Small scale businesses must maintain and update their financial books on a regular basis. The art of bookkeeping is very different from accountancy.
While bookkeeping primarily involves maintaining an accurate record of a business’ transactions, accountancy processes and analyses the transactions recorded in the business’ books. The two disciplines overlap during the preparation of cash flow statements, balance sheet and other statements related to accounting analysis.
Many owners of small businesses fail to consider the implications of bookkeeping on their business. Bookkeeping helps in effectively managing your finances, and must be performed by every business. Here are a few guidelines, tips and tricks to help you maintain your books.
Record the Right Books on a Daily Basis
Bookkeeping is a process that requires you to maintain appropriate books on a regular basis. It is best to make immediate journal entries every time you make a transaction. Journal entries can be made in accrual basis, or cash entries. Entries are made prior to a transaction in accrual basis, whereas cash entries refer to entries made after the completion of a transaction.
There are five main books of accounts that you may maintain for better record of your financial data. Cash transactions can be recorded in the cash book, transactions completed on debit or credit basis in the creditor-debtor book, purchase entries in the purchases book, sales entries in the sales book, and transactions impacting bank accounts in the bank book. Journal entries must be passed regularly to keep the books updated.
Keep Records of Transactions
Apart from observing your accounting books regularly, you must also keep appropriate records. For instance, your sales and purchases books must contain the invoices of each transaction. Similarly, all promissory notes and bills of exchange must be recorded in the creditor-debtor books. Maintaining these records will be of great benefit in terms of verification.
Provisions must be made for Expenses
Your business will benefit if you make the necessary provision for expenses like procurement of assets, payments to creditors, loans and taxation. Appropriate provisions can be made for planned and anticipated expenses by taking up fixed return investment or by opening a bank account.
Strict and Regular Audit
It is very important to establish and maintain transparency with the financial side of your business. Transparency can be ensured by regular audit of your accounting books. Audits must be conducted frequently and strictly as they can reduce the possibility of errors and also eliminate the possibility of late payments and frauds.
Keep a Reminder System
Most small businesses use programs and software to maintain their accounting books. These programs make the process easier and also more accurate. A reminder system can be installed in the software so that you can receive alerts or notifications regarding accounts receivable or payable, along with the account details. This will ensure that pay-offs are made on time.
Maintaining proper books of accounts can help small businesses to a great extent as owners can save money on verification and also be able to easily and effectively manage their finances.
Article Written by:
Grace is an expert associated with i3Group, a leading payroll service provider. Their customized corporate payroll solutions have helped many blue-chip brands across various fields manage payroll obligations efficiently.