The act of recording purchases, sales, receipts, payments and other financial transactions in a business environment is what we refer as bookkeeping. This also includes analysis and interpretation of financial transactions. The best bookkeeper will provide timely financial statements that will allow the business to meet legal requirements and financial obligations without delay. The advancement of any business is determined by proper stewardship of records which rests in the hands of the bookkeeper. You need to keenly follow-up to the end of this article to give yourself the best tips as a beginner in bookkeeping.
Understand the basics of bookkeeping duties: To perform in every bookkeeping environment, you will need to possess knowledge on; accounting systems and relevant software operations, financial transactions and their features, the process of reconciliation, checks and closing business fiscal year, legislative requirements of a business, compliance reporting, payroll duties, ability to prepare Business Activity Statement (BAS) returns, and business administrative support services.
Interests of Simplicity: You will have to start to slowly and efficiently to become competent. This starts with a single entry which involves business checkbook, cash receipt summaries, depreciation schedules, wage records, ledgers for debtors and creditors. It excludes the head age of self-balancing since transactions are posted only in notebooks or journals.
Double entry bookkeeping: a short practice of the step above will graduate you to the process of double entry. You will always keep in mind that the business assets are equal to the sum of liabilities and equity or Net Worth; (Assets = Liabilities + Net Worth). The first entry bears debit entries where the changes in assets are recorded. The credit entry makes up the second entry where the owner’s equity is recorded.
Understand Financial Statements: Any business involves the relation of income and expense records or financial statements. You will prepare these reports to help in bookkeeping; the balance sheet will show the relationship between transactions involving liabilities, assets, and the owner’s equity. Cash flow statements will summarize the cash receipts while profit and loss statements carry a relationship between business costs and earnings.
The arithmetic of balancing the books of accounts: To understand the relationship between the business financial statements, you need an excellent understanding of the balance sheet equation. This brings about the relationship between assets, liabilities and owner’s equity. Assets may be tangible, intangible or intellectual property; they keep the business afloat and may be cash on hand, cash in the bank, buildings, patent, trademarks, among others.
Liabilities are classified as long-term and short-term. Long-term liabilities are payable owed by the business and expected to tally for more than a year while short-term are required to be paid off within a year. They include loans, taxes, payroll, and mortgages, among others.
Owner’s equity is the share of the assets of a business which the owner can claim; it is simply the owner’s investment in the business.
To achieve an excellent analysis and interpretation of financial statements, you will need a proper mathematical calculation involving accounting equation; (Assets = Liabilities + Net Worth).