Bookkeeping is an activity concerned with the recording of financial data relating to business operations in an orderly manner. Bookkeeping is the record-making phase of accounting. Accounting is based on a careful and efficient bookkeeping system.
Double-entry bookkeeping is a mechanism of recording financial transactions with two sides (or aspects) of every transaction. For example, your friend gives you $10 in exchange for your pen. This would involve two aspects of this transaction: i.e. your friend giving you $10 (one aspect) and you receiving $10 and giving of your pen (the other aspect). Thus, in double entry bookkeeping, every single transaction involves giving and receiving. It is very important to understand and record both sides of every transaction in your books of accounts.
Proper bookkeeping is very important for the financial health of a business entity. It is one of the most significant functions of any business operation. Without an accurate bookkeeping system in place, business owners have no information on financial data of the entity and without that data, they cannot make good business decisions. Similarly, without bookkeeping, they cannot carry out even the most basic task of preparing their tax returns. Below are some of the potential consequences of practicing poor bookkeeping in your company:
Problems in the filing of tax returns
As stated earlier, if, due to poor bookkeeping, you are unable to file your tax return on time, you might have to pay heavy penalties and default surcharge. Similarly, to minimise their tax liability, business owners have the option of claiming official expenses and deducting them from revenue to reach at the taxable income. In case of absence of bookkeeping & accounting mechanism, it becomes difficult to record and track all the expenses incurred during the year. And without proper proof, it is not possible to claim those expenses from tax authorities.
Separating of personal expenses from business expenses
Many business owners do not understand the concept of “separate legal status” of their businesses. They make all their personal and official expenses from a single bank account. It is the job of a qualified bookkeeper to separate personal transactions from business transactions. The situation can become worse during a financial or tax audit.
Keeping of old records
In many countries, including Singapore, the minimum time limit to keep your old business records is 5 years or more. If you do not comply with this minimum retention requirement, you will face penalties. In Singapore, the maximum penalty for non-compliance is $5,000 or imprisonment for a period of 6 months.
Late payment to creditors/accounts payable
If your accounts payable ledgers are incomplete or unorganised, it is more likely you will forget the due dates for payment of certain important creditors, particularly those payable to state agencies. Similarly, it can also become difficult to negotiate favorable terms of financing or credits from financial institutions.
• Non-compliance with labour laws: You may unknowingly get on the wrong side of labour laws. Moreover, if you are hiring someone on daily or hourly wage rate, you’ll have to track each and every minute of his work. You cannot do so without proper bookkeeping and recording.
Hence, keeping your books and accounting records up to date is crucial for your business. If you cannot manage them yourself, you can look to hire professional bookkeeping services in Singapore.