What is Bookkeeping?

Bookkeeping is one of the most important attributes to learn if you want to run a successful business since it allows you to keep track of your money on a daily and long-term basis.

Bookkeeping Tasks

Bookkeeping tasks must be completed on a daily, weekly, and monthly basis. Making simple modifications to your routines to remain on top of weekly bookkeeping responsibilities may be as easy as devising a method that fits for your work style and schedule.

Weekly Bookkeeping Tasks

Bookkeeping duties offer the records and analysis required to comprehend a company’s financials.

1. Bills to Enter and Pay

Small company expenditures may rapidly mount up due to utilities, rent, and invoicing from vendors. Vendors appreciate immediate payment and staying on top of your bills is a certain way to maintain a good reputation and manage your money.

While many bills are due on a monthly basis, others may be due as soon as they are received. As a result, it’s critical to check invoices regularly for inaccuracies, note the due date, and arrange payment accordingly. Paying early not only avoids late fines, but it also allows you to take advantage of early payment discounts. 

It’s also easy to ensure that accounts have enough money when bills are recorded as a weekly bookkeeping activity.

Bill entry may be part of the everyday routine for larger firms.

2. Make your deposit

Small firms should make weekly contributions at the very least. Deposits can be done on a daily basis for firms that receive the majority of their payments in cash or paper checks. 

It’s important to make timely deposits in order to keep your cash on hand and your records up to date.

Mobile deposits may be sufficient to handle the inflow of paper checks and avoid a trip to the bank for firms that predominantly accept electronic payments.

3. Invoices should be sent

Consumers and clients paying on time are critical to cash flow. To help reduce the amount and frequency of late payments, create and submit invoices every week rather than at the end of the month. Include a due date and payment terms to ensure that customers know how and when to pay you; this will help if you have clients that are known for being late with payments.

4. Organize your transactions into categories

Knowing where your company’s money is going is essential to budgeting. Organizing each cost into categories is a good approach to keep track of your spending. The categories used are determined by the sort of small business and its requirements. The following are some examples of potential categories:

Payroll

Employee advantages

Utilities

Payments for rent or a mortgage

Insurance

Weekly transaction categorization will aid in maintaining accurate records and highlighting any problems or red flags; it is more convenient if you can maintain them daily.

5. Make Entries in the Journal

Any financial transaction done by a firm should be accompanied by a diary entry in the general journal. This keeps track of a company’s transactions in a chronological order.

In most cases, business journal entries use the double-entry accounting system, which includes balancing debits and credits across accounts. Assets, liabilities, shareholder’s equity, costs, and income are the five categories of accounting in this system.

6. Examine your inventory

Small firms that sell things must keep track of their inventory and register it. A weekly inventory assessment will help you figure out when extra goods are needed. Having up-to-date stock information is also essential for detecting theft and informing staff when an item is back in stock, so they don’t lose out on possible sales.

Certain components of inventory management should be done more regularly than once a week to maintain stock information up to date. For firms with larger sales volume or perishable commodities, tracking inventory receipt and sale should be daily bookkeeping activities. Inventory management software that links with your bookkeeping software can help keep things simple.

7. Produce Reports

Creating financial reports should be on a small business’s must-do list when it comes to bookkeeping. Some reports benefit from being conducted daily, weekly, while others might be run monthly.

Daily

Daily transactions for both customer and internal accounts should be maintained on a daily basis. Sales, costs, and payments are examples of such transactions. It will be important to keep track of transactions.

Records and files should be maintained daily. Receipts, invoices, and reports should be filed daily so that your documents are well organized. 

Weekly

Accounts Receivable: This report shows how much money a small business owes them, such as unpaid bills. Following up on late payments in a timely manner can be aided by keeping track of accounts receivable on a weekly basis.

Examining how much of each product you’re selling is essential for making short-term decisions.

Monthly

Cash Flow Statement: This document assesses a company’s cash flow management, which may be defined as its capacity to create cash to pay debts and meet operational expenditures. It’s beneficial.

Accounts Payable: This statement summarizes a company’s assets, liabilities, and equity in order to provide a snapshot of its financial position at a given point in time. A balance sheet may illustrate a company’s debt-to-asset ratio and net value at a glance.
The profit and loss statement:  indicates how much money a company has made after all expenditures have been deducted. Because many costs, such as electricity and rent, are paid monthly, a profit and loss statement prepared once a month will provide a more realistic view of a company’s bottom line.

