Steps to a Complete Bookkeeping Cycle
The accounting process has several steps, the first one being bookkeeping. It is considered as the foundation of all accounting tasks. With this being said, if bookkeeping is not completed correctly, as the foundation of anything else, it will fall apart. Leading to the results, reports and taxes being incorrect. Numbers will not balance nor make sense, causing more issues and complications in the end. Bookkeeping allows companies to really keep track of all financial transactions, facilitating critical operations and business decisions. Any company, no matter how big or small, must keep records of things such as sales, expenses, salary payments, etc., anything that has to do with the company’s finances or transactions in and out.
Accurate bookkeeping is also as crucial to external sources of the company as it is with internal ones. Reliable and precise information that is easily accessible helps with conducting business professionally and making the right alliances with investors, financial institutions, the government, etc. Bookkeeping also helps company owners save time, but having someone knowledgeable maintains the organization of their finances.
What is the difference between a bookkeeper and an accountant?
First, many wonders: what is the difference between a bookkeeper and an accountant? A bookkeeper is someone that is responsible of the accounts and paperwork. Making sure that all financial information is gathered and entered correctly into what is known as the general ledger and then reconciling those company accounts to balance. Bookkeeping is considered to be very straightforward and objective. It provides a literal standpoint of where a company stands financially.
An accountant then uses the information gathered by the bookkeeper and interprets, analyzes, reports, and summarizes this financial data. This process is considered to be more subjective. An accountant then is generally responsible for preparing the incorporation tax returns both Federal and Provincial as well as the Financial Statements at the company’s end of the year.
What is bookkeeping?
The word bookkeeping is very literal; to keep the books. In other words, they are keeping records of the financial affairs of a business. In the accounting world, it is mandatory to keep the books clean, accurate and balanced. With this being said, clients must select an accounting/bookkeeping software of their choice. With today’s advanced technology, clients are opting more towards cloud-based software’s due to them being more time and cost-efficient as well as easily accessible by both parties.
The one thing many people struggle with is organization, which is why it is crucial to find an organized and efficient bookkeeper to complete a proper bookkeeping cycle. You need to make sure that all bank statements, credit card statements, invoices, and receipts are organized according to each month’s activity. These documents need to match the attached company statements, as well. If a client is using their personal bank accounts or credit cards for business purposes, then receipts and statements pertaining to the business transactions must be provided as well. A client’s cooperation in providing all company documents is essential in order for a bookkeeper or accountant to be able to complete a full bookkeeping cycle correctly. Once the file containing all of the information is organized by month and date, then well matched to the company statements, the file is ready to be entered in the general ledger.
Each software has its own general ledger where all the data is collected. All expenses and revenue are entered one by one by disbursement into the software. This is what the public ledger consists of. It is imperative to be meticulous when entering the information into the general ledger as well to select whether or not the expense or revenue being entered has a particular type of sales tax or if it is exempt from sales tax. Companies must also keep track of all their records passed the deadline dates in case they are audited, and they will be able to resubmit all of their information and statements.
Once all of the information has been entered into the general ledger by disbursement, company accounts are reconciled and shareholder loans and payables have been adjusted, the software then creates reports such as an income statement also known as a profit and loss statement, trial balance, balance sheet, and gst.qst reports. These are some of the most used reports by accountants and bookkeepers.
Once all of the entries have been done, the company’s bank and credit card reconciliations are completed. Reconciliation is merely balancing all of the company’s bank statements and credit card statements. This ensures that the money that leaves an account matches the money being spent. To be more precise, if the ending bank balance in a company’s bank account statement is showing 91.28$, the exact same amount needs to be shown on the balance sheet. If these two numbers do not match, it could mean that perhaps an entry from a statement was not entered at the time of preparing General Ledger, or there is a deeper issue that needs to be resolved. This leads to an investigation in order to find the discrepancy and then needs to be adjusted. The same rules apply for a company credit card. This is the main reason that it is essential to find a bookkeeper that is experienced and well organized as they handle your information.
If a client has to use their personal credit card or banking for business purposes, they must also provide these statements. An example of this would be if the client had to purchase office supplies, they would need to provide the receipts to the company, and this type of transaction is referred to as shareholder loans. They are entered into the general as a standard expense like all other company expenses. However, once it is time to finalize the bookkeeping process, all of these expenses are allocated towards the shareholder loan account. This means that the money the owner/client lent to the business by using their personal accounts were indeed for business purposes. An owner can claims these funds back from the company tax-free, this is referred to as a shareholder payable.
In bookkeeping, it is essential to keep track of accounts receivable and accounts payables on a regular basis. If these accounts are not cleared as soon as items are paid or as soon as revenue has been received, it becomes tedious and time-consuming to make them at a later date. Transactions end up piling up, which can lead to big mistakes and faults at the end of the year.
