The Role of Book Keeping In Small Businesses

Book Keeping is the recording made of all financial transaction including the inflow and outflow of money in a business or a private institution. Book keeping is perhaps the most important part of any institution with the help of which it gets a correct picture of the financial situation of that institution. But the time and effort involved in maintaining books makes many small businesses to neglect it. But, if they understand the true importance of book keeping then they would take extra care to maintain their books and keep them in perfect order.

Book keeping involves lots of entries including the classifying, analyzing and reporting of financial data. Book keeping is said to be the first step towards accounting process. The book keepers records in a chronological manner all transactions, sales and purchase reports, cash receipts, cash disbursement, and others in a maintained journal and regularly post the journal entries to a general ledger of accounts. The accountants of any company use this ledger to prepare their monthly financial statements. Hence keeping a good book of records is mandatory for good and accurate accounting work.

Any company especially a small business enterprise will need outside funds to meet their various needs and also to grow their company into a bigger enterprise. But, the lenders and investors will want to look into the company’s book before deciding to part with their money. An accurate and complete book will give them a better idea of the company’s status and convince them of your company’s potential

Book keeping is important for generating all the information that you will need to manage your company. The financial records in your book help you to anticipate and thereby avoid problems related to cash flow.

You need to know your company’s accurate status of income in order to calculate the amount that you owe to the IRS. Again, the records of cancelled financial drafts and receipts helps a company in backing up whatever deductions and tax credits that it can get.

A good record keeping protects you from penalties and fines at the time of an audit.

Thus, it is evident that book keeping plays a very vital role in small businesses. With the help of book keeping the company tracks all the inflow and outflow of data. It helps in managing the company. It helps in generating loans; and is also needed at the time of audit.