Bookkeeping, commonly referred to as keeping the books, is the process of keeping full, accurate, up-to-date business records It is the process of recording and classifying business financial transactions (activities), maintaining the records of the financial activities of a business or an individual.

A bookkeeper assists you in effectively managing your company’s accounting records, receipts and payments, income and expenditures. stay abreast of profits and losses. Furthermore, accurate bookkeeping is required by both federal and local tax agencies.

Bookkeeping involves making a record of the monies received by your business as well as the monies paid out. It encompasses money your company owes to vendors, employees, tax agencies, contractors and any other individual or entity. Likewise, accurate records of amounts owed to your company by outside individuals and organizations are also recorded in a company’s books.

A proper bookkeeping system helps to determine the amount of taxes your company must pay. They are also used in preparing your tax returns. Sometimes, a tax agency may decide to investigate the information reported on a tax return or other type of tax-related document. In such cases, you are required to present accurate records for the tax agency’s inspection. Failure to do so could lead to hefty fines, penalties, or in severe cases, imprisonment.

What is the purpose of maintaining accounting for my business?

When you plan to start up a business, you need an accounting system in place. This assists an accountant produce accounting record of all the assets, liabilities, revenue and the expenditure of your business on a daily basis. Maintaining this data is mandatory because you will need it when you file for tax returns. You might also need it for legal purposes. If, a company wants to borrow from a financial institution to expand business, this data can help it get one.

Another important purpose of maintaining an accounting system is that it helps an accountant by providing with an aid to asses business’s performance. An accounting system provides you with information about your business that will help you assess the performance of your business.

Infotax square provides you accounting services for recording, classifying and summarizing your company’s data and interpreting them for internal and external end users.

What type of accounting is right for my business?

The first decision you must make is the type of accounting method that is right for your business. Accounting methods determine how and when you record your revenue and expenses. The two main types of accounting methods are cash accounting and accrual accounting. Cash accounting is recommended for small businesses. It requires that you record the transactions when you have actually made or received the payments.

Accrual accounting is usually the choice for large entities. With this accounting method, you record each transaction as it occurs, whether or not you have actually made or received the payments. You may choose to use a mix of the two accounting methods. For example, you may use accrual accounting to record revenue and cash accounting when recording bill payments. You must choose one of these accounting types the first time you file a tax return.

We help you choose between the accounting method depending upon your business structure, size of your company and volume of transactions your company is undertaking.

How would I choose accounting methods? (Like Accrual, Cash and others)?

The decision to choose accounting method for a business depends upon the size and nature of the entity, volume of transactions it carries and complexity of the transactions involved.

Some business will be required to use the accrual method of accounting while others may be granted an exception and allowed to use the cash basis along with some special rules.

Cash Method

This is the accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. It is, however, simpler than the accrual basis accounting and quite suitable for very small firms which transact business mainly in cash. Many small businesses start out using the cash basis rather than the accrual basis of accounting.

Accrual Method

Under the accrual basis accounting, revenues and expenses are recognized as follows:

Revenue recognition: Revenue is recognized when both of the following conditions are met:

1. Revenue is earned.
2. Revenue is realized or realizable.
3. Expense recognition: Expense is recognized in the period in which related revenue is recognized
4. Accrual basis of account ting is required by law to be used by many professions and businesses and is the most commonly used method of accounting.

What is accrual basis accounting?

The accrual method or basis of accounting records income in the period earned and records expenses and capital expenditures such as buildings, land, equipment, and vehicles in the period incurred.

The purpose of the accrual method of accounting is to properly match income and expenses in the correct period.

In order to accomplish this, the accrual method of accounting records revenue as earned when the product and/or service is shipped or rendered and invoiced (billed) to customers. Likewise, expenses and capital expenditures are recorded as incurred when the product and or service is shipped or rendered and invoiced (billed) by the supplier.