What is Bookkeeping?
- Bookkeeping involves the recording, on a regular basis, of a company’s financial Transactions. With proper bookkeeping, companies are able to track all information on its books to make key operating, investing, and financing decisions.
- Bookkeepers are individuals who manage all financial data for companies. Without bookkeepers, companies would not be aware of their current financial position, as well as the transactions that occur within the company.
- Accurate bookkeeping is also crucial to external users, which includes investors, financial institutions, or the government – people or organizations that need access to reliable information to make better investments or lending decisions. Simply put, business entities rely on accurate and reliable bookkeeping for both internal and external users.
Importance of Bookkeeping
In order to properly implement bookkeeping, companies need to first choose which basis of accounting they will follow. Companies can choose between two basic accounting methods: the cash basis of accounting or the accrual basis of accounting. The difference between these types of accounting is based on the timing for when the company actually records a sale (money inflow) or purchase (money outflow) in the books.
The Accrual VS Cash Basis of Accounting
In order to properly implement bookkeeping, companies need to first choose which basis of accounting they will follow. Companies can choose between two basic accounting methods: the cash basis of accounting or the accrual basis of accounting. The difference between these types of accounting is based on the timing for when the company actually records a sale (money inflow) or purchase (money outflow) in the books.