Bookkeeping & Accounting

A business starts with the intent to grow and earn profit, and sometimes with the goal of providing products or services that help address societal problems. For a business to grow effectively, a good strategy is essential. However, how can a business owner identify unnecessary expenses, returns, and operations that contribute to profitability? Bookkeeping and accounting are crucial tools that sustain a business. Bookkeeping involves storing various business activities, while accounting provides a structured format to analyze those activities.

Bookkeeping vs. Accounting: Understanding Their Roles

What is Bookkeeping? Bookkeeping involves recording day-to-day transactions in an orderly manner, serving as a critical component for gathering the financial information needed to run a business. It is a subset of the accounting process. Bookkeeping includes:

• Recording daily financial data.
• Providing a base for the preparation of financial statements (balance sheet, cash flow statement, income statement).
• Maintaining and balancing journals, ledgers, and historical accounts.

Objectives of Bookkeeping The primary objectives of bookkeeping are:

• Complete recording of transactions: Maintaining precise and comprehensive records of all financial transactions in a sequential manner.
• Correct financial position: Discovering the complete impact of all financial transactions of a company, reflecting the financial effect of all business transactions that have taken place in a financial year.

Importance of Bookkeeping A business can easily trace the origin of any financial transaction with a proper bookkeeping system. It aids in tracking the direction of business growth, as bookkeeping provides a foundation for accounting. It is also a legal requirement for companies registered under the Companies Act 2013, banks, insurance companies, and others governed by special acts. Types of Bookkeeping There are two types of bookkeeping systems:

1. Single-entry system: A traditional method used mainly by small businesses with minimal transactions. It records only one entry for each financial transaction, maintaining purchases, cash receipts, payments, and sales.
2. Double-entry system: This system records a double effect for each financial activity or transaction, providing balances and checks by recording a corresponding credit entry for every debit entry. It is based on the duality concept and is universally accepted.

Reasons for Hiring a Bookkeeper Bookkeeping ensures requisite information related to operations and finance, which is essential for making investment assessments. It is a mandatory requirement for many business entities to maintain an appropriate book of accounts. According to Section 128(1) of the Companies Act, 2013, every company must prepare and keep books of account and other relevant books and papers and financial statements at its registered office, although they can be kept at another place in India as decided by the Board of Directors. What is Accounting? Accounting uses financial data compiled by a bookkeeper or business owner to produce financial information in a generally accepted and standardized form. It is more subjective than bookkeeping, which is largely transactional. Accounting involves:

• Making adjusting entries to record expenses that have occurred but aren’t yet recorded in the bookkeeping process.
• Preparing company financial statements.
• Communicating financial reports to various users.
• Assessing business performance and improving controls.
• Providing information necessary for tax compliance.

Objectives of Accounting Accounting converts information from the general ledger into a version that reveals the larger picture of the business and its progress. It evaluates financial transactions and prepares financial reports to aid in business decision-making, offering a better understanding of actual profitability and awareness of cash flow. Importance of Accounting Accounting helps a business take the right steps to control asset reduction and liability increase. It can prevent money defalcation, make cost control easier, and ensure accounts are kept in accordance with accepted accounting policies and regulatory authorities. The accuracy of accounts can be assured by preparing a trial balance, and the financial position of a business can be ascertained by preparing a balance sheet. Maintaining orderly accounts is beneficial when legal authorities demand financial data for various reasons. Reasons for Hiring an Accountant Accounting involves routing income and expenses related to the business. An accountant can record accounting transactions and suggest financial strategies. At TrueConnect®, our team uses accounting software that prepares records accepted by Indian statutes. We customize reports based on client needs and provide them on demand. Our professionals deliver top-notch services, dedicated to client satisfaction. Connection Between Bookkeeping & Accounting Bookkeeping is a part of accounting, and accounts are prepared from the information gathered in bookkeeping. The relationship between these functions ensures the business is moving in the right direction. Bookkeeping provides proper records of all financial transactions, while accounting involves organizing, summarizing, classifying, and reporting financial transactions. Accurate bookkeeping ensures accurate accounting. When to Hire Bookkeepers & Accounting Experts Even businesses with minimal operations need bookkeeping and accounting services. The need for these services varies based on the size and scalability of the entity. Accounting is central to any business, with separate departments in large entities and outsourced services in many medium and large enterprises. TrueConnect® believes business owners should focus on growth rather than accounting compliances. We understand the value of our clients’ limited resources and provide the best accounting services to support their needs.