What Is Bookkeeping?
Atlanta Bookkeeping is the process of recording and organizing a business’s day-to-day financial transactions. It is essential to businesses because it provides the data they need to make strategic financial decisions in the short and long term.
This involves importing and categorizing transactions, reconciling those accounts, and ensuring that all of this information adheres to generally accepted accounting principles (GAAP). The best candidates for this role have strong critical thinking skills that serve them well when encountering issues.
Recording transactions is the fundamental accounting process. It is where all the data that creates the financial statements and other reporting documents for a business are documented. It includes recording everything official and money-related that occurs within a company, from sales revenue to cash receipts, business expenses and payments to vendors.
Ideally, each transaction should be recorded in a separate journal entry. However, it’s a common practice to lump multiple transactions together into one entry for simplicity. This can lead to inaccuracies and confusion. To prevent this, bookkeepers need to be careful to accurately record each transaction in the appropriate accounts and ensure that total debits and credits match at the end of the day.
The entries are then transferred into a ledger, which provides a breakdown of all transactions by account. These accounts are identified from the chart of accounts, a list of all account names and numbers that appear in the general ledger. This allows a bookkeeper to see the overall financial health of a business at any point in time.
While it’s possible to do your own books, hiring a professional bookkeeper or accountant is the best way to ensure accurate and timely data. They have the tools and skills to quickly identify inconsistencies or mistakes, which can be costly. They’ll also have a deeper understanding of the implications of those errors so that they can offer better advice for your business planning and growth.
Another advantage of a qualified bookkeeper is that they can be sure the records are in compliance with the latest tax codes, SEC regulations and any industry-specific accounting standards your company must follow. This prevents you from incurring fines and penalties for being out of compliance.
Aside from ensuring that all accounts and transactions are properly recorded, a competent bookkeeper can help you save valuable time by managing your accounts payable and receivable. This will include establishing payment terms with vendors, tracking outstanding invoices and ensuring that all remittances are made on time.
Taking these steps will ensure that you have reliable and up-to-date financial information, giving you the confidence to make strategic decisions for your business. In addition, a good bookkeeper will prioritize accuracy to prevent mistakes that can have serious consequences for your company’s finances.
Reconciling Bank Accounts
One of the most important steps in bookkeeping is reconciling bank accounts. It is the process of ensuring that the cash account in your accounting software and the cash balance on your bank statement match. It is also a good way to catch errors in your bookkeeping.
When you reconcile your bank account, you compare the ending balance of the cash account in your books with the end-of-month closing balance on your bank statement. If they don’t match, you have to find out why they don’t. For example, there may be deposits in transit that you didn’t record in your books or outstanding checks that haven’t cleared yet. If you don’t catch these problems, they can add up to a large discrepancy by the time your year-end financial statements are prepared.
To prevent these errors, you should reconcile your bank accounts on a daily basis for the same period in which you prepare your company’s annual financial statements. You should do this for accounts such as prepaid expenses, accrued revenues and accrued liabilities and receivables, as well as your cash accounts.
Having an accurate picture of the money coming into and going out of your business is essential to making sound financial decisions. It is also the basis for tax reporting. A discrepancy between the books and the bank can mean that your business is spending more than it’s earning. If this goes on for a long time, you might even lose money.
You can save time by performing a regular bank reconciliation and reducing the amount of work involved in this task. For example, by using a bookkeeping spreadsheet program that includes automatic bank feeds, you can eliminate much of the manual work involved in reconciling your bank account. You should keep a copy of the bank statement and your accounting software file so that you can identify any differences in future periods.
If you don’t reconcile your bank accounts, the values in your general ledger will be inaccurate. For example, if you don’t perform an end-of-month reconciliation for your cash account and a mistake is made on the bank statement, the incorrect value might be recorded in a different account in your general ledger.
Preparing Financial Statements
After reconciling all the accounts, closing entries in the general ledger and preparing a trial balance, bookkeepers finalize the company’s financial statements for the reporting period. These include the income statement, statement of retained earnings, balance sheet and statement of cash flows. Updated on a regular basis, these documents provide a snapshot of the company’s finances at a specific point in time.
Financial statements also give companies the information they need to manage expenses efficiently. This includes determining what’s coming in and going out of the company, tracking the cost of goods sold and services rendered, and calculating profit margins. Financial statements also allow a company to gauge its overall health and identify areas of growth, which is why it’s important for businesses of all sizes to prepare accurate ones.
While many small business owners don’t have the resources to hire an accountant, they can still ensure their books are in order by doing bookkeeping themselves. As a result, this allows them to focus more energy on running the company, allowing it to grow and succeed. To do their job, bookkeepers must have a clear understanding of the different aspects of accounting to accurately track and report on the company’s financial status.
Choosing the right accounting software or spreadsheet is another crucial component of effective bookkeeping, as well as ensuring a consistent and timely workflow. While small businesses may prefer to stick with a simple system, bigger firms typically use specialized software programs that are designed for the type of data they collect.
As a result, they’re able to store the data more efficiently and effectively. It also helps to establish a schedule for reviewing the records and making any necessary adjustments, which can be done weekly or biweekly. Lastly, it’s crucial for bookkeepers to understand the different types of accounts the company uses, and how each one contributes to its financial statements.
The first step in preparing a financial statement is printing a preliminary version and reviewing it for errors. When an error is identified, the bookkeeper must create journal entries to correct it, then print a new version of the financial statements and review them again for any remaining errors. Then the bookkeeper must accrue an income tax expense and close all subsidiary ledgers for the reporting period, and assemble the statements in standard formats and distribute them to the usual list of recipients.
Identifying Issues
Bookkeeping is the process of organizing and recording financial transactions, such as income and expenses. It provides crucial information that business owners need to make wise decisions or build effective business strategies. But, the complexities of the task can create problems in the form of inaccurate or incomplete data. This can lead to costly mistakes and frustration for small business owners.
The most common bookkeeping mistakes include:
A lack of clear, repeatable monthly closing processes: When your bookkeeper’s closing routine is haphazard, it’s more likely that something will be overlooked. This could result in unreconciled accounts, missed expenses and errors in payroll.
Failing to separate personal and business accounts: It’s important that you keep your personal and business accounting records completely separated so that a mistake in one area won’t impact the other. This will prevent confusion and increase the likelihood of finding and fixing accounting errors.
Missing deadlines for preparing financial statements: It’s essential to stay on top of the financial obligations of your business. This includes sending out invoices, filing taxes and generating monthly financial statements. If you’re late with these tasks, you could lose money or face financial penalties.
Using old software: The latest bookkeeping technology is designed to improve efficiency and reduce errors. Using outdated programs can result in duplicate entries, misplaced documents and inaccurate calculations.
Out of compliance with loan covenants: When you borrow money, the lenders may come with stipulations that must be followed. These could include a requirement to carry insurance, submit financial statements or maintain certain performance or liquidity ratios. A good bookkeeper will help you keep track of these requirements so that your company doesn’t fall out of compliance.
Poor cash flow management: Insufficient attention to the ins and outs of cash flows can lead to a negative balance sheet. Professional bookkeepers can help you avoid this issue by focusing on recurring expenses and managing your receivables effectively.
Managing the accounting and financial aspects of your business is complex, and even expert bookkeepers can make mistakes. However, if you recognize and correct these mistakes early, you can avoid costly errors and save your business from financial disaster.
