Bookkeeping for Beginners: How Does Bookkeeping Work?
Whether you’re planning to start a new business or considering a career as a bookkeeper, knowing the basics of bookkeeping is very crucial. Well, the good news is you can find some information here on what bookkeeping is and how it works.
What is bookkeeping?
Bookkeeping involves the process of keeping full and accurate financial records of a company, business, organization, or individual. These records are very important to the future success of the entity who owns them. The process of bookkeeping helps businesses and individuals manage their cash flow, avoid overspending, determine their profits and losses, stay in compliance with the ever changing laws, and develop future plans.
Bookkeeping is now regarded a growing profession. Since many individuals now consider building a small business, bookkeepers are now becoming in demand. Well, you don’t need to get a degree in college to master bookkeeping; however, you must have strong math, organization, and computer skills to do it properly. In addition, you must know the basic concepts on how bookkeeping works in order to provide accurate, efficient, and up-to-date financial records.
So, how bookkeeping works?
In terms of bookkeeping, there are two entry systems commonly used, and these are the single-entry bookkeeping and the double-entry bookkeeping systems.
- Single-entry bookkeeping system: This system is used for businesses and organizations that only have minimal or uncomplicated financial transactions; for instance, for a start up business or for an organization that only has a few members. In essence, this system works by simply recording of income and expenses using manual cash book, a spreadsheet, or self-calculating programs, like Excel and Open Office. An entry is only made to the cash book/journal when an expense is paid or when revenue is received. Entries should be in agreement with bank transactions.
- Double-entry bookkeeping system: This system is usually the standard method used by most businesses and accountants. Unlike the single-entry system, the double-entry system is more complicated and detailed, which gives businesses an accurate and complete recording of financial transactions. In this system, the concepts of debit and credit are already involved, and every transaction is entered twice in two different accounts.
Traditional bookkeeping is done manually by hand using manual or paper book accounts, such as worksheets, ledger, and cash journals. Well, if you’re just a start-up and don’t have yet too many transactions, manual recording can be a fine option. However, if your business is already growing, you must consider shifting to double-entry system and doing your books with the aid of computer. Today, many companies are already using bookkeeping software to keep track their financial activities more effectively. Others even consider the alternative of hiring a professional bookkeeper or accountant, or outsourcing their accounting task to a reliable accounting firm.
Well, if you want to save time, money, and resources, hiring a professional or outsourcing your task can be the best option. In such case, you no longer need to worry about how you will record, manage, prepare, and calculate your financial data, since your hired professionals will already do them for you. However, we can’t ignore the fact that some businesses, particularly smaller and home-based businesses, can’t afford to do it. If you’re one of them, though, you have the option to use affordable computer programs and software to make the task of bookkeeping more manageable and less time consuming. Of course, the choice is always yours. But remember, whether you use manual recording, hire a professional, or utilize a computer program, you must still ensure that you know some basics about accounting or bookkeeping to effectively manage your finances.