Bookkeeping is coined by two words ‘Book’ and ‘Keeping’ where ‘Book’ means the set of financial transaction and ‘Keeping’ means preservation. So bookkeeping means the process of maintaining financial transaction. Sales, purchase, earnings and payments are all carefully documented so that all the inflow and outflow of money is accounted for. Hence it is an integral part of any companies accounting division. A business can flourish or diminish without proper bookkeeping
Importance of maintaining a proper set of books
The Financial health of the company – Right bookkeeping helps you to track if the business is making a profit. It also helps in better understanding of how much progress has the business done. Financial situation and performance of the business is accessible anytime.
Better Cash Flow – It is important for any business to track its spending, which is only possible with appropriate financial records. It is often noticed that a well known brand has suddenly collapsed due to cash flow crises as it was unforeseen and they weren’t prepared for it.
Tax liabilities – When all the record of transactions is maintained it becomes easier to prepare and file tax returns on time. There is no last minute rush to track all information and recollect all the minute expenses. This can eventually lead to underpayment or overpayment of taxes.
Reports for Investors are easily available – Bookkeeping helps to avoid the hassle that is involved in preparing the report for investors. When you have the numbers, charts and list readily available all you have to do is present it in front of them. Bookkeeping helps in keeping thing well planned and structured.
Business planning is easier – Accurate bookkeeping helps to make financial decisions distinctly. It is the base for successful and competent business accounting. Avoiding bookkeeping will ultimately end up in unpleasant economic consequence.
Loans/ Other fund requirements – Taking a loan or other form of bank financing, banks will check the financial data about the company that will prove to them that the business is in good economic position. Banks will also want to see copies of cash flow budgets, financial statements, and any other financial data.
Bookkeeping may appear a burden when you are trying to develop your company but it is vital to not only prosper but also survive in today’s harsh economic situation. Bookkeeping can spell the difference between attaining success or bankruptcy and also precisely mean thousands of dollars for the business.
An appropriate bookkeeping system is essential to every business, whether small or big to manage its day to day functions and keep the organizations running effectively. For any thriving business, the main responsibility is to minimize any loss, maximize profits and at the similar instance sustain its entity within the society. A company that does not have a good bookkeeping system is like a sightless driver who can easily cause an accident.