Key Elements of Bookkeeping
Many professional bookkeepers have seen their fair share of the good, the bad, and the ugly in careers, particularly regarding small startups. Surprisingly, bookkeeping mistakes commonly arise from minor omissions and commissions that compromise the entire bookkeeping system. When it happens, a bookkeeping system loses value, making it easy for business owners to abandon proper accounting practices. However, even if you do not hire a full-time accountant, you can still make a bookkeeping system work for you. First, you must understand the critical elements of bookkeeping, as highlighted in this post.
Accounts Receivables
One of the most critical bookkeeping elements that any small-scale business owner should understand in detail is accounts receivables. It refers to the money coming into a business for services rendered or goods sold. The only way to keep track of accounts receivables is to invoice all your clients. Any payments must be recorded accordingly and the invoice matched to the deposit. You should also remember to follow up on pending payments and debtors to balance accounts receivables. Notably, most startups go slow on debtors as a way of attracting new customers. However, you should be clear on how long you are willing to wait to avoid throwing your accounts receivables and bookkeeping system into disarray due to bad debts.
Accounts Payable
On the opposite side of a bookkeeping system are the accounts payable. It refers to expenses a business incurs in day-to-day operations. Typically, accounts payable comprise money leaving business coffers, such as monthly utility bills, petty cash, licensing, rent, lease, raw material, and transportation. While accounts payable are not exciting, most business owners admit it is a crucial element of an elaborate bookkeeping system. The reason is that keeping track of your accounts payable clearly shows what you owe, allowing you to implement a payment system that maximises cash flow. For instance, constantly updating accounts payables on your books helps prioritise critical expenses while strategically delaying others for a company's good.
Payroll
Most small-scale business owners are unaware that payrolls can make or break a startup. Even if you have less than ten employees, keeping track of their work hours, days off, bonuses, and commissions help streamline your bookkeeping system. For instance, if you do not record the number of overtime hours an employee worked on a particular month, the chances are high that you will overpay or underpay them. Unfortunately, it creates an inaccurate picture of a business financial health, making your books unreliable for decision-making purposes. Moreover, making payroll an integral part of your bookkeeping system helps with business and workers' tax issues.