Bookkeeping involves the recording, on a daily basis, of a company’s financial transactions. With proper bookkeeping, companies are able to track all information on its books to make key operating, investing, and financing decisions.
Accurate bookkeeping is also crucial to external users, which include investors, financial institutions, or the government that need access to reliable information to make better investment or lending decisions. Simply put, the entire economy relies on accurate and reliable bookkeeping for both internal and external users.
Proper bookkeeping gives companies a reliable measure of their performance. It also provides information on general strategic decisions and a benchmark for its revenue and income goals. In short, once a business is up and running, spending extra time and money on maintaining proper records is critical.
Many small companies don’t actually hire full-time accountants to work for them because the costs are usually higher. Instead, small companies generally hire a bookkeeper or outsource the job to a professional firm. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent.
In order to properly implement bookkeeping, companies need to first choose which basis of accounting they will follow. Companies can choose between two basic accounting methods: the cash basis of accounting or the accrual basis of accounting. The difference between these types of accounting is based on when you, the company, actually record the sale (money inflow) or purchase (money outflow) in the books.
