Bookkeeping helps you in the budgeting for your business, the preparation of tax returns, the organization of your company, and much more. It’s something you shouldn’t avoid if you want to stay on top of your finances and avoid HMRC showing up and causing you further headaches.
So this said, let’s take a closer look at the history of bookkeeping, its future, and how to efficiently implement it in your organization to better understand why it’s so vital.
What is bookkeeping
Bookkeeping is the process of tracking and organizing all of a company’s entire financial transactions. It is an important element of accounting, and it primarily focuses on tracking a company’s day-to-day financial transactions. All financial activities are recorded in books of accounts, including sales income, tax payments, the interest generated, payroll and other operational expenses, loans investments, and so on. The correctness of the total accounting process followed by the business is determined by how bookkeeping is managed. As a result, bookkeeping guarantees that financial transactions are recorded accurately and up to date.
Bookkeeping vs accounting
Accounting and bookkeeping are both crucial aspects of financial management. The two may appear to be pretty similar at first sight, but there are a few key differences. While bookkeeping is concerned with the recording and organization of financial data, accounting, by contrast, is the process of deciphering and presenting data to business owners and investors. There is a lot of intricacies involved with bookkeepers, and meticulous attention to detail is essential. Accountants, on the other hand, tend to use the bookkeeper’s inputs to prepare financial statements and to evaluate and analyze the financial data recorded on a regular basis. Audits are performed, and future business demands are forecasted.
Importance of bookkeeping
Keeps You Prepared for Tax
As frustrating as it is, businesses have to file their taxes at the end of the tax year. With a bookkeeping process in place, you’ll have financial information ready for tax season and the taxman won’t be breathing down your neck.
So, when HMRC demands a financial statement from your business for tax reasons, bookkeeping regularly means you’ll be able to predict the outcome more accurately if you have detailed balance sheets over time.
Any firm needs bookkeeping because it makes budgeting so much lot easier. It’s straightforward to analyze your financial resources and charges once you’ve correctly organized your income and expenses.
Your business’s financial roadmap is created by a budget. You can plan for future spending for your business to help with growth if you have a budget in place. It’s far more difficult to get an accurate budget if you don’t keep accurate and up-to-date books because it’s just guessing.
Better regulatory compliances
Governments are constantly announcing new initiatives aimed at making life processes easier for them. The Making Tax Digital (MTD) project, which the government expects businesses to comply with, is the most recent example.
It does exactly what it says on the tin: businesses will be required to begin filing their taxes digitally, using apps and software. In this instance, you’ll need to not only perform your homework but also use an app.
In all honesty, the process is fairly simple if you use an easy-to-use program. You won’t face any penalties as a result, and you won’t have to waste money outsourcing your books.
The accounts you need to know:
- Assets: An asset is anything that adds value to your company. This includes cash in your bank accounts, accounts receivable (A/R), balance (because consumers owe you money), merchandise, computers, and furniture, among other things.
- Liabilities: Any obligations due by your company are considered liabilities, including your accounts payable (A/P) balance (which represents what you owe to vendors) and any loans you owe.
- Revenue/Income: Revenue, often known as income, is simply any money earned by your company through the sale of goods or the provision of services.
- Expenses: Expenses are something we’re all familiar with. Expenses include things like your electric bill, payroll, and a business lunch with a potential client.
- Equity: When your business liabilities are subtracted from your business assets, you have equity, which represents your financial stake in the company.
Spend management, the next shift in bookkeeping automation:
Accurate spending tracking is one of the most crucial aspects of your bookkeeping. Again, change might make keeping track of your employees’ purchases more difficult.
The joy of effective spend management software is that your data is always accurate and pre-formatted. Every payment is associated with a specific spender, with the amount and general ledger code pre-determined. As a result, reconciliation takes a fraction of the time you may expect.
And, last but not least, spenders can digitally attach receipts at the time of payment. As a result, it’s nearly impossible to misplace essential documents.
The days of dealing with numerous expense reports and time-consuming paperwork are now done. Start becoming more clever with your spending, learn about our features, stay posted about our updates,and contact us to discuss how we can help you improve your cost management today: