ACCOUNTING & BOOKKEEPING

Bookkeeping is the practice of recording all of a business’s financial transactions. These transactions, which can include purchases, investments, revenue, and more, are recorded in a general ledger, which can be either a physical book or a digital spreadsheet. They may also be recorded in sub-ledgers to help organize information.  

There are 2 ways to perform bookkeeping:

1. Manual bookkeeping. This is done by hand and it is inexpensive. Time and human resources is required. As this is performed manually, the possibility of human error is higher. 
2. Digital bookkeeping. This is performed using a software and internet connectivity. It is a service subscription and it is more efficient in terms of productiity and time saving.

Business owners must ensure that personal and business finances are managed separately as having separate bank accounts for different purposes. Failing to do so can result in inaccuracies in your financial data. This is important when it comes to applying for business loans from banks and investors.

1. Accounts receivable keeps track of all money owed to the business for goods sold or service provided.
2. Accounts payable keeps track of all the money that the business owes in the short run, such as utility bills and payments to suppliers.

All unpaid invoices are to be recorded in accounts receivable while all unpaid bills should be recorded in accounts payable.

1. Income statement lays out all of a business’s revenue streams, expenses, and profit over the course of a specific period of time (usually one year or one quarter). 
2. Balance sheet provides a snapshot of a company’s assets and liabilities at any time.
3. Cash flow statement provides information about cash coming in and out of a company over a period of time.

Together, these three statements can help give accountants and potential investors a better understanding of the financial health of your business.

Of the three financial statements, the cash flow statement, which details all cash payments and income is especially important. It can give you an understanding of how specific business expenses and income streams affect your company's financial health.

By analyzing cash flow, you might notice that certain customers consistently pay invoices late or that some suppliers are charging your business more than you can afford. Knowing those things can help you decide when to stop doing business with certain customers and suppliers or how to set your prices.

During a quarterly review, an accounting professional professional will analyze your financial data recorded by the bookkeeper and use it to make recommendations about your business’s growth, expense cutting, borrowing, lending, and other financial matters. You may also want to take this time to strategize and plan for the future of the business.

Double-checking all recorded transactions with bank and credit card statements each month is a good practice to minimize the risk of bookkeeping errors. It’s important, however, to remember that bank and credit card statements do not replace good bookkeeping. Banks and credit cards can also sometimes make mistakes, so it’s important to have your own record of your invoices and receipts.