Bookkeeping
By Jonathon Hardcastle
Bookkeeping is an essential skill which must be mastered before running a business of your own. It is not only important for tax returns and calculating the overall tax liability of your business each year, but it is also imperative for cash flow analysis and financial forecasting.
You can employ an accountant to do the job for you, although this is going to be an expensive choice. It is clearly far better to take the time to master the basics of bookkeeping, largely the double-entry system, to avoid this hassle and expense, and to give you the value of accounting information to expand and consolidate your organization.
The double-entry system is the cornerstone of contemporary bookkeeping. Having said that, it is a fairly in-depth topic, and there have been books written on the subject. We'll try to outline some of the basics here in this article, although it is recommended that you do some background reading first.
To aid your bookkeeping you'll firstly need to keep a note of all receipts and expenses incurred by your organisation, and all check stubs and invoices. Print off a cover sheet leaving room for you to write in the amount, date and description of the receipt or payment and staple the actual document to the cover sheet. This way you'll be able to see at a glance the vital information, and be able to effectively file in your system. Keeping these kinds of records is essential to allow you to have an accurate trail of accounting information on which to base your bookkeeping.
The double entry system works on the premise that every transaction you process be it a payment of a bill or a sale has two sides - a positive and a negative. For example, if you owe money to a creditor, paying that money will have the positive effect of clearing your debt, but will have a negative effect on your bank account.
These are expressed as Credit and Debit entries in double entry accounts. Another example is selling products. That has a positive effect on your cash balance because the customer hands you money, yet has a negative balance in your sales account because you're giving goods away. The system is fairly rational, and provided you have corresponding Debit (positive, i. e. an asset) and Credit (negative, i. e. a liability) entries for every transaction, your books should add up when you come to prepare the final accounts.
Jonathon Hardcastle writes articles on many topics including Gardening, Consumer Information, and Family