Category: Bookkeeping Tips

What is Bookkeeping? -Bookkeeping Tips for Beginners

What is Bookkeeping? -Bookkeeping Tips for Beginners

What is bookkeepin?
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What is bookkeeping? Bookkeeping is important as businesses in the United States are required by law to keep their financial information in a format that allows them to file their state and federal income taxes each year.

What is Bookkeeping?

Financial information includes the following:

  • Accounts receivable – this is what is owed to you (customers.)
  • Accounts payable – this is what you owe others (vendors.)
  • Cost of goods sold
  • Other expenses
  • Bank accounts
  • Credit cards
  • Depreciation
  • Adjusting entries
  • Financial reports (Income Statement & Balance Sheet.)

There are two types of accounting or bookkeeping. The first is the cash-basic accounting. When using the cash-basis accounting, revenue from a sale is only recorded once the cash has been received. The same is true of an expense.

It is only recorded once the expense has been paid in cash.

Most businesses use accrual accounting. The major difference between accrual accounting and cash accounting is that in accrual accounting, revenue is recorded when it is earned even if it hasn’t been received yet, and expenses are recorded with they are incurred even if they haven’t actually been paid yet.

What is Bookkeeping – Examples to Explain the Difference Between Cash-Basic and Accrual Accounting

Here is an example for you. Let’s say you use the cash-basic of accounting, and you have a lawn care business. Each Monday during the summer you go and mow Mr. Smith’s lawn.

On this specific Monday, July 17th, when you are finished, Mr. Smith pays you $50.

With the cash-basic of accounting, you would report the $50 on the day you mowed the lawn. You would show that you did the work and received the money.

However, let’s say Mr. Smith is going out of town for the month of July, so he wants to pay you for all four weeks of mowing up front. On July 1st, he gives you $200 ($50 x 4 weeks in the month.)

Now, you haven’t actually completed the four weeks of mowing yet, but if you are using the accrual accounting, you would record all $200 of income on the day you received it, July 1st. With the cash-basis of accounting, you would only record each $50 after you had completed the work each week.

It just goes to show that bookkeeping is much more involved than some realize. Business owners often make the mistake of thinking that bookkeeping is simply data entry, but that couldn’t be further from the truth.

That’s why a¬†bookkeeper should have more than simple basic bookkeeping skills and instead have a good understanding of acceptable accounting practices as well as debits and credits and how to do journal entries.

They should also be able to read a financial statement and help the owner of the company make decisions for the company that will allow the business to grow and remain profitable.

Looking for more information on bookkeeping for beginners? If so, you might want to check out this home study course. It’s full of great information and should get you up to speed quickly: Full Charge Bookkeeping, HOME STUDY COURSE EDITION: For the Beginner, Intermediate & Advanced Bookkeeper

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