What Does Bookkeeping Entail?

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What Does Bookkeeping Entail?
What Does Bookkeeping Entail? (Image: Image by Flaivoloka at sxc.hu)

To run a business and even some households, it is necessary to keep good records of all financial happenings. This means reporting such things as income and expenses for an entire company, division of a company, family or family member. This type of financial record keeping is called bookkeeping.

Identification

Bookkeeping entails maintaining financial records that are accurate and up-to-date. This means reporting money that is paid to a business as well as money the business spends. In a family, bookkeeping might mean reporting income that comes in on a weekly or monthly basis as well as expenses.

Function

Bookkeeping can be as simple as writing income and expenses in a ledger or as complicated as inputting information using accounting software. At home, one member of a family may be designated to take care of the bookkeeping tasks. In a business, however, it can be far more important that records are accurate. As such, many businesses use specialized computer bookkeeping programs that make keeping accurate records far easier. These programs also make it simple to analyze and print records when required.

Benefits

Bookkeeping can help a company manage its cash flow and have a good overview of both its profits and losses. With this information readily at hand, a company can easily make plans based on current and past financial performance. Also, bookkeeping allows a company to stay abreast of where every cent that comes into the company goes, reducing the chances that someone may illegally keep some of the money for himself. However, one of the most important reasons for bookkeeping is the Internal Revenue Service. This agency requires all businesses, even small and home-based companies, to keep accurate records. State and local tax agencies have these requirements as well, and there are stiff financial penalties for those that fail to comply.

Considerations

The records generated by bookkeeping often come into play at tax time. A company can use its accurate records to determine how much in taxes it must pay to the various tax agencies. If one of the agencies discovers a discrepancy on a tax return, the company can then turn to these records to prove a figure. This may even work for individual and family bookkeeping, as such things as charitable donations and wages for household employees can be tracked in this manner.

Prevention/Solution

A business that has a lot of income and expenses may hire a professional bookkeeper to provide record keeping services. Often, the bookkeeper works on the company's premises, although some bookkeepers work from home or an outside office. Professional bookkeepers are typically well-versed in tax requirements, which may give a business an advantage over companies that try to figure these things out on their own. Additionally, many professional bookkeepers have extensive knowledge of the most popular bookkeeping programs for businesses, making it easy for them to understand the already-established bookkeeping procedures of the companies that hire them.

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