Bookkeeping is the process of daily recording of a company’s financial transactions into well-organized records is called bookkeeping. It may also allude to the various recording methods that companies have at their disposal. For several reasons, bookkeeping is a crucial component of your accounting procedure. You may produce precise financial reports that aid in gauging the success of your company when you maintain up-to-date transaction records. As a role of bookkeeping in business decision-making, it also proves to be useful in the event of a tax audit, secretarial audit, company valuation at the time of funding or winding–up, etc.
The role of bookkeeping in business decision-making is an international standard of the company’s internal and external operations, including cash flow, revenue management, accounting methodology, expenses and expenditures, etc. Small companies and organizations can measure their performance and assess challenge areas with confidence when their books are maintained correctly. It also offers a benchmark for its income and sales targets, as well as data for broad strategic decision-making and forecasting, hence highlighting the importance of bookkeeping for businesses. To put it briefly, it is essential to invest additional time and resources in keeping accurate records after a business is operational.
Type of Bookeping Techniques
Globally, there are two types of bookkeeping techniques that companies use as per the accounting norms and standards respective to their countries. The major types of bookkeeping techniques are –
- Single-Entry Bookkeeping System
It is a simple and straightforward type of bookkeeping protocol. In single-entry bookkeeping, there is only one column for financial entries. In the book, both revenue and expenditure transactions are recorded only once, in front of the value of the entry in a separate column. This type of bookkeeping method is suitable for small businesses, shops, or stores that do not have high or large-value transactions. It does not require any intricate accounting skills or the use of technology. Single-entry Bookkeeping systems, however, are mainly used for financial record-keeping and cannot be used for detailed financial analysis of the company.
- Double-entry Bookkeeping System
The Double-entry Booking System is the most popular bookkeeping technique used globally. Every transaction must be recorded twice, once as a credit item and once as a debit item. This approach gives a comprehensive view of the financial health of the company by guaranteeing that each transaction has an equal and opposite impact on the financial statements. Compared to single-entry bookkeeping, double-entry bookkeeping offers more thorough financial records, but it also requires more specialist accounting knowledge and software.
Importance of Bookkeeping for Businesses
The importance of bookkeeping services for businesses can be understood from the following points:
- Streamlining Financial Data
Bookkeeping is the organized and methodical recording of all financial activities, such as purchases, sales, expenses, and receipts. The financial health of the company is clearly shown by this well-organized and comprehensive data. In order to make wise judgments, it enables managers and owners of businesses to comprehend cash flow, income trends, and spending patterns. Business executives can quickly spot inefficiencies, assess the status of financial goals, and discover areas of strengths and weaknesses with the help of well-organized financial data. They are then better equipped to distribute resources and make the required corrections to continue on their current growth trajectory.
- Strategic Planning and Forecasting
Strategic planning requires a strong base of precise financial facts.The role of bookkeeping in business decision-making is making realistic budgets and predictions which requires decision-makers to have a thorough understanding of the company’s financial situation. These estimates aid in establishing realistic goals and schedules for expansion projects. Making important choices about resource allocation, investments, new product launches, and expansion are all part of strategic planning. Bookkeeping provides the necessary insights to assess the feasibility of these strategies and helps identify potential risks and challenges. It empowers businesses to be proactive and adapt swiftly to changing market conditions, giving them a competitive edge in their industry.
- Help make better Financing Decisions
Business owners must give prospective lenders, debtors, or investors a clear and accurate picture of their financial situation when looking for outside funding or investment. Financial statements and historical data are used by creditors and investors to assess a company’s risk and potential for return. Accounting standards compliance and the accuracy of financial statements, including income and balance sheets, are guaranteed by bookkeeping. Hence, the role of bookkeeping in business decision-making is establishing credibility and confidence from stakeholders increases the possibility that growth and scaling efforts will be successful.
- Helps Assess the Performance of the Organization
Another important role of bookkeeping in business decision-making is that it helps help effectively assess the financial performance of the company over period of time, which is recorded and highlighted through bookkeeping. Businesses can assess their progress toward growth goals by comparing financial data from various time periods. Management is able to regularly evaluate business performance thanks to key performance indicators that are derived from bookkeeping data. Performance evaluation serves as a foundation for employee incentives and awards in addition to measuring improvement. It further promotes corporate growth by cultivating a culture of accountability and performance-driven decision-making.
Role of Bookkeeping in Business Growth
Aside from discharging general business functions like maintaining records and compliance with statutory regulations, bookkeeping helps the company comply with various specialized functions and operations as well. Some of these key performance areas, highlighting the the role of bookkeeping in business growth are –
Tax Planning
Bookkeeping plays an important role in business decision-making as it helps any organization keep abreast of the latest amendments in tax and revenue regulations and enables it to take the best advantage of the resources available. Bookkeeping helps the company keep adequate tax records, which helps it effectively fulfill its obligations related to tax filings and annual returns.
