The importance of bookkeeping is known to every company. It is the backbone of every financial data, and if this process is not performed correctly, the company may face huge problems in the future. Proper bookkeeping will allow the management to understand the financial health of the company and will also allow the management to prepare a strategy for growth and expansion in the future.
Many people use the terms Bookkeeping and Accounting interchangeably, which is wrong. There is a difference between both the activates, which may be subtle but can create a very big difference. Both Accounting and Bookkeeping are defined below.
What is Accounting?
Accounting is a process in which the management takes care of the transactions of the business. This includes recording, summarizing, analyzing, presenting, and reporting the financial data of the company to the respective parties (board of directors, investors, shareholders, etc.)
The process of accounting is a comprehensive task and comprises of more than one task. This can be delegated to a single entity or can be broken into different smaller jobs, and the accounting job can be outsourced.
What is Bookkeeping?
Bookkeeping is a singular process in which all the transactions of the company are recorded by either a singular entity. The process of bookkeeping may look a lot similar to Accounting, and this is because Bookkeeping is a part of the Accounting Process.
Proper Bookkeeping forms a base for preparing other financial documents of the business, such as Auditing reports, etc.
In the next part of the blog, we will be seeing what are some of the most common mistakes which a bookkeeper should avoid.
Common Bookkeeping Mistakes
As bookkeeping comprises maintaining and recording all the financial transactions of the company, it is regarded as a very important process. Some of the mistakes which should be avoided by a bookkeeper are:
1.Not Updating Transactional Records of the Company
Every company makes certain transactions, and this transactional data can provide the fodder for preparing a better future for the company. This is the reason a bookkeeper should update this transactional data. This transactional data will also form the basis for preparing different other financial reports such as reports for filing for taxes, audit reports etc.
2.Reconciling the Bank Account of the Business
Reconciliation here refers to the preparation of a Bank Reconciliation Statement (BRS). In a bank reconciliation statement, the bookkeeper must check all the transactions noted with the bank and also check the company books as to all the transactions are mentioned. The main objective of creating a Bank Reconciliation Statement is to check if the bank balance and the cash balance mentioned in the books are the same.
3.Properly categorizing the Expenses of the Company
One of the biggest jobs of a bookkeeper is to accurately categorize all the transactions of the company. Correct categorization of the various monetary transactions of the business will help the management in determining which transactions can be avoided in the future and which ones should be focused upon.
4.Making Mistakes in Recording Business Transactions
A bookkeeper can make a mistake, either accidentally or deliberately, and record the wrong transactions. Recording a wrong transaction or recording in an incorrect manner will affect the profitability of the business and can lead to dire consequences.
5.Pure old Fashioned Lethargy
Lethargy should be avoided by everyone at all costs. A bookkeeper may think that he will record the transactions later and forgets to note the transaction. This will greatly affect the balance sheet of the business.
Here are certain traits that should be avoided by a bookkeeper so that the business started by an entity reaches its fruition. Many organizations need to handle their transactions in a clear and concise manner, which will help in increasing the profitability of the company.
In order to take care of the financial aspects of the company, you should avail of the services pf a reputed firm which will help in discovering new and innovative ways to provide a solution to a problem. If you are looking for such a company in the UAE, then JAXA Chartered Accountants can be a very good fit for your company.
For details on the services provided by JAXA, Contact Us. We will be happy to help.