Bookkeeping is an essential element of accounting. There’s some amount of bookkeeping that you will, necessarily, have to manage yourself. Keeping receipts? That’s a part of bookkeeping. Filing them appropriately? That’s part of bookkeeping. Bookkeeping is, at its most basic, the task of compiling all of your company’s financial transactions and making sure all of the transactions add up. Any task that involves recording your company’s transactions might be considered bookkeeping.
One of the most important elements of bookkeeping is maintaining and organizing records. That means keeping all of the receipts you get for payments related to business activities, from business lunches to office supplies. You’ll want to keep the physical copies sorted into folders (by date/category is a good place to start), but you’ll also want to take pictures of the documents with your phone. There’s bookkeeping software that can help you organize and track your records. When you use cloud-based bookkeeping software, you can access these files remotely, which is a boon if you travel often or have staff who work remotely. Cloud accounting services are the future of bookkeeping, and their scalable nature makes them useful for businesses of almost any size and type.
Single vs. Double-Entry Bookkeeping
Single-entry bookkeeping is simple. You make a $30 sale, you add +$30 dollars to the book. You pay someone $100, you add -$100 to the book. This method of bookkeeping is almost never used, however, because it doesn’t give you the most accurate portrayal of how money is moving through your business.
In double-entry bookkeeping, any amount you add in one area is subtracted in another. For example, if you made a $30 sale, you might add +$30 to cash, but -$30 to inventory. There are a lot of reasons to use double-entry, but one of the most important is that it’s self-verifying. All credits (negative transactions) and debits (positive transactions) in your accounts should be at $0 when added up. That’s because anytime you make a debit in one account, you make an equivalent credit in another account.
Bookkeeping and Taxes
One of the reasons it’s so important to keep your documents is that there are a variety of tax deductions available for business expenses. These expenses can range from work-space-in-the-home expenses (where you may be able to deduct costs like home electricity or rent) to office expenses like paper clips. While taking pictures of receipts then throwing them out may seem like the most efficient way of going about bookkeeping, remember that the CRA will sometimes ask for paper documents, so keeping physical copies of invoices, receipts, and other recorded transactions is essential.
This is only the tip of the bookkeeping iceberg – we haven’t even begun to talk about the various accounting methods that play into bookkeeping. Your accounting is only as good as your bookkeeping, so it’s important to have a solid foundation. Contact Compass Accounting today and let us help you with all your bookkeeping needs!