Bookkeeping in a business plays a vital role as it forms a basic framework for the accounting system of that bookkeeping framework. Bookkeepers are in charge of classifying the monetary transaction of the business and recording those exchanges in the general ledger.
In the event that you are an owner of a small business, you either need to set up your very own bookkeeping framework or you need to hire somebody to set it up for you. In the event that you are employing staff and envision a ton of development, you may employ a controller to deal with your financial management and bookkeeping. In the event that your business will develop yet you envision moderate development, you may just hire a bookkeeper or accountant to deal with the accounting system.
The bookkeeper of a company classifies and records all the monetary transaction. Whereas the responsibility of an accountant is to perform the next tasks such as analyze, review, report and interpret the recorded transactions.
An accountant has to analyze, review, report and interpret the financial data of a company. Whereas the controller is the one who takes care of the accounting system of a company. In other words, we can say that the controller is the one who is the chief of accounting operations or a CFO. A company hire a controller or CFO when their business expands in terms of operations so as to have greater control over the accounting system.
The single Entry bookkeeping system is useful in case of small business where the financial transaction volume is low. It is like keeping a record of something in your check register. In a single entry system, you need to record every financial payment and deposits into the account of the company.
Double Entry bookkeeping system can be used in any business irrespective of its size. It has a double impact on the books of accounts. In simple words, for one financial transaction, you have to furnish two entries. If one account is credited than the other related account will get debited.
One of the principal choices you need to make when setting up your bookkeeping framework is whether to utilize a cash or accrual system of accounting. If you have a small business or small scale business you can choose cash system of accounting. In this system, you need to record every transaction including real cash to electronic money transfer. Some of the time firms begin their business utilizing the cash system and changes to the accrual system as they expand or grow.
In the event that you are going to offer credit to your clients or in the event that you are going to demand credit from your service provider, at that point you can use the accrual system of accounting. Using accrual bookkeeping, you can record sales and purchases irrespective whether the cash is received for such transfer. Some of the common examples of accrual accounting are Accounts Payable or Accounts Receivable.
Before setting up your business bookkeeping system, you should have a basic understanding of assets, liabilities and equity. In addition to this how they are interrelated.
Here is the layman meaning of Assets, liabilities and equity:
Assets are those resources that a business owns such as a plant and a machinery, inventory, and so forth.
Liabilities are those obligations that arise during the functioning of a business. For example, bills payable, mortgages etc.
Equity is the amount of capital that is invested by the owner or shareholder of the company.
The income statement or profit & loss statement includes revenues and expenses. Where
Revenue is all the income earned by a business by selling goods or services such as the sale of goods
Expenses are the amount of money used by a business to perform its day to day activities such as salary, wages, electricity expense and so forth.