Monday, September 19, 2011

Advantages of Good Bookkeeping

Bookkeeping is one area most small business owners would love to forget about. Unfortunately, some of them actually do forget about it, resulting in mad scrambles for receipts and other financial information at tax time and the close of fiscal year. The trouble typical business owners have with bookkeeping is the time and effort involved. In small business settings especially, owners are so wrapped up in attending to every other aspect of running the day to day operations of the company that there is simply no time left over for bookkeeping. Inadequate bookkeeping is often the product of overworked entrepreneurs. But in spite of the fact that it gets ignored completely so often, this area of small business financial management is among the most critical.

Take for example my wife (Associate Professor-Economist) who had this habit of keeping daily records and updates (Bookkeeping) on her expenditures and incomes ever since her childhood days. No money spent will be unaccounted for, and every purchase has to be meaningful. Take a look at her book… bookkeeping. I tried to understand the figures and sums but I couldn’t. As it is I believe she’s the only person who can understand her kind of bookkeeping.

To see clearly make a click at the image

Many company owners and self-employed entrepreneurs avoid things like debits and credits or journal entries like the plague. But this attitude only ends up costing them money in the long run, meaning they have to work even harder to keep up simply because they're robbing themselves of cash flow that could be gained with greater efficiency.

Bookkeeping is something no company ought to ignore. As a matter of fact, it's an area that can't be ignored for too long without major financial repercussions. To get a sense of why this is so, we need to look at what it means to keep the books and how this works impacts the operations of a company.

To see clearly make a click at the image

A simple bookkeeping definition might go something like this: bookkeeping is the recording of the financial transactions of a business. In accounting terms, it is the very first step in the whole bookkeeping process. If this step is not attended to, things like paying taxes can become a real challenge. When bookkeeping is done well, the accountants have the ability to perform reporting, classifying, and analyzing a company's financial data as well as these other tax related activities. Without accurate and detailed bookkeeping efforts, it is hard to know what kind of financial shape a business is in. Owners can't really devise long term plans or set goals without a sense of the direction things are going financially. So, accurate bookkeeping is essential to a company or an individual.

Bookkeepers have many responsibilities, some of which may vary depending on the situation. In any case, their job typically consists of organizing and tracking receipts and making sure expenses are properly noted as soon as purchases are made. The first thing my wife will do upon reaching home after shopping is to go straight into the bedroom. “Catitan dulu!”  Meaning she want to update her bookkeeping, organizing and tracking receipts and making sure expenses are properly noted.

To see clearly make a click at the image

Advantages of Good Bookkeeping: Bookkeeping does not directly contribute to the profits of a small business (although some bookkeepers would argue otherwise), but the work of bookkeepers is extremely important to the financial well-being of companies. The services of a bookkeeper help the books to stay organized and to remain up to date. There are many other important reasons to make sure bookkeeping is done right.

One of the main purposes for bookkeeping is cash flow management. Making sure you are on top of your books helps you ensure you have the necessary cash flow to support the day to day activities of the company.  This kind of data will support the kind of analysis that allows you to stay on track and to maintain adequate cash flow to keep things moving forward.

To see clearly make a click at the image

P.S. Due to diligent bookkeeping habit of my wife and prudent housekeeping on my part my household has never experience serious cash flow problem or living on credit… In another word every month is a surplus!

1 comment:

  1. Now I understand why she was so quick to take out the cash to pay for your [3 pax] share of expenses during our Thailand and Alor Setar trip. She must have "catit" every single COMMON-SHARED expenditure every night and know exactly how much is your!!!.

    When I dropped you all at Penang Road I wanted to make a quick "escape" but she "caught" me and insisted I take the cash. It is good to share common expenses incurred during trips and outings. Me and my camping buddies and GFrenz have been practicing this all along. It is good for long-term friendship.

    I do my own company business accounting up to Trial Balance [c/w receipts and related documents] before handing over to the auditor. Yes, I believe in being accountable for all cash-related and other transactions. Whether we make a profit or a loss, proper records must be kept.