8. Examine the timesheets

Small businesses with employees must incorporate payroll in their bookkeeping. Employee timesheets are checked once a week to keep track of their hours worked, which makes payroll calculations for compensation, tax deductions, and accrual of benefits like vacation and sick days much easier.

Payroll management software may be quite beneficial in this regard, and the majority of the major solutions link with popular accounting software like QuickBooks and Xero. There are even free payroll applications available to assist you with simple chores. The more processes you automate, the easier it will be to maintain track of your finances on a weekly basis. 

9. Bank Accounts Should Be Reconciled Daily and Weekly

Businesses may balance their bank accounts daily or weekly rather than waiting for a monthly bank statement. Businesses may compare their bank account balance to their book balance as often as they desire by simply connecting into an online bank interface. Weekly auditing allows organizations to quickly rectify any irregularities and discover fraud before it becomes a bigger problem.

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KLOUDAC is a recognized accounting firm in Dubai, UAE with 15 years of service experience. We have built connections with over 500 customers. It has also won the certification of Xero Payroll and certification of Xero advisor from the world leading online accounting software – XERO. Moreover, KLOUDAC is a golden champion partner of Xero.  Accounting and Bookkeeping is more convenient for the SMEs via KLOUDAC since they provide their clients with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, Recognized accounting software and more.

What are financial reports?

Financial reporting is a common accounting practice in which financial statements are used to display a company’s financial information and performance over a certain period of time, usually annually or quarterly. 

In simple terms, a financial report is necessary for understanding how much money you have, where it comes from, and where it needs to go. 

Financial reporting enables managers to make informed business decisions based on the company’s financial health. 

Potential investors and banks will look at your company’s financial reports to see whether they want to invest or lend you money.

What is the reason for keeping organized financial records?

Financial reports are used by businesses to compile accounting data and provide information about their current financial situation. 

Many financial reports are accessible for public review, and they are used to forecast future profitability, industry position, and growth.

Financial reports are important since they fulfill several key objectives such as 

-tracking cash flow

-evaluating assets and liabilities

-analyzing shareholder equity

-measuring profitability

Types of Financial Reports

Balance Sheet

A balance sheet shows the assets, liabilities, and shareholders’ equity of a corporation at a specific point in time.

A simple look at the balance sheet will reveal total assets minus equity and liabilities. Balance sheets are often tracked quarterly, and data from balance sheets may be included in annual reports. 

Your present asset liquidity and debt coverage are also assessed in real time using balance sheets.

Example:

Balance sheet displays the total assets, liabilities, and equity of the organization.

Shown below is an example. 

Main use of the balance sheet is to indicate a company’s financial situation at a given moment in time. When the balance sheets for multiple consecutive periods are brought together, patterns in the various line items can be seen, this information becomes even more useful.

Income Statement

While a balance sheet examines current operations, an income statement examines them over a longer period of time. Some companies keep quarterly income statements and use them to track financial activities throughout the year.

The income statement shows sales, net income, expenses, and earnings per capital share when a firm issues stock on the stock exchange.

The income statement and the profit-and-loss statement are the same document for reporting earnings and losses.

Example:

Income statement displays the sales, revenue, expenses, and losses of the organization.

The income statement is used by research analysts to analyze year-over-year and quarter-over-quarter performance. One can determine if an organization’s efforts to lower the cost of deals benefited it in further growing benefits over time, or whether the administration worked out how to keep tabs on working expenses without sacrificing productivity.

Cash flow Statement

The cash flow statement is useful for determining how efficiently businesses earn cash to pay off debts. 

Cash flow documentation also includes how successfully organizations fund operations and investments, as well as the continuing activities that create income to cover costs. 

Understanding the efficiency of present procedures, spending activities, and income generation requires accurate cash flow statements.

Example:

Cash Flow statement shows the current operations, spending/ investing activities, and financing activities of the organization. Show below is an example statement of cash flow.

Cash flow statement is used to manage finances by tracking the cash flow for an organization. Cash Flow statements are extremely useful for the management to take informed decisions for regulating business operations.

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An income statement depicts a company’s profitability over a period of time. In other words, it summarizes revenues and expenses resulting from operating and non-operating activities. It also shows the company’s net profit or loss. It is one of the most important documents in a business’s financial reporting.

Alternative names for income statement

-Profit and loss statement

-Statement of revenue and expenses

Understanding Income Statement

The income statement is a crucial component of a company’s performance reports that must be filed with the Securities and Exchange Commission (SEC). The income statement reports income over a specific time period, whereas the balance sheet provides a snapshot of a company’s financials as of a specific date.

Key Terms that the income statement focuses on:

Operating revenue

Operating revenue is a term used to describe revenue generated by primary activities. 

