Bookkeeping – My least favorite to do and my most favorite to have done. lol!
There is no debate to be had about what the most important piece to the accounting puzzle is. I know that you’ve probably heard me mention this quite a few times before, which goes to show you just how important it is – bookkeeping…. bookkeeping…. bookkeeping; but you may be thinking… What is bookkeeping? How do you do bookkeeping? Why do I need bookkeeping? Just keep on reading… I’ve got you covered.
Whether you’re a small business or a large corporation, the idea of keeping accurate financial records is all the same. The art of bookkeeping (truly, it really is an art) is the recording, categorizing, and reconciling of all financial transactions of a business. Basically, nowadays everything that happens within the business, financially, should be recorded into an accounting system. Speaking of accounting systems, there are several to choose from – Xero, FreshBooks, Wave – and the industry’s favorite, QuickBooks. We recommend taking a thorough look at all of these systems to determine what would be the best fit for your business, BUT for now just know that investing in an accounting system is highly beneficial and vital to streamlining your business’s financial processes.
Now, let’s unpack that definition of bookkeeping a bit to determine “what” it actually is. To reiterate, bookkeeping is the recording, categorizing, and reconciling of financial records. That’s it. That’s the what. Okay, okay, I’ll give you a little more detail to shed some light on the “how” of bookkeeping.
To put this simply, you want to ensure that every transaction is recorded in your accounting system. The best way to do that is to:
- Set up a business account
- Link the business account to your accounting system
- Run all business transactions through that account
This turns into an automatic system where you no longer have to spend extra time recording each transaction that appears on your account.
Categorizing involves assigning transactions to a specific account category. I like to think of it as a filing system. A secretary may have e-file folders for different things – marketing, personnel, events, etc.– and they may only put items pertaining to that category in the file folder. Essentially, bookkeeping is the same. You and your accountant will designate certain categories that transactions can be assigned to. Let’s look at some examples:
Example 1 – Purchasing flyers and brochures for a trade show
Categorize – Advertising & Marketing
Rationale – These items were used to market his business to others
Example 2 – Hiring a contractor to perform an audit
Categorize – Professional Services
Rationale – The contractor is a part of an outside agency and was hired to perform a specific service
Reconciling is the act of comparing the bank activity to what you have recorded in your accounting system records. In some cases, reconciliation may involve discovering and resolving discrepancies. Ideally, this process should happen on a monthly basis.
We’ve talked briefly about the what and the how of bookkeeping. If you’re still not convinced that this subject matter is important, I will tell you three main reasons why you should be.
- Bookkeeping keeps you organized financially – How can you truly see your profit if you are unaware of what is coming in and going out?
- Bookkeeping helps you stay in compliance with banks and investors – Nine times out of ten, banks and investment companies will want to see your accounting history before agreeing to back your company financially.
- Bookkeeping will set the stage for higher level tax and accounting strategy – Ooooo tax and accounting strategy is my happy place! I am going to attempt to stay brief. Let’s just say that you can’t begin to know where you’re going if you don’t know where you’re at.
The bottom line is – 📣GET YOUR FINANCIAL RECORDS IN ORDER!📣Accurate bookkeeping is essential in maintaining your business. I’d like to think that every executive goes into business with the mindset to succeed. Well, my friend, neglecting your financial records is one sure way to prevent that success. Keep it tight, keep it right! 🤣🤣 No, but seriously. Keep those records tight and accurate and you will be on your way to navigating the entire accounting puzzle.
Right Choice Accounting Solutions is proudly a black owned, CPA led outsourced accounting and tax firm. Right Choice offers a one-stop shop accounting and tax solution that covers high level strategy, accounting insights & analysis, financial statement preparation, tax planning and preparation, basic bookkeeping, and much more. Schedule your FREE intro call TODAY to learn more about what makes us the Right Choice for your accounting and tax needs.
Keywords: Bookkeeping, Accounting, Financial, Quickbooks, Xero, Wave, Freshbooks, Accounting Systems, Reconciliation, Reconciling, Categorizing, Categories, Bookkeeping Categories, Recording, Transactions, Tax, Strategy