Keep your Business on Track with Bookkeeping Essentials

After setting up your business, it is important to undergo bookkeeping for your business activities. It is necessary to keep track of your finances and ensure that you have adequate money to run your business operations smoothly. For keeping your business on track, all you need is to make up bookkeeping essentials at a good pace.

Though, it’s assumable a good bet that recorder is not your mug of tea, If you’re a small business proprietor. On the other hand, some people love secretaries. Whatever you look at it, it’s a necessary element of running a successful business

Good secretarial practices depend incompletely on the secretarial system you’ve set up. I am talking further than software or the lack of it.

Bookkeeping Essentials

It is all about recording, maintaining, classifying, and summarizing business transactions systematically. Bookkeeping is the only true mechanism that depicts the actual cash position, financial health and profit or loss, etc.

We all know the basics of bookkeeping for business transactions:

• Assets
• Liabilities
• Equity
• Revenue/ Income
• Expenses

Bookkeeping Process Debit and Credit

In the single-entry system of bookkeeping, financial transactions are entered in the cashbook at the heads of incomes and expenses. These accounts are then consolidated to reach the final profit or loss statement and the final statement.

In a double-entry system, the financial transactions are debited in one account and credited in the journal. These are helpful in preparing the accurate financial statement of the business.

In the Bookkeeping Process, Debit and Credit are based on transactions of three accounts.

1. Real Account
2. Personal Account
3. Nominal Account

1. Real Account:

Assets and liabilities come under the real account where assets are debited and liabilities are credited. We all know the rules of debit that comes in and credit what goes out of your business.

2. Personal Account:

Here you add transactions with natural individuals such as firms, industries, or companies. The rule is simple; you debit the receiver and credit the giver while recording the associations.

3. Nominal Accounts:

In nominal accounts, you include all the expenses, losses, gains, and incomes. Here you debit incomes and gains and credit expenses and losses.

Bookkeeping Principles You should know:

Let’s discuss the basic principles of bookkeeping to boost your business and ensure proper financial recording of transactions. Bookkeeping is all about recording financial transactions on a day-to-day basis. It ensures that financial transactions are complete and up-to-date. It contains all the relevant information for the preparation of accounts.

We have listed some bookkeeping principles for your understanding.

• Revenue Principle:

It explains the time at which revenue is recorded in the books of account by a bookkeeper. The principle says that revenue is recorded when the sale is made and revenue is earned for the business.

The revenue principle states that revenue is recognized when the business owns the product sold or service performed. Hereby, revenue is recognized when the goods are received and services are performed irrespective of the time of payment.

• Expense Principle:

This principle states that expense is only recorded when the goods are received or services are performed. The business only recognizes expenses in the expense account when goods and services are accepted. This is the expense recognition principle that is irrespective of bills or payments made as a result of transactions.

• Matching Principle:

When the bookkeeper records the revenue, expenses are recorded at the same time in the accounts. The matching principle is an accounting principle that focuses on recognizing the expense in the same reporting period when the revenue is made.

Moreover, the revenue received from the sale of inventory is recorded at the time, it is charged to the cost of goods sold.

• Cost Principle:

This principle states that assets should be recorded in the books of accounts at historic cost instead of the resell value. If your business has owned a new property or a vehicle, the cost principle recognizes it at historic value. Do not record it at the fair value or market value of the property or vehicle.

• Objectivity Principle:

This principle states that a bookkeeper needs to add only factual and verifiable data to the books of accounts. The objectivity principle doesn’t allow you to add measurements or subjective values. This clearly means that even if you find subjective data more appropriate, you should use verifiable data.

Elements of Bookkeeping

• Journals:

Journals are an important part of bookkeeping as they contain complete information regarding transactions. A general journal records debit and credit amounts of transactions of your business under the double-entry system.

• Ledger:

Transactions of your business are then posted from journal to ledger periodically. The categories involved in the ledger include assets, liabilities, revenue, and expenses.

Financial Statements

The financial statement presents information about the financial position of the business to the external users or parties. It comprises 4 main financial statements.

• Balance sheet:

The balance sheet is used to provide financial position details about the business on a specific date. These details include the assets, liabilities, and equity of the shareholders.

• Income/ Profit or loss statement:

You get details of the net earnings of the business for a specific period of time.

• Cash flow statement:

This statement provides relevant details about the increase or decrease in the cash of the business. The cash flow statement involves information about the investments into the business, business operations, and financial activities of a business.

• Statement of shareholders:

It provides details about the changes in the retained earnings of the company. It involves the dividends paid to the shareholders and the net income of the business for the year.

Tips to get Bookkeeping right

• It begins with the creation of a new business account. It requires you to split your personal and business finances.
• Then comes setting up your budget taxes
• Bookkeeping works well with keeping your records organized
• If you want to keep track of your business expenses, you can further categorize the bills to make things easy.
• Maintain the records daily and accurately to keep track of the financial condition of your business.
• Leaving an audit trail is also important for a more effective track of the financial activities of your business.
• Keep yourself on top of accounts receivable

You can use accounting software for more transparent bookkeeping and record maintenance of your business operations.