Bookkeeping involves the detailed recording of all financial transactions of a business, from its incorporation to date. It is about record-keeping of incoming and outgoing transactions, such as sales, expenses, cash, bank transactions etc. supported by a receipt, invoice, or other relevant records.
A bookkeeper’s responsibility is to maintain these records in a general ledger and classify each transaction based on its nature. After each financial year, an accountant will refer to the books managed by the bookkeeper to prepare the financial statements.
Proper bookkeeping and accounting are imperative for long-term business sustainability.
Detailed and Up-to-date Records
Businesses that prioritise bookkeeping can comfortably retrieve detailed and up-to-date financial data when needed. Access to such data will ease the preparation of financial statements and the tax filing process, reducing significant time and monetary costs. Regular bookkeeping also acts as a measure to detect business losses, internal theft and fraud.
Businesses can develop good bookkeeping practices through meticulous recording habits and strict schedules. An effective bookkeeping system has appropriate internal controls and processes to ensure company ledgers and books are maintained and well-organised.
Accurate and Reliable Financial Information
Proper bookkeeping is fundamental in preparing accurate and reliable financial statements. Professional bookkeepers often recommend customising the company chart of accounts (the subcategories of transactions in a general ledger) to determine how a financial report is delineated. A tailored company chart of accounts grants better utilisation of financial figures.
In-depth analysis and evaluation of comprehensive financial data offers valuable insights and identifies key strengths and areas of weakness. Businesses equipped with this knowledge can map out business goals more accurately and arrive at better strategic decisions to achieve growth. Stakeholders may also derive critical information for future planning by comparing past year financial data.
Financial Reporting Compliance
Under the Companies Act, company directors hold duties concerning financial reporting. They must ensure the company’s financial statements abide by Accounting Standards and give a true and fair view of its financial position. They must also have sufficient knowledge of accounting principles and keep proper accounting records.
Professional accountants can support directors in fulfilling the abovementioned duties by keeping abreast of financial reporting standards and developments, tracking reporting deadlines and monitoring financial figures. These contribute to proper accounting processes to achieve corporate and statutory compliance.
Peace of Mind
Business owners and staff not adept or trained in finance often face mounting frustration and stress from financial reporting obligations and impending deadlines. When overwhelmed with daily tasks, company stakeholders generally leave bookkeeping and accounting till the last minute.
A company can avail in-house resources and direct them towards higher-value tasks by tapping on the expertise and experience of professionals to execute proper bookkeeping and accounting. The management and staff enjoy peace of mind to focus on the business when relieved of the stress and panic resulting from performing bookkeeping and accounting responsibilities.
Improved Investor Confidence and Supplier Relations
Investors gain a better understanding of the financial strength of a business by analysing its financial reports. Proper bookkeeping and accounting practices allow this information to be accessible, accurate and up-to-date.
For example, company earnings and revenue figures suggest if it is on a growth trajectory or in decline by revealing its bottom line. The cash flow trends and debt load of a company help investors understand its ability to pay its debt. Numbers that accurately reflect company performance provide greater assurance and boost investor confidence.
By keeping track of expenses, companies can finetune budgets and arrange more timely payments to suppliers. By building credibility and trust, improved relations will place the company in a better negotiating position when the need arises.
Previously a tedious and monotonous task involving physical recording and documentation, bookkeeping and accounting are now much easier to handle with the help of new technology and software. Nonetheless, the goal of proper bookkeeping and accounting is getting things DONE RIGHT. Companies must not overlook the importance as they are indispensable to all businesses for successful management, planning and growth.