The Importance of Book Keeping
Many people ask me what’s the difference between accounting and bookkeeping? For me, you can’t really have one without the other. It’s like Hansel and Gretel, Batman and Robin or beans and toast!
Bookkeeping is responsible for the recording of financial transactions. Accounting is responsible for analysing, reporting and summarising financial data.
So bookkeeping is the collection of the day to day records of all financial transactions that happens within your organisation.
Before we dive deep into what records you ought to keep on a day to day basis, I want to show you why bookkeeping is so important.
1. You stay organised
By keeping an eye on your receipts, stock control, invoices, quotes and expenses, you have a much better idea of how your business is performing. You can quickly and easily find information – whether paper based or online.
2. You can deal with customers and suppliers with ease
When your books are up to date, you need not fear a call from a supplier wondering when they’ll get paid. Similarly, you can call a customer and inform them of how many days behind they are in paying you.
3. You can get a loan easier
If an opportunity comes along and you want to seize it straight away, sometimes you need an extra injection of capital. Having your books in order means you don’t have to delay arranging a meeting with your bank manager. You can take action sooner rather than later.
4. You fill in your tax form stress-free
Most people dread VAT returns and tax returns. While payroll tasks might have been made easier for PAYE with PAYE modernisation, there are a still a number of other tax returns that need returning regularly during the year.
When your books are in order, a tax return is stress free and uncomplicated. It takes little time as your figures are all in order.
5. You are compliant with the law
When you submit your tax in time, PAYE etc on time, then you are 100% compliant with all your taxation obligations. You won’t have to worry about getting calls out of the blue from Revenue or have sleepless nights worrying about late penalties and charges.
It really pays to be organised and have your bookkeeping under control.
So what do you need to keep your book-keeping in control?
Years ago, when I began my career as a bookkeeper which ultimately led me to be Chief Financial Officer, I started with day books. These were paper based books which detailed everything that came in and came out.
Students of accounting still learn about the day books as they are an important skill to grasp.
You see, in the normal course of business, a document is produced each time a transaction happens. From buying a coffee at a meeting to issuing an invoice, every transaction should have an associated document.
Let’s look at the transactions that you need to record:
- cash payments
- credit payments
- credit sales
- cash sales
- deposit slips
- Cheque stubs
These are the more straight forward transactions. When you get into stock management, then it brings with it an increased amount of transactions – stock in, stock held, stock out, discounts, etc.
Day books keep a record of all this. Here are some day books and their reason:
- Sales day book – records sales invoices
- Sales credits day book – records sales credit notes
- Purchase day book – recording purchase invoices
- Purchase debits day book – recording purchase debit notes
- Cash day book – recording cash
Even though your accountant or bookkeeper might be looking after your finances, for three days, keep a record of the transactions that your company does and categorise them in the transactions above.
Keep a record of what you spend, what your team spends, what comes across your desk for approval. It will give you a better idea of the amount of transactions that your bookkeeper looks after, but it also informs you of the level of transactions. It is an always an interesting task when I ask a business owner to do this. It can bring about quite the surprise.
Knowing a bit more about your day to day transactions and your bookkeeping is always a good thing. While accounting software is definitely helping with this, a little knowledge on your part as the business owner is always a good thing.
Missed the last article in the Accounting for Small Business? Click here to discover more about ‘The Structure of a Business.
Need to talk to a bookkeeper or accountant about your day to day finances? Call John at TaxPlus Accountants on 041 9844525 or email firstname.lastname@example.org. He is here to help.
TaxPlus Accountants are accountants who serve the North East of Ireland. They bring simplicity to your accounts with proven results. They provide a complete range of accounting and book-keeping services to businesses operating a manufacturing, retail or service business.
Call us on 041 9844525 or email email@example.com