Are you looking to run a business? Perhaps you would be interested in purchasing or investing in a business. In any of these cases, you need to become familiar with bookkeeping. In fact, every single business engages in bookkeeping in order to track its day-to-day finical operations. To dive fully into bookkeeping, make sure to contact the professionals at MBA Financial & Accounting Solutions at 800-576-5746. We will be able to help educate you on the importance of bookkeeping. Here’s a look at what bookkeeping in the account is and why it is so important.
What is Bookkeeping in Accounting?
Bookkeeping in accounting is recording all financial transactions in a business. The main purpose of bookkeeping is to ensure that business owners and their investors understand where the money is coming from in a business and where it is going. Also, bookkeeping can help determine how much equity is in the business.
All bookkeeping information entered is known as a business account. This business account can be one of five pieces of information – assets, liability, equity, revenue, and expenses.
Types of Bookkeeping
There are two types of bookkeeping in accounting. First, there is single-entry bookkeeping which only enters one piece of information on a business account. With double-entry bookkeeping, two pieces of information are entered for every business account. This will include debit and a credit. Typically, the debit is entered on the left side of the ledger while the credit is entered on the right side of the ledger.
What is Recorded?
As stated before, bookkeeping involves the recording of one of five types of business accounts. Here’s a more detailed look at each of these accounts and what they mean:
- Assets – Cash and resources owned by the business.
- Liabilities – Obligations and debts that are owed by the business.
- Revenues or Income – Money that is earned through the business.
- Expenses or Expenditures – Money that flows out of the business to pay for operations.
- Equity – The value of the company after subtracting assets and removing the owner’s interest.
What is Bookkeeping Used For?
There are a number of reasons why bookkeeping is important. Make sure to reach out to MBA Financial & Accounting Solutions to learn more about bookkeeping and the necessary steps to take. Here’s a look at the major purposes of bookkeeping.
Keeping track of a business
The primary reason to use bookkeeping is to allow the business owners, partners, and investors to understand how the business is operating on a day-to-day business. Particularly in a small business, an owner can see how much money he has on hand to ensure that he can continue operations.
Tracking for Tax Purpose
All businesses will have to file taxes either on a quarterly or annual basis to city, state, and federal revenue offices. Bookkeeping will help the accountant or the owner understand how much the business made, how much can be deducted, and how much in tax is owed.
Remaining in Compliance for City, State, or Federal Regulators
There are many businesses that will need to maintain proper bookkeeping in order to remain in compliance with city, state, or federal regulators. For instance, publicly traded companies will need to maintain proper bookkeeping.
Used for Loan or Investor Purposes
Companies that have investors or partners will have the right to examine a company’s books from time to time. With proper bookkeeping, anyone with a vested interest in the business can see where the money is going.
Valuable When Selling a Business
If a business owner or partners decide to sell the business, proper bookkeeping will be important. Interested buyers will want to pour through the books in order to properly value the company.
How is Bookkeeping Handled?
There are a couple of ways that bookkeeping can be handled. If a person is running a small business, then they will be able to handle bookkeeping duties themselves. However, larger businesses will need to get outside help.
There is a number of booking software such as Intuit Quickbooks, FreshBooks Accounting Software, and Xero. Many of these bookkeeping software programs are simple enough for most business owners to use on their own.
Business owners who don’t have the time to handle their own bookkeeping will likely hire an accountant who provides bookkeeping services. Today, many bookkeeping services are available completely online. This means that the accountant and the business owners can share, submit and sign documents without having to visit one another’s offices.
Bookkeeping is an important part of any business. Therefore all business owners should understand and maintain proper bookkeeping. By using a top bookkeeping software program or professional accounting service such as MBA Financial & Accounting Solutions, any business will be able to easily handle their bookkeeping.