8 min read
- Ensuring full compliance with the law
- Enabling accurate financial decisions for the company
- Maintaining complete and up-to-date records of financial transactions
- Offering an accurate picture of the financial position of a company
- Listing all transactions chronologically and identifying any mistakes or frauds
- Single-entry bookkeeping is a basic form of bookkeeping that records only one side of the transaction and is suitable for small businesses.
- Double-entry bookkeeping involves listing the corresponding credit for every debit and is the universally accepted system for recording financial transactions.
1. A central source of all transactions
Bookkeeping serves as the record of every financial transaction your business has made from the source of the transaction, such as receipts and invoices. With all purchases and sales listed in one place, drawing up full financial statements becomes easier.
2. Reports preparation
Bookkeeping provides the information necessary to prepare reports on net profit or net worth. This is important for the business’ understanding and serves as a reference for banks or venture capitalists that the business might be seeking funds from.
3. Straightforward budgeting
With all details of incomes and expenses in one place, your business can easily plan future expenses and set reasonable budgets. Otherwise, budgeting becomes all about guesswork, which can lead the business into murky waters later on if there is not enough cash.
4. Flowing working capital
Having accurate and updated books of records on hand allows businesses to know when to remind their debtors to pay up and when it is time to sort things out with their creditors. This ensures an accurate inflow and outflow of working capital.
5. Errors spotted sooner and breezy auditing
6. Accurate tax filing
With regular bookkeeping, you will have all their records for the end-of-year tax filing. You will be able to file proper amounts and thus avoid being penalised by the HMRC.
Even if the HMRC does come knocking, you will have all the financial information ready for examination. That is the importance of bookkeeping!
In addition, there are several taxes that a small business will need to pay at different points throughout the year, and bookkeeping allows you to calculate accurately what you owe. In a nutshell, bookkeeping is helpful!
7. Correct tax deductions and VAT payments
8. Easier goal-setting
Accurate and up-to-date financial records allow your business to set reasonable short-term and long-term targets. Whether you are planning to set up a limited company or you have your sights set on expanding your territory, bookkeeping lets you know at a glance whether it is feasible for you to do so.
9. Smarter decision-making
10. Legal requirement
Maintaining complete books of accounts and financial statements is mandatory under several laws, especially for industries like banks or insurance companies. Moreover, the new Making Tax Digital initiative means that businesses will have to file all their taxes digitally, which is a much easier task if they already record all their transactions in detail.