What is Accounting and Bookkeeping Service? Recording a business's day-to-day financial affairs is a part of Bookkeeping, whereas preparing financial accounts is known as Accounting. Accounting is a must for all types of business, including Small Enterprises and Freelancers. Further, it is advisable to maintain and update financial statements accurately to avoid any financial disturbance. Maintenance of accounts is essential for a home-run business as well as for an industrialist. There are some mandatory standards of accounting that a business needs to maintain. To conform to such criteria, it becomes essential to take the assistance of experts. Benefits of Accounting and Bookkeeping Service To keep track of the income and expenditure of the business To ensure smooth functioning and transparency, every individual, firm or corporation must be aware of the income earned and expenditure incurred. It assists them to plan and strategize their financial resources and utilize them accordingly. Timely access to operational information The updated records provide access to operational information to the management at any point in time. Business owners or managers are indirectly associated with all transactions. Accounting and Bookkeeping help them monitor all the activities from time to time. Regular reconciliation rationalized decisions Reconciliation of monthly or quarterly data helps the management analyze the benefits or adverse aspects of a business. Accounting services come with the benefit of periodical reconciliation of data. Hence, future decisions can be rationalized after analyzing the profit and loss. Ready to furnish data for timely compliance Accounting makes extraction of data easy and timely submission of regular income tax return filing, compliances and scrutiny of any businesses. Connection between Accounting and Bookkeeping Service Bookkeeping and accounting are separate processes. Accounting has a broader scope than Bookkeeping. Accounts are prepared from the information given by Bookkeeping. A strong relationship between Bookkeeping and accounting is necessary to take the business to the next level. Bookkeeping is a portion of the entire accounting system. Bookkeeping is a basis for accounting as it contains proper records of all financial transactions. In contrast, accounting involves organizing, summarising, classifying and reporting financial transactions. If the Bookkeeping is accurate, then the accounting of the company will be accurate. Thus, accounting is a wider concept than Bookkeeping, and a company's accounting depends on a proper and accurate bookkeeping system. Bookkeeping helps in understanding the accounting information for decision-making by internal and external users. Bookkeeping is a segment of accounting. It is clerical in nature and involves the following:- Record financial transactions Post credits and debits Produce invoices Maintain and balance current account and general ledgers Complete payroll Purpose of Bookkeeping The purpose of Bookkeeping is as follows:- To record the transactions The very first objective of Bookkeeping is to maintain accurate and complete records of all financial transactions in an orderly manner. It records all transactions systematically and ensures all financial transactions are mentioned in the books of accounts. These transactions can be used for future reference. To show the correct position Bookkeeping helps to determine the overall impact of a company's financial transactions. It shows the financial effect of all business transactions that have taken place in a financial year. The financial information is provided to the shareholders and management of the company, thereby helping them formulate future policies and plans. To detect errors and fraud Bookkeeping helps identify the transactions and summarises them in a chronological and systematic manner. Bookkeeping makes sure that the books of accounts are correct, up-to-date, chronological and complete. Thus, it helps to detect any errors or frauds in the business. Types of Bookkeeping System There are two types of bookkeeping systems. A business entity can choose any one type of bookkeeping system. Some entities use both types in a combined manner. The following are the two types of bookkeeping systems:- Single-entry system of Bookkeeping The single-entry bookkeeping system is a basic system for recording daily receipts. It generates a weekly or daily report of a company's cash flow. The bookkeeper records one entry for each financial transaction or activity in this system. The single-entry bookkeeping system only records one side of the transaction or activity. It records only the purchases, cash receipts, payments and sales. It is used mostly by small businesses which have minimal transactions. Double-entry system of Bookkeeping The double-entry bookkeeping system records a double entry for each financial activity or transaction. The double-entry system provides balances and checks, recording the inter-related credit entry for every debit entry. It is not cash-based, which implies that the transactions are recorded when the revenue is earned, or debt is incurred. The double-entry bookkeeping system is founded on the duality concept. It means that every financial transaction affects two accounts. It further implies that every debit entry to an account has a corresponding credit entry in another account and vice versa. This system is universally recognized and is considered correct for recording business/financial transactions. Importance of Bookkeeping Bookkeeping is mandatory for all businesses irrespective of the nature, size, business transactions, or any specific industry. At the commencement of a business, maintaining proper records is essential. The following are the importance of Bookkeeping:- Records the sources of transactions Bookkeeping acts as a source of all financial transactions of a business as it records all the financial transactions from the source of the transaction, such as receipts, invoices, payment notes, etc. Bookkeeping keeps track of payments, receipts, purchases, and sales and records every transaction made to and from the business. A business's financial statements or other accounting reports are summarised from the books of accounts. Thus, all businesses, irrespective of their size, must maintain proper books of accounts in place. Assists in the decision-making process A correct and proper book of accounts provides companies with an accurate measure of their performance. The information provided helps in making general strategic decisions and sets standards for its income and revenue goals. Bookkeeping is a dependable source for companies to measure their financial performance. Bookkeeping helps maintain all financial records of a business that reflect the financial position of the business. Through Bookkeeping, the companies can instantaneously get detailed information about each income or expense. Gives information to prepare financial statements Bookkeeping summarises the expenditure, income and other ledger records periodically. Since the bookkeeping records and traces all financial transactions, it is the starting point of accounting. If a company's bookkeeping is improper, the company's accounting will be inaccurate. Bookkeeping is the basis for preparing financial reports. It gives specific information about the business, like how much profit it has made or its worth at a given time. Legal requirement It is a legal requirement to maintain financial statements and books of accounts. In the case of banks, companies, or insurance companies, the acts regulating them require the maintenance of proper financial records. Thus, Bookkeeping becomes necessary for such companies. Challenges for Accounting – Bookkeeping Services Maintaining and Organizing Records The financial records should be maintained diligently. The records can be receipts, invoices, bills and more. Maintaining records can be time-consuming, and manual recording can cause human errors that can add to big problems when filing tax returns. Bookkeeping tasks and deadlines Bookkeeping is a necessary but tedious task. It can consume valuable time and resources that businesses can use to focus on their core competencies. Further, staying on top of bookkeeping deadlines can be another task, as you need to submit GST returns, income tax returns and payroll taxes on time to avoid penalties. Managing Cash Flows Management of cash flow is critical for every business. However, many businesses face challenges in maintaining liquidity. Businesses face cash crunch from time to time. Further, not having enough cash on hand can result in missed opportunities, missed payments and penalties. Ensuring compliance with tax regulations Businesses need to comply with tax regulations. Keeping track of tax rules, getting the right paperwork done, and filing on time can be overwhelming, and the penalties for getting it wrong can be high. Many businesses face challenges in complying with the tax regulations, resulting in fines, interest fees and even legal action against them.
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