Elements of BookkeepingDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
Accounting is an ancient craft, and bookkeeping is one of its most vital components. In fact, it is so important that many accountants still spend a significant amount of time mastering the basic elements of bookkeeping, even after they have finished their formal education. And if you are thinking about starting a business of your own, you may soon discover that bookkeeping is one of the most important tasks you can do as well.
Main Elements Of Bookkeeping
Bookkeeping is the recording of financial transactions in a business. This includes creating journals and ledgers, posting transactions, and generating reports. Let's briefly go over the main elements of bookkeeping so that you understand what this discipline typically entails.
A financial statement is a report of the financial condition, results of operations, and cash flows of an organization. Financial statements are one of the most important elements of bookkeeping and are usually prepared in accordance with generally accepted accounting principles (GAAP). Typically, financial statements reflect the assets and liabilities of an entity as well as its equity.
Assets include cash and other liquid instruments, receivables, inventory, and fixed assets such as equipment. Liabilities include accounts payable, taxes payable, and long-term debt. Equity includes contributed capital from owners (shareholders), retained earnings (retained profits), or reserves that are not distributed to shareholders but instead remain within the company itself to finance future growth.
A ledger is a book of accounts. It is used to record transactions and prepare financial statements. The ledger contains three main types of accounts:
- Assets (things you own): Cash, Inventory, Accounts Receivable, Property
- Liabilities (debts): Accounts Payable, Loans Payable (note: debtors are also liabilities)
- Equity/Owner's Investment: Capital Stock and Paid-in Surplus
A trial balance is a list of all the accounts in your general ledger. It is prepared at the end of each month, and it should match up with the way you have organized your ledger; that is, it should contain a single column for each account.
Several things can go wrong during this process: maybe you did not record an asset purchase correctly or forgot to enter an expense on a given day. In those cases, go back through your entries until you find where things went awry, then make corrections and start over again until everything matches up perfectly!
A journal is a chronological record of all transactions made by a company. It is used to record transactions in the order they occur and can be used to prepare financial statements.
Reasons to Bookkeep Even If You Are a Small Company
Even if you are a small company, it is still important to keep track of where your money is going. You can use the information to make better decisions in the future. Better financial decisions are made when bookkeeping is done correctly and accurately. The same goes for tax planning purposes too!
Advantages and Disadvantages of Outsourcing Bookkeeping Services
If you are looking for a cost-effective way to manage your bookkeeping, outsourcing the task to a small business accounting tax and bookkeeping service can be a great option. It gives you access to professional expertise without having to pay a high salary or hire an employee. Outsourcing a bookkeeping firm allows you to focus on running your business and making sure it is doing well without worrying about the numbers.
However, there are some disadvantages of outsourcing bookkeeping services as well. If your outsourced service provider is not well-equipped with the right software, they may have difficulty handling the above-mentioned bookkeeping elements and producing accurate financial reports. This could lead to missed deadlines or even legal issues that affect your company’s bottom line.
The elements of bookkeeping are the basic concepts and principles that you need to understand before studying accounting. The best way to learn the elements of bookkeeping is by taking time to practice them in real life so that they become second nature.