Bookkeeping is an important segment of the whole accounting system. It is the basis for accounting as it contains the proper records on all financial transactions. Whereas, accounting involves organizing, summarizing, classification, and reporting financial transactions. Don’t be afraid if you are unsure about different types of bookkeeping. This article combines the most important information that you need to know about bookkeeping and how to master bookkeeping-related tasks.
What is bookkeeping?
To understand ‘bookkeeping’ in a simple way, it means recording and tracking the financial number of the business in an organized way. Bookkeeping is essential for businesses but is also useful for individuals and non-profit organizations.
Bookkeeping is a detached process from accounting that occurs within a broader scope of accounting. While accounting is the overall practice of managing the finances of a business or individual, bookkeeping refers more specifically to the recording tasks and practices in financial activities. Bookkeeping provides information to conduct accounting tasks and helps interpret the accounting information for decision-making by internal and external users. If the bookkeeping is accurate, the business’ accounting will be proper. Thus, a strong relationship between the two functions is fundamental to drive the business forward to the next level.
You may like to read: Accounting Vs. Bookkeeping: What Are The Differences?
1. Bookkeeping tasks
Bookkeeping involves tracking the following transactions, including but not limited to:
- Supplier’s expenses
- Loan payments
- Customer payments for invoices
- Asset depreciation
- Financial reports
In one way or another, the 9 types of bookkeeping mentioned below consist of these kinds of transactions
2. Bookkeeping software
Every industry benefits from the development of technology, and bookkeeping is no exception. Bookkeeping used to involve an excessive amount of paper or computer files, such as ledgers, charts of accounts, double-entry systems, and multiple Excel spreadsheets. Storage quickly becomes an issue and it can be a challenge to organize them.
Technological advances facilitated a move to a computer-based system, with software available to purchase and download from a computer. Even then, these programs could be pricey and slow.
The continuous development of technology has brought what is available today: 100% online applications, backed up in the cloud, with unlimited storage. No downloads and buggy updates required, no more concern over losing important documents due to computer crashes or viruses, and no more problems with online or offline storage.
Shoeboxed is the ultimate expense and receipt-tracking app that helps accountants save time and hassle doing accounting, get reimbursed fast and maximize tax deductions. By receiving customers’ receipts by mail or scanned documents, Shoeboxed extracts the most important data to one organized place for easy and at-a-glance expense tracking. It allows customers to view and export their data anytime and organize them in their categorizations. Furthermore, Shoeboxed ensures that all customers’ receipts are legibly scanned, clearly categorized, and easily located. Used by millions of SME businesses worldwide, Shoeboxed proudly helps customers free their desks and drawers from paper receipts and brings the best solution in document storage for years!
2. Basic types of bookkeeping
There is nothing as basic as a cash account. Every business transaction – whether it is incoming or ongoing – will pass through a cash account. The more active the business is, the trickier it is to keep tabs on its cash flow.
For this reason, many bookkeepers use two records (cash receipts and cash disbursements) to track the activities more closely.
2. Accounts Receivable
If your business has a debt contract with customers that allows them to pay later (for example: a 30-day credit period), accountants must have an Accounts Receivable aspect to their bookkeeping. This account allows accountants to track the payment status, whether they have been collected or are still overdue.
Accountants must pay attention to this account because if some orders get lost or slip through the nest, they may have to correctly make up the difference for the invoices for balance. Organizing this account is critical to send out up-to-date bills and provide the best customer service when it comes to payment.
All of the company’s products that are in stock must be accounted for in the inventory account. Regular stock takes should also be carried out to make a record of every item that is in stock. Then accountants can account for every penny that is currently sitting there waiting to be sold. Ensuring that you have accounted for everything is vital to accurately forecast how your business will perform over an accounting period.
4. Accounts Payable
Account Payable is probably not everyone’s favorite because it allows you to see clearly whether what money is leaving for or what money has left the business and when.
Like other types of bookkeeping, you need to take good care of this account so that your business will not make any late payments, you will not overspend and leave yourself short for the monthly outgoing. And most importantly, keeping an eye on this account ensures that you do not pay anyone more than once.
5. Loans Payable
If your business has ever taken out any loans, you must manage them well in the Loans Payable account. This account will track and articulate everything that you still owe and the payments’ due date.
This account tracks all your incoming revenue from your sales transactions. It records these transactions in a regular, timely manner, which is vital to know the true position of the business. You should not leave it for too long before you record sales, especially if you are getting a significant volume of orders per day because it is easy for things to be missed or mixed up. Some common mistakes are that sellers forget to send products to customers or that stock will not be updated in a timely manner.
The Purchases account is where your bookkeeper tracks all materials or goods you have purchased for your business. This account is associated with the above Sales account. Both accounts are essential to calculate the Cost of Good Sold (COGS) and your business’s profit, so they both need to be accurate.
8. Payroll Expenses
Payroll is commonly the most considerable cost for business owners. It is crucial to keep this account up to date and accurate to pay employees the right amount each month, and to calculate taxes and other government reporting requirements. Not paying the accurate amount of tax can put you in deep trouble, so every accountant needs to make sure that you do everything properly.
9. Retained Earnings
The Retained Earnings accounts record all money that is reinvested into the business from profits. Retained earnings appear as a running total of money that has been retained since the business started. It is simple to look after this account, and it is of great importance for investors and shareholders, who may require to see where their money is going and the business’s overall success.
Bookkeeping is one of the top priorities for the success and growth of any business. Therefore, always make sure that you don’t miss out on any component. Identifying and keeping an eye on these 9 basic types of bookkeeping helps you align your business’s important documents and promote efficient growth.
Bookkeeping can be somewhat challenging for new accountants because there are too many things to remember and organize and too many documents that you need to review, store and organize frequently. No worries – we are here to free your desk from papers. Shoeboxed offers the perfect receipt organization solution. By turning your receipts into data, our method is the easiest way to protect and store your business’s important documents. ?Go paperless with accurate and verified data now!
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