Bookkeeping is the process of recording the company’s financial transactions on a regular basis. It is important for companies to invest in bookkeeping because it can help the companies develop an insight about their financial position and well‐being. Bookkeeping is used internally to make decisions about the company’s operations and future plans.
In addition, external users, like investors and financial institutions, rely on bookkeeping to make better investments and lending decisions. However, a good bookkeeping system needs to be properly set up so it does not cause more harm than good. A bookkeeping system that is not properly set up or one that is not accurate can cause both internal and external users to make poor decisions. In order for a company to determine if they have a good bookkeeping system, they should judge their bookkeeping system based on the following qualities.
A good bookkeeping system is:
Accurate- The system should be error free and it should be properly set up.
Relevant- bookkeeping information should be made available in a timely manner and should show a level of detail equipped for analysis.
Easy‐to‐understand- users can gain a better understanding of the financial wellbeing of the company.
Comparable- can be compared across various periods to show the company’s progression or show how the company is performing against competition.
Software‐based- less likely to have errors than a handwritten bookkeeping system and it can be easily accessed amongst users and various places.
Accessible- users need to be able to have access to the information in order to make decisions.
Usable- the system does not need to be complex and it needs to be understood by users.
Able to produce financial statements- the company’s financial statements are the basis for which decisions are made and they are used to prepare the company’s tax return.
Able to grow with the company- as the company grows, then the accounting should grow alongside them to handle the increase in transactions.
9 Benefits of Bookkeeping
Financial information will be kept up-to-date
Easier for users to plan and make decisions
Improves business relations with external users (investors, shareholders, and banks)
Speed up process for tax return being prepared
Produce a more accurate tax return
More accurate picture of the company’s financial wellbeing
Leads to less fraud and potential errors
Greater supervision over the company’s money and resources
Easier to produce financial statements
Overall, bookkeeping makes running a company much easier because the owners have more supervision on where their money is going. In addition, a good bookkeeping system will also benefit your tax preparer and your return can be completed in a more timely fashion.
To gain more insight on the Benefits of Bookkeeping sign up for our free Bookkeeping webinar: https://www.croftandfrost.com/webinars
By: Brooke Williams, Data Entry Specialist at CROFT & FROST