The money earned from the sale of a product by a manufacturer, wholesaler, distributor, or retailer is referred to as revenue from main activities. Similarly, revenue from services refers to the fees a company in the service industry receives for providing particular services.

Non-operating revenue

Revenues realized through secondary, non-core business activities are often referred to as non-operating recurring revenues. These include income from interest earned on business capital lying in the bank, rental income from business property, strategic partnerships, or royalty payment receipts.

Gain

Gains, also known as other income, are the net proceeds from other operations such as the sale of long-term assets. Net income from one-time non-business operations, such as a company selling an outdated transportation van, abandoned land, or a subsidiary company, is included in this category.

Expenses

Also known as operating expenses. These expenses include rent, bank and ATM fees, equipment costs, marketing and advertising costs, merchant fees, and any other costs necessary to keep your business running.

Losses

All costs associated with a loss-making sale of long-term assets, one-time or other unusual costs, or expenses towards lawsuits.

Structure of the Income Statement

For the income statement, the net income is calculated as below:

Net Income = (Revenue + Gain) – (Expenses + Loss)

For example, assume that:

Total Revenue = USD 25,000

Total Expenses = USD 10,500 

Gains = USD 2,000

Losses = USD 800

Therefore, the Net Income will be:

Net Income = (Revenue + Gain) – (Expenses + Loss)

      = USD (25,000 + 2,000) – USD (10,500 +800)

      = USD 15,700

KLOUDAC Accounting Firm Dubai, UAE

KLOUDAC is a recognized accounting firm in Dubai, UAE with 15 years of service experience. We have built connections with over 500 customers. It has also won the certification of Xero Payroll and certification of Xero advisor from the world leading online accounting software – XERO. Moreover, KLOUDAC is a golden champion partner of Xero.  Accounting and Bookkeeping is more convenient for the SMEs via KLOUDAC since they provide their clients with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, Recognized accounting software and more.

There are some business key terms that you should know well if you are an entrepreneur or even an experienced businessman. If you are planning to manage your business and your finances properly, it is very important to clearly understand the meaning of each of these key terms. 

Out of dozens of business key terms, mentioned below are a few important terms along with their meaning.

Accounting

A systematic way of recording and reporting financial transactions for a business or organization.

Assets

Anything the company owns that has monetary value. 

Current assets (CA) are those that will be converted to cash in the next 12 months. This could be cash, inventory, or accounts receivable in most cases.

Fixed assets, such as real estate, land, and major machinery, are long-term investments that will likely benefit a company for more than a year.

Balance Sheet

Balance Sheet is a financial report that summarizes a company’s assets, liabilities and owner or shareholder equity, at a given time.

Cash Flow

Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time. Cash flow can be positive or negative. Positive cash flow indicates that a company has more money moving into it than out of it

Cost of Goods Sold

The total cost of producing the goods sold by a business.

Double entry bookkeeping

Double-entry bookkeeping is a system of documenting transactions in which each company transaction is entered as a debit or credit in at least two accounts. The amounts entered as debits must equal the amounts recorded as credits in a double-entry system.

Expenses

Expenses refer to the costs of conducting business. 

The types of expenses include fixed, variable, accrued, and operation expenses.

Fixed Expenses: Rent, salary, and insurance payments are all fixed expenses that do not change month to month.

Variable Expenses: Expenses that may fluctuate over time, such as labor costs.

Accrued Expenses: an unpaid expense that has been incurred.

Operation Expenses: Expenses incurred by a company that is not directly related to the production of goods or services. For example, advertising cost.

Inventory

The term Inventory refers to the assets that a business has purchased to sell to its clients but has yet to sell. The inventory account will decrease as these things are sold to customers.

Liabilities

Liability is when someone owes someone else money.

Current liabilities (CL) are those debts that are payable within a year, such as a debt to suppliers. 

Long-term liabilities (LTL) are typically payable over a period of time greater than one year. An example of a long-term liability would be a multi-year mortgage for office space.

Loss

A loss occurs when a service or product sells for less than what it cost to produce or create it, or when an asset’s expenses exceed its income.

Net Income

The amount earned in profits is referred to as net income. It is computed by deducting all the expenses in a given period, including COGS (Cost of Goods Sold), Overhead, Depreciation, and Taxes, from Revenue.

Profit

Profit is a term used to represent the financial gain made by a company when revenue exceeds costs and expenses.

Profit = total revenue – total expenses

Revenue

Revenue is any money earned by the business.

The gross income a company earns from normal business activities is referred to as revenue or sales. