Vital Elements in Bookkeeping
Bookkeeping is the process of recording daily business transactions that have taken place in a company. Such transactions include the receipts, payments, sales (Also see Journal Entries for Credit Sales) and purchases. Bookkeeping is one of the initial parts in the accounting process, and timely records ensure that the books of accounts are always updated and reliable. This is of utmost importance if a business owner wants to make sure that the financial statements can present the financial position of his company accurately. Thus, for business owners who do not know how to do the bookkeeping tasks, hiring a bookkeeping firm in Singapore is the best way to solve this problem as this will not only ensure that timely records are made but also help you to save time and money.
The first element that we will discuss here is the accrual basis and the cash basis (Also see Cash vs Accrual Accounting Methods). Compared to the cash basis, the accrual basis provides more comprehensive information and is widely accepted all over the world. If a business owner chooses the accrual basis, he should take all income and expenses (Also see An Overview of Deferred Expenses) into account once they become due. This means that he should recognise the income as his receivables once he earned the income. In the case of expenses, he should recognise them as soon as he has billed for them too. On the contrary, business owners who use the cash basis should only record the income when they receive cash, and only record expenses when they make the payment. Although this method is easier to understand and maintain, it does not consider the matching principle in accounting.
When it comes to bookkeeping, journal entries are crucial too (Also see Journal Entries for Accounts Payable Account). They serve to record the financial impact of any business transaction that a business has incurred, which is the first step one should do if he wants to record any transactions. One more thing that we should understand is that if we use the accrual basis, we should record a business transaction in two accounts by debiting one of the accounts and crediting another.
Also, ledgers are one of the most critical elements in bookkeeping too. They are the books of accounts that present a particular account’s debit and credit transactions for a specific accounting period in a summarised format. Ledgers show the opening and closing balances of an account after including all debit and credit transactions in a particular period. When the financial period has come to an end, the accountants will transfer the ledger balance to the trial balance (Also see What are the Difference Between a Trial Balance and a General Ledger?) before using it to prepare other financial statements.
On the other hand, in bookkeeping, chart of accounts, which is a worksheet that contains frameworks and guidelines on the type of expense and the general account that it should be recorded, should not be neglected. The chart of accounts (Also see How to Create Your Chart of Accounts) can help a bookkeeper to choose the right code before he posts the journal entries. Business owners should ensure that the chart of accounts are always updated, and they need to review this document regularly and make necessary adjustments if any changes have occurred in the company.
Bookkeeping is of utmost importance as it helps to ease the process of recording business transactions. Business owners may compare the financial statements and track the expenses and budgets more efficiently. Also, bookkeeping makes the process of gathering data for audits easier too. However, if one has keyed in incorrect information into the books of accounts, the trial balance and other financial statements will be inaccurate also.