When hearing the word “bookkeeping”, many people think of numbers and spreadsheets. While it does include these things, bookkeeping is a whole process that involves recording all of the transactions that a business makes. As you can imagine, this requires a whole lot more than just an Excel spreadsheet. Want to learn more about this process and how to keep your financial records organized? Keep reading as we review the basics of bookkeeping and why it’s important for your business.
What is bookkeeping?
Now, we’ve said the term ‘bookkeeping’ a lot, but what does it actually mean? Put simply, bookkeeping is the administrative activity of keeping records of the financial affairs of a business. It’s critical that the data entered is 100% accurate because it is used to make decisions that can impact the actions and success of your company. The process of bookkeeping involves many tasks ranging from data entry to account reconciliations (making sure the right entries are in the right places), and financial reporting.
Bookkeeping vs. Accounting
Many people think that bookkeeping and accounting are interchangeable. Although they are similar, they are not exactly the same thing. Accounting is an umbrella term for all the processes that are involved in recording a business’s financial transactions. Bookkeeping on the other hand, is a part of the accounting process.
Examples of accounting:
Reviewing and analyzing financial statements
Filing relevant tax returns
Examples of bookkeeping:
Processing payroll
Preparing financial statements
Why is bookkeeping important for your business?
Although not the most fun task (to you… 😉), bookkeeping is essential for the success of your business and here are a few reasons why:
1) It simplifies business finances
By having your records in one place, you literally have all of your information in front of you and can get a good sense of your business’ financial position.
2) It identifies mistakes early
By constantly monitoring and reviewing your finances, you can better catch errors and avoid any costly mistakes.
3) It tracks business financial health
By keeping records of your various business transactions, you are able to see the areas of your finances that may need improvements or changes.
Now let’s be real, bookkeeping is no easy task, and it can be a highly detailed and time-consuming process. As a small business owner, you may not always have the time to commit to your financial records. But not to worry, there are professionals available to help take some of this bookkeeping burden off of your shoulders. Here at STEPS, we offer small business bookkeeping services and would be happy to work with you to keep your books in order. Learn more about our services on our home page or reach out to us through the form on our contact page.
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