What is bookkeeping ? Definition, types, and best practices
3 key benefits of bookkeeping
If you’re new to business, you may be wondering about the importance of bookkeeping. Whether you outsource the work to a professional bookkeeper or do it yourself, you’ll be able to reap a variety of benefits.
1. Access to detailed records of all transactions
By logging and keeping track of all financial transactions, you will have easy access to any financial information you might need. To make it even easier, bookkeepers often group transactions into categories.
Common transaction categories include:
When it’s finally time to audit all of your transactions, bookkeepers can produce accurate reports that give an inside look into how your company delegated its capital. The two key reports that bookkeepers provide are the balance sheet and the income statement. The goal of both reports is to be easy to comprehend so that all readers can grasp how well the business is doing.
2. Ability to make informed decisions
Because bookkeeping involves the creation of financial reports, you will have access to information that provides accurate indicators of measurable success. By having access to this data, businesses of all sizes and ages can make strategic plans and develop realistic objectives.
Examples of financial statements that can help with decision-making include:
- Balance sheets
- Income statements
- Cash flow statements
Not only can this help you set goals, but it can also help you identify problems in your business. With an accurate record of all transactions, you can easily discover any discrepancies between financial statements and what’s been recorded. This will allow you to quickly catch any errors that could become an issue down the road.
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3. Better tax preparation
When it’s time to file your taxes, you’ll need to comply with the Internal Revenue Service’s (IRS) legal regulations and systems that govern their finances. Some of the most common documentation businesses must provide to the federal government include:
- Financial transactions
- Financial statements
- Tax compliance
- Cash flow reports
By staying up to date with your bookkeeping throughout the year, you can help alleviate some of the stress that comes with filing your taxes.