What is Bookkeeping?

Bookkeeping functions and their importance.

Bookkeeping is the organized recording of the financial transactions of a business, including incomes and expenses. It helps businesses to determine their performance and also to make key decisions. Proper bookkeeping makes it easier for businesses to keep track of all their financial information.

Bookkeeping records transactions such as purchases, sales, receipts and payments made. The person who does the work of bookkeeping is called a bookkeeper. The bookkeeper records every financial transaction into the appropriate daybook such as petty cashbook, customer ledger, suppliers' ledger and the general ledger. Records that are kept and maintained by bookkeepers include:

  • Sales and purchases
  • Bank statements
  • Payroll and employment taxes
  • VAT Return preparation
  • Profit and loss statements
  • Cash flow analysis
  • Accounts receivable and account payables
  • And many more

What are Bookkeeping Services and why are they important?

The two major purposes of bookkeeping are to track the financial activities of a business and to measure its performance. Bookkeeping helps you to know the financial position of the business i.e. to know if the business is making profit or losses. However, this cannot be known without the appropriate bookkeeping services. The services include:

Compiling Source Documentation

Every business transaction is expected to have evidence such as a sales invoice or a receipt. This is known as the source documentation for the transaction and it contains the date the transaction took place, buyer/seller, amount, and product/service. Bookkeeping starts with gathering the necessary source documentation.

It is necessary to have proper records of these documents so as not to lose them. Although, where there are no physical documents, bank statements can be used. However, it is important to always keep all business documents (invoices, receipts.) safe so they can be easily accessed when needed. You can also backup of your documents; take their pictures, store them on Pendrive or scan them on your PC.

The information on the source documents is used by the bookkeeper to start the bookkeeping process. It is very important to ensure that all records are accurate and well kept; otherwise you could be removed as a director and may also be fined up to £3,000

What is Bookkeeping?

Classifying your business transactions

Each of your business transaction is classified into appropriate categories. The five main categories are assets, liabilities, equity, and expenses. The categories can be further subcategorized. Assets can be categorized into current and fixed assets and liabilities can be categorized into short-term and long-term liabilities. This will help you to know what you owe and also what you own.

Reconciling your transactions

The bookkeeper will match business transactions on your accounting software with the transactions on your bank statements to ensure the two accounts are equal. Reconciling your transactions helps to note financial errors and make necessary adjustments.

Prepare your financial statements

The previous three steps provide the data that will be used to prepare your financial statements. The three major financial statements that should be prepared are the balance sheet, income statements (profit and loss statements) and cash flow statements.

The balance sheet will contain information about your assets, liabilities, and equity. The income statement will show your profit or loss for a certain period of time while the cash flow statement will show cash from operations, financing and investments. The financial statements will help you to evaluate your business's financial sustainability and performance.

Bookkeeping with Lukro Ltd

Save yourself from the stress of missing financial data, voluminous accounting books, and ledgers. Lukro Ltd will help you take care of your bookkeeping needs. We leverage on the internet and we're able to offer almost all our bookkeeping services online. This helps us to eliminate time and cost of dropping of documents.

We offer a cloud-based accounting system that simplifies the processes of recording your income and expense, preparing financial statements as well as automated bank reconciliation. Our online accounting software includes QuickBooks, Sage and Xero. With our cloud accounting software, you can access your accounts anytime and anywhere on a computer, smartphone or tablet.

Contact Lukro Ltd now, we are always willing to help you find the best solution, whether it is weekly, monthly, quarterly or annual bookkeeping.

Written on 2019-07-15

This article was written by Agnieszka - a professional bookkeeper with several years of experience in the financial service industry. Agnieszka works with Lukro Ltd, the accounting and bookkeeping company provides professional and friendly bookkeeping and business support services to individuals, sole-traders, partnerships, and small businesses. We help welders, plumbers, engineers, electricians, hairstylists, beauty therapists and many more.

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