Bookkeeping means the recording of financial transactions of any business or organization on regular basis. Recording purchase, sales, payments and receipts are the transactions which are documented by an organization Practical tips of bookkeeping.

According to Richard Strahler, bookkeeping is an art of “analyzing and recording business transactions, reporting results of business operations through periodic statements and interpreting such results for the purpose of effective control of future operations”

Significance of bookkeeping

Bookkeeping is required for running a business legally and also crucial for its success. Through bookkeeping, every financial activity of the business is documented which allows the owner to track business performance. 

All the business policies and decisions are made on the basis of bookkeeping. It is essential for budget creation as it provides an organized view of assets, liabilities, income and expenses which helps in making informed decisions. 

Well maintained business records helps in retrieving crucial business information for making financial decisions on timely manner. It is also important for calculating accurate tax amounts and meeting government regulations.

Additionally, business targets are set and achieved via proper bookkeeping practice only. There are a lot of practical tips for bookkeeping, we will discuss some important tips in this article. 

Types of book keeping

Let’s discuss types of bookkeeping first before learning some practical tips of bookkeeping. In book keeping, two methods are used for recording transactions namely single entry and double entry book keeping system. 

 Single entry system

 Under the single entry system, transactions are only recorded as debits or credits to one account. Single entry bookkeeping system is normally used by small businesses because it is simple to setup and maintain.

In this system, all calculations revolve around the amount receivable and payable, cash and bank balances and present stock position. 

Here, transactions are simply recorded in a register and running balance is used to reconcile with the bank or any other account. Despite of its simplicity, single entry system also has some drawbacks.

This system does not provide the complete record of transactions. Tracking of resources is also difficult and it does not provide the comprehensive analysis of the financial position of the business.

Double entry system

On the other hand, in double entry bookkeeping system every transaction is recorded in at least two different accounts. In each transaction, the total debits (debit shows an increase in asset or expense or decrease in liability or equity) recorded must equal the total credits (credit shows an increase in liability or equity or decrease in an asset or expense) recorded. 

Five main accounts in double entry system are assets, liabilities, equity, income and expenses. Double entry bookkeeping system is a way to keep track of all the financial transactions of the business. Double entry system is the standard method for book keeping that is utilized by all the modern day organizations for recording business transactions. 

Practical Tips for bookkeeping practices

In order to do effective bookkeeping practices, a bookkeeper must understand some tips of bookkeeping. It will help a bookkeeper manage the business more effectively as taking care of financial is important part of any business.

Here are the 10 practical tips for bookkeeping to make it easier and effective.

1. Keep personal and business accounts separate: Keeping a separate cash or bank account for the business is necessary. It should not be merged or utilized for personal needs. This separate business account will make it easier for bookkeeper to sort through the purchases and sales relevant to the business. It helps in avoiding problems or errors in cash flow statement of the business.
2. Automate with Cloud Based Accounting Software: Through cloud based accounting software, a business owner can access the business information at any time. Cloud based bookkeeping software enables the businessman to do online banking and remain intact with the updated and accurate records that are related to the bank. Cloud software technology also helps in performing manual calculations and checking spreadsheets. 
3. Account for cash receipts and payments properly: Keeping the record of cash receipts and payments is an important factor for bookkeeping practice in business. Inaccurate transactions with regard to cash receipts and payments are major risk for the business. Multiple bookkeeping software are available which can track cash receipts and payments accurately. 
4. Do a quarterly review: A bookkeeper needs to review the accounting records of the business at the end of every quarter. This review enables him to understand different trends which are related to purchase, sales, expenses and revenues etc. Proper knowledge of these trends enables a businessman to make improved decisions which helps in achieving sustainable business profitability and growth.
5. Create an easy to follow record keeping system: Make your business record keeping as simple as you can. Simple and organized bookkeeping enables to track every transaction of the business with ease. Tracking of all business records like invoices, receipts, expenses and revenues etc. helps in predicting future business opportunities and threats. 
6. Know your business operational expenses: Comprehensive knowledge about the operational costs of the business is very important for effective bookkeeping. Knowledge of operational expenses helps in preparing the accurate financial reports of the business (QuiÅ, 2019).
7. Outsource to professional book keeper: Cloud based accounting systems have made bookkeeping much easier where business owners can handle all their business accounts through a single software. However, hiring of a professional bookkeeper also offers multiple benefits especially for good sizeable businesses. For example, updated business records, time saving, better bookkeeping etc. 
8. Keep good eye on account receivable and account payable: Receivables and payables are one of the most significant elements in business bookkeeping. Accurate knowledge of these two elements enables a business owner to evaluate its business properly. Any kind of mistake while recording receivables or payables can damage the overall business records. 
9. Pay attention to the fixed costs: Knowledge about the fixed costs is necessary for evaluating the overall position of the business. While preparing a profit and loss statement, these fixed costs play a significant part in calculating business profits or losses.
10. Setting reminders for tax deadlines and other important tasks: Missing tax deadlines can result in fines, penalties and time-consuming audits. From avoiding such circumstances, you need to set reminders for important tasks which needed to be done in time.

Conclusion:

Bookkeeping practice is the lifeline of business. Learning about practical tips for bookkeeping helps business men to improve bookkeeping capability, a business can enhance its profits and growth.

Keeping records through double entry system is more sophisticated and better approach. Through this system, a business can check all the necessary elements of business. 

After analyzing manual and computerized record keeping system, we found out that computerized record keeping is far better than manual approach.

It offers multiple benefits to the businesses like speed, accuracy, reliability, safety, cost efficiency etc. There is multiple accounting software are available in the world which can facilitate the bookkeeping process.

FAQs

1. What is accounting, and how important is it to businesses?

   The methodical documentation of financial transactions in a company or organization is called bookkeeping. It entails routinely recording sales, purchases, payments, and receipts. For businesses, bookkeeping is essential because it gives owners a clear record of their financial activities, empowering them to monitor performance, make educated decisions, set budgets, and guarantee regulatory compliance.

2. Which is more important right now – bookkeeper or accountant?

Initially, hiring a bookkeeper could be more important for a small firm than hiring an accountant. It's not always an either-or choice, though. Payroll and bookkeeping are typically included in the services offered when outsourcing your accounting work. A thorough finance department may ease your mind, save you time, and let your company expand as quickly as you like.

3. Where does bookkeeping end?

Bookkeeping provides data that accounting utilizes to create financial statements and reports. One component of the entire accounting system is bookkeeping. Accounting has a broader scope than bookkeeping and begins where bookkeeping ends. 

4. Where does the value of bookkeeping stand in the future?

Bookkeeping will develop to offer sophisticated data analytics and reporting features in the future. Small firms can use their financial data to better understand their operations, spot trends, and forecast future results by utilizing advanced algorithms.