Bookkeeping is the process of recording daily transactions in a consistent fashion and is a key component to building a strong business foundation.
Bookkeeping is comprised of:
- Recording financial transactions
- Posting debits and credits
- Producing invoices
- Maintaining and balancing subsidiaries and general ledgers
- Completing payroll and corresponding tax entries/payments
Maintaining a general ledger is one of the main components of bookkeeping. The general ledger is a basic document where a bookkeeper records the amounts (i.e. debits and credits) from both sale and expense receipts. This activity is referred to as posting. A ledger can be created with specialized software, a computer spreadsheet, or simply a lined sheet of paper (although the latter may be more difficult to maintain as the volume and complexity of the transactions increase). The complexity of a bookkeeping system often depends on the size of the business and the number of transactions that are completed daily, weekly, and monthly. All sales and purchases made by your business need to be recorded in the general ledger. The postings may take place either in current time or “after the fact”. However, current or “real time” bookkeeping may allow for any errors to be found and subsequent corrections to be made in a timely manner.
There are many benefits to maintaining financial records. Bookkeeping can reduce accountant work during tax time, thus reducing the accounting fees. A CPA will have less preparation work to do when handling your taxes if your books are up to date and organized. Solid financial records can help budgeting by identifying spending patterns. Mapping out the road ahead becomes much easier when you know where you stand and how you got there.