Thursday, July 26, 2007

Charting Your Course with Good Bookkeeping

When the exact longitude and latitude of the ship are known it's possible for the captain to chart an accurate course across rough seas. The general manager of a business is like a ship's captain. Knowing your location and direction is fundamental for charting the right course in sailing and in business.

The charts for a business are its income statement and balance sheet. A good general manager uses these to know exactly where the business is and where it is headed. Armed with this information, better business decisions are more likely. A competent bookkeeper provides these reports accurately and in a timely fashion.

It is the job of the bookkeeper to accurately state the condition of the business in a real time basis. The bookkeeper records all changes in the financials of a business using a double entry accounting system based on the fact that Assets = Liabilities + Owner Equity. All business transactions are accounted for using this system.

Some basic tools of the bookkeeper are:

  • Ledgers such as accounts receivable, accounts payable, fixed assets
  • Journals for recording each financial transaction
  • Vouchers such as checks and numbered bills for services or material
  • Invoices representing sales of products or services
  • Journal entries (recurring and special)
  • Trial Balances for interim reporting
  • Financial Statements beginning with the income statement and balance sheet

Four important features of competent bookkeeping are:

  1. Timeliness:
    It's generally important to record transactions on a timely basis. This means that invoices and bills are posted by the next business day. However, on some instances similar transactions are processed in batches.
  2. Account Reconciliations:
    It's also critically important for accounts to be reconciled monthly to assure accuracy. For the cash to be right, for example, check books must be reconciled to the bank statements and outstanding checks must be identified.
  3. Analyzing Accounts:
    For payables and receivables, it's important to know the age of the bills and invoices. How much is “current” and “overdue” is basic to staying on top of your credit rating and vendor relations. For receivables it's important to know how you are doing in collecting funds from each of your customers.
  4. Matching:
    Revenues in a fiscal period must be matched to expenses incurred in that same period. When items don't match in the same period, inaccurate income statements are the result. This leads the general manger to miscalculate the direction of the business.

Good bookkeeping is the foundation of good accounting. It is also fundamental to help the general manager steer the business through rough seas and into calm waters.

To find a bookkeeping service for your business visit the Accounting Aisle.



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