Also, when a client makes any GST (good and services tax – Canada) or QST (Quebec sales tax) payments or receives a GST or QST refunds, it is important to mark these transactions at that time in the accounting software so that the disbursements do not add up. This process is completed whether the payments or reimbursements are done in full or in installments.
Having your bookkeeping done accurately, it provides a company with a reliable measure of their performance, allowing them to make financial decisions that are best suited for the company, as well as paying the accurate taxes to the government. The bookkeeping process also provides companies with information on income goals, general strategic information and a benchmark to work with for revenue and income goals.
What does having a good bookkeeper mean?
When you start the search for a bookkeeper, it is crucial to find someone who is knowledgeable, experienced and someone that you can trust. Some think bookkeeping consists of simple data entry. But this is not the case at all. Bookkeeping is not all about numbers; you need to find someone that is professional, understands the fundamentals of accounting and who is a fit for your company’s needs. In the end, they will most likely be the reason a company is audited based on how they entered the information that was gathered. However, other factors do contribute to a company being audited, such a providing the wrong information to their bookkeeper or other financial factors can play a role as well.
When numbers do not add up, your bookkeeper will be the person to investigate in order to help the company find solutions, or if there are any unresolved questions, they will do their best to be able to provide accurate answers. As it may be easier to enter several things at once, it is crucial for your bookkeeper to do one entry at a time so that the general ledger is detailed.
Bookkeepers also keep a close eye on the company’s finances at all times to manage their cash flow. This is generally completed by them without being asked and ensures that they remain on top of everything happening within the accounts.
Communication is also a key when it comes to the client and a bookkeeper/accountant relationship. Being able to discuss your wants and needs for your company and having the bookkeeper understand this is crucial to a company’s growth and well-being rather than just maintaining it at where it is. When your bookkeeper is unsure of what is being asked of them, it is crucial that they feel comfortable enough to ask for clarification. Having a good bookkeeper or accountant to perform the tasks efficiently and accurately will make the process that business owners find tedious a whole lot easier.
Tips on finding a good bookkeeper for you
Find someone meticulous with detail a meticulous bookkeeper is crucial because as they will not let any information fall into the cracks. Bookkeeping is known to be repetitive and routine work if a company’s activity month to month is relatively the same. In other cases, month to month bookkeeping can be drastically different. Therefore, the emphasis on finding a detail-oriented and experienced bookkeeper is the key to accuracy. By finding someone who is organized, you will reduce the chances of mistakes happening and overall making the process much more pleasant for everyone.
Ask for referrals, it has become effortless for individuals to say that they are experts in certain aspects and to claim that they are experienced with bookkeeping tasks. Often, once hired, clients come to realize that this is not the case. This is why it is strongly recommended to ask for references and check them prior to starting the hiring process, or hire an accounting company who can assign a bookkeeper to your company file.
Consider the accounting software they use
In most cases, clients already have a software they are using to conduct their bookkeeping, which the bookkeeper or accountant continues to work with. In other cases, if it is a new business client may ask which software to use. Clients should always and be advised on what has been completed and results of monthly, quarterly or annual business activity. It is always good for clients to understand the basics of the software used as well as being able to have access to the software at all times. If it is cloud-based software, then clients can login remotely as long as they have their login and password. If it is a desktop version of a software, best for the client to always have an updated backup portable copy.
Look into pricing as individuals, we are always looking for the best deals. When it comes to bookkeeping, this may not always be the best solution. Although a price may be enticing, it is essential to look into seeing that they are a reputable company/bookkeeper. Sometimes, it is more beneficial to pay a little more and have someone is experienced, organized, meticulous and enjoys what they do than cut costs, which may lead to issues in the long run.
Consider the kind of experience they have
When looking for a reputable bookkeeper, it is essential that they also understand the needs of your company and have experience in the tasks that they are expected to do. Although they may excel in a specific department, they may not have the knowledge that you require for your company’s needs.
Keep an eye out for specific skills besides being organized and meticulous, it is crucial for your bookkeeper to have excellent qualifications as well as experience. Look for things such as problem-solving skills; are they able to overcome obstacles or challenges thrown their way. They should understand your needs by asking relevant questions and clarification when needed. They need to have excellent communication skills and have good time management skills in order to complete work in a timely manner. They must understand the concepts of bookkeeping tasks. Providing available working hours for you to meet and discuss. They should have good knowledge of accounting software that you use and be up-to-date with the accounting and bookkeeping process and any changes that are happening in regards to finances or by government laws. They should also be someone you feel comfortable with and can trust since you will be discussing the private financial affairs of your company. Finally, yet importantly, they should enjoy their profession.
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