For any business or institution, having a record of the earnings and expenses is very important. Keeping records helps a business to recognize the position of the firm, whether the business is operating in profits or losses. Numerous bookkeeping and accounting services for small businesses in Denver, India, Chile, etc. Helps small businesses to maintain their book of records.
What is bookkeeping?
Bookkeeping is the process of recording financial transactions of the business. It is a narrower term as it comes under accounting. Making and updating the records help in generating accurate financial reports which helps in the analysis of the functions and operations in the business.
Methods of bookkeeping
Before starting the process of bookkeeping, you should know about the various methods of bookkeeping available to you.
- Single entry bookkeeping
- Double entry bookkeeping
- Cash-based or accrual-based
Single entry bookkeeping
A single-entry bookkeeping system is a traditional method of bookkeeping in which one entry is passed for every transaction. It is suitable for small private businesses, sole proprietors, or someone who does not deal in credit.
Double entry bookkeeping
Double-entry bookkeeping involves financial transactions having an effect on more than one account. Every transaction is recorded in both the credit and debit side of the account. Businesses with huge capital investments, large transactions, businesses in credit, etc. Should use double-entry bookkeeping instead of single-entry bookkeeping.
Cash-based or accrual-based
Cash basis of bookkeeping means that a transaction is realized in the book of account at the time when it enters the firm and at the same time when it is paid off like when you receive the cash your revenue is being realized and when your expenses are paid off your expenses are recognized.
The accrual basis of bookkeeping means credit transactions are also recognized in the accounts. The actual payment is not required to enter or exit the firm. They can be adjusted as per the time period specified.
Both the basis of accounting that is cash-based and accrual-based can be operated on both single-entry and double-entry bookkeeping. The most important factor is that the transactions should be quantitative in nature. Qualitative transactions can not be passed as they cannot be measured.
What is accounting?
Accounting is a process of recording financial transactions that are quantitative in nature. It involves a few important steps which are collecting, recording, classifying, summarizing, and communicating the information to the management, auditors, and whoever asks for the accounts.
Accounting is a very important process spite of the size of the organization for making decisions, monitoring transactions, understanding cash flows, for designing appropriate strategies and policies.
Types of Accounting
Accounting is a very vast domain. So for the convenience of the accountants, accounting is divided into small groups based on the kind of activities and operations undertaken by them.
- Financial accounting:
Financial accounting means culminating and recording all the financial transactions and maintaining financial reports. These accounts are presented in the form of financial statements, profit and loss accounts, cash flow statements, balance sheets, trial balances, journals, and ledgers; these records are beneficial and required at the time of annual audits of the firms.
- Managerial accounting:
Data for managerial accounting remains the same as financial accounting, but it is used differently to aid the management of the firm in making several decisions, conducting operations like budgeting, forecasting the financial position of the firm, and planning for the future accordingly. Every information that concerns the management of the firm comes under management accounting.
- Cost accounting:
All the information that concerns costing for the firm comes under cost accounting. Top management, analysts, and accountants analyze the cost of their products and services. In cost accounting, cash or capital is considered as the economic factor while producing goods and services. Therefore, money is considered as the identifier of the economic performance of the firm.
- Tax accounting:
Tax accounting varies from financial accounting as the rules and regulations followed by them vary as per their responsibility. Tax accounting involves balancing compliance with the set of rules while trying to lower the tax liability of the firm. Now bookkeeping and tax services in Denver will differ from tax services and regulations in any other country.
Therefore, accounting is an inseparable function of business. It provides information and transparency about the functioning of the firm. Accounting helps in rectifying mistakes and making future goals accordingly.
