Bookkeeping is the best way of monitoring a company’s overall financial situation. Without basic bookkeeping, you may easily get confused between your earning and spending activities, which can lead to wrong business decision-making, disorganisation, and loss of profit. Apart from the significance of bookkeeping practices, many business owners don’t feel confident about doing bookkeeping, that’s why they prefer choosing bookkeeping services. Bookkeepers are well aware of the best bookkeeping method to keep your business books organised, which will be discussed in this blog.

What is the significance of doing bookkeeping?

Bookkeeping is the process of updating the financial records of a company to reflect all financial transactions. Professional bookkeepers are responsible for preparing and tracking financial documents to ensure the business is prepared for tax season and to meet other financial reporting requirements.

Maintaining financial records is crucial for the stability of small businesses. With so many bookkeeping tasks, small business owners can stay on top of it all. Bookkeeping can help small businesses:

• Create organised financial reports, ensuring accurate financial insights and improving the decision-making process of a business.
• Be well-prepared for tax return lodgment.
• Understand business’s financial transactions.
• Make a plan for profitability that results in enhanced cash flow.

What is the easiest method to do bookkeeping for a small business?

Before doing bookkeeping, it’s crucial to understand the best bookkeeping method suitable for your business. When searching for bookkeeper services in Melbourne, you can ask your bookkeeper about the best bookkeeping method. There are two bookkeeping methods used: single-entry bookkeeping method and double-entry bookkeeping method.

• Single-entry bookkeeping method

If you have a few or no employees, then the single-entry bookkeeping method can be used. If you don’t need in-depth financial reporting, then you can use this method.

• Double-entry bookkeeping method

On the other hand, the double-entry bookkeeping method is usually used by businesses that have a number of employees with complex financial transactions or need financial reporting.

Now, let’s explore two accounting methods: the cash-based method and the accrual-based method.

• Cash-based accounting method

The cash-based accounting method is one of the simplest ways and makes it easy to monitor your cash flow in real-time. You record financial transactions when you receive or pay money, even if they were billed or earned earlier.

• Accrual-based accounting method

The accrual-based accounting method is suitable for complex business structures or businesses that sell goods or keep inventory. You record financial transactions as soon as they are billed or invoiced. If you are relying on an accounting firm for accounting, you can let them choose the best way suitable for your business.

How to do bookkeeping?

Now, let’s break down the steps involved in bookkeeping:

• The first step involved in bookkeeping is collecting financial documents. The financial documents include the transaction date, buyer and seller, transaction amount, and service or product provided. It’s essential to record every purchase and sale of a product, along with tax returns and payroll records. To stay organised, it’s crucial to separate your business expenses from personal expenses. Bookkeepers often prefer using bookkeeping software to record all transactions.
• After collecting your business’s source documents, the Melbourne bookkeeper will organise them into specific categories: assets, liabilities, equity, revenue, or expenses.
• Next, they’ll need to reconcile your business transactions. This involves comparing your business records and/or bookkeeping software with your bank statements to ensure the information aligns and that each transaction is properly recorded without duplication.
• With your books now balanced, the bookkeeper can use this data to create key financial documents that offer valuable insights into your business’s performance, including a balance sheet, profit and loss statement (also called an income statement), and a cash flow statement.
• When you opt for Melbourne bookkeeping services, you will be sure that your bookkeeper will review your financial documents to gain essential insights into your business’s health, empowering you to make informed decisions for the future.

Conclusion

Professional bookkeepers analyse the complexity of financial transactions that take place in a company to decide the best way to do bookkeeping. By choosing our reliable bookkeeping services, you will be sure that you are using the right bookkeeping method.