Statutory Audit
Secretarial and financial audits are two of the most important annual compliances that any organization is required to undertake to reflect their annual budget and financial position and activities done in the previous year. It not only helps the upper management identify critical issues but also devise suitable strategies for the company’s future endeavours. Statutory books and records are the key documents that help the company navigate a route for maximum wealth management and enterprise development.
Valuation of the Company
The Valuation of the company is a method through which the total net worth of the company is calculated. Valuation of a company is paramount for innumerable functions such as fundraising, mergers and amalgamation, liquidation, winding up, attachment of assets, etc.
Conclusion
The role of bookkeeping in business decision-making is crucial since it refers to the financial and fiscal position of the company. On the basis of these statistics, the Chief Management Person, CFO, CEO, CXO, etc., assesses and strategizes the future path of the company’s welfare. Certified professionals, chartered accountants, auditors and cost accountants are equipped with the necessary expertise to provide professional bookkeeping and audit/accounting services.
We at Corpbiz are equipped with extensive functionality for bookkeeping and accounting. Corpbiz is a very efficient platform for financial administration. It gives companies the ability to simplify and expedite their bookkeeping processes, which greatly boosts productivity. Our team of experienced CAs, CS, Cost Accountants, CFAs would provide your company 360 degree audit and financial services to ensure your books are adequately maintained and comply with regulatory laws and standards.
Frequently Asked Questions (FAQs)
- What is the Role of Bookkeeping in Business Decision-Making?
Bookkeeping keeps the organizations prepared for tax audits and annual regulatory filings and ensures that all financial and statistical information is available to the regulatory authorities. The Role of Bookkeeping in Business Decision-Making is an international standard of the company’s internal and external operations, such as cash flow, revenue management, accounting methodology, expenses and expenditures etc.
- What are the different methods of accounting and bookkeeping?
There are two primary methods of accounting and bookkeeping used globally, they are single entry bookkeeping system and double entry bookkeeping system.
- Which Accounting Standards are used in India?
Indian accounting framework follows the Indian Accounting standards as prescribed by the Ministry of Corporate Affairs, in order to align Indian Accounting Principles with International Financial Reporting Standards (IFRS).
- Who are the persons concerned trained to undertake and manage bookkeeping operations in a company?
Bookkeeping and accounting services are provided by experienced and qualified professionals such as Chartered Accountants, Cost Accountants, Chartered Financial Accountants, Auditors, and Company Secretaries.
- Is Bookkeeping the same as accounting?
No, where a bookkeeper will collate and prepare your company's financial data in a presentable manner. An accountant uses the data collated from the bookkeeper to prepare accounts and assess the financial growth of the company.
- What are the most popular bookkeeping and accounting software used by organizations?
QuickBooks, Zoho Books, Wave, and Xero Accounting are some of the most popular bookkeeping and accounting software used by companies.
- How can Corpbiz help me maintain my Books Better?
Corpbiz can provide you and your organization with quality business services and professionals who can provide tailored services such as bookkeeping, audit, accounting, and financial modelling to enable your business to tackle both present and future concerns effectively. With our accounting and bookkeeping services, you can be sure that quality commitment lasts.
- What is the function of bookkeeping?
Bookkeeping is the fundamental activity which enables a business to keep track of its financial transactions. It includes recording cashflow statements, vendor payment settlement, salaries and payroll management, posting debit and credit items in a journal and reconciling and adjusting entries.
- What are the three main objectives of bookkeeping?
The three main objectives of Bookkeeping are
1) Recording the financial transactions in a systematic and analyzable format
2) To make summaries and reports of financial accounts and provide valuable data to the concerned departments, which is beneficial for making future plans and strategies
3) To detect potential risks and hazards and formulate mitigation strategies for possible pitfalls, including lapses in regulatory filing and disclosures, which are necessary for compliance with the law. - What is bookkeeping and its advantages?
Bookkeeping is the practice of regular and systemic recording of a company’s financial and accounting transactions as per the relevant accounting and auditing standards prescribed by law and regulations. Accurate and effective Bookkeeping helps the company maintain its records effectively and keep track of all major transactional milestones and debit/credit activities. Bookkeeping helps a company manage its expenses and revenue effectively by streamlining finance and accounting with other corporate operations. Booking also helps greatly during statutory audits, annual filings and compliances, inspections of books and financing /re-financing events, since it accurately denotes the company’s position with respect to revenue and expenses.
Read Our Article: Why Small Businesses Outsource Bookkeeping?
