Bookkeeping is the process of keeping full, accurate, up-to-date business records. It involves making a record of the monies received by a business as well as the monies paid out. Bookkeeping covers money a company owes to vendors, employees, tax agencies, contractors, lenders, and any other individual or entity. Equally, accurate records of amounts owed to a company by outside individuals and organizations are also recorded in a company’s books.
The job of bookkeeping can be very time consuming. With no exceptions, every monetary amount that is paid or received must be recorded. Additionally, accuracy is of the supreme importance, making keeping the books in a quick manner a very bad idea. As business owners are often lacking in time, many choose to hire bookkeepers to keep company records well maintained.
Certainly bookkeeping is necessary and beneficial to business owners. Proper bookkeeping can help businesses effectively manage cash flow, stay well-informed on company performance, and develop plans for the future. Moreover, accurate bookkeeping is required by both federal and local tax agencies.
Of the many reasons for keeping accurate records, business and income taxes are among the most important. A company’s books are used to determine the amount of taxes the company must pay. They are also used in preparing 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, business owners are required to present accurate records for the tax agency’s inspection. In the United States, for example, the Internal Revenue Service requires business owners to keep financial records that are complete and up-to-date. State and city tax agencies may require businesses to maintain accurate records as well. Failure to observe acceptable bookkeeping practices may lead to significant monetary fines, penalties, or in severe cases, imprisonment. As a business owner, you want to do every effort to avoid being in these situations.