been known to lead to better financial decision-making and management, as the money coming in and going out is simple to review before making a decision. It can also help you see trends in selling and purchasing that can help you to understand the flow of money and specific timeframes and strategies that have led to financial success.
Most of all, bookkeeping will give you peace of mind that will allow you to enjoy the experience of having a business. Not only will it provide a clear depiction of your business and its success, but it will also allow you to focus more on strategy and growth than putting countless hours into cleaning up messy transactions. When it comes to business, organization is key.
Why Hire a Bookkeeper?
As you can see from reviewing the process of bookkeeping, it isn’t the most simple. That being said, there are so many rewards and opportunities that bookkeeping is essential to an organized business.
Hiring somebody else to do the grueling tasks associated with bookkeeping allows you, the business owner, to focus on core business needs essential to the success of your brand. It also allows for more time, which can help you to better manage a personal and professional life, since when owning a business is easier said than done!
Hiring a bookkeeper can allow you to ensure that all bills are paid on time and that you aren’t spending more than you are taking in. Although hiring a bookkeeper does come with financial responsibility to pay them, a bookkeeper will be saving you money in your everyday transactions that can go directly towards that cost, saving you money as well as time. The best way to have fun owning a business and ensure that all your finances are in order is to hire a bookkeeper to help out with some of the difficult financial matters.
Contact us with any bookkeeping questions or inquiries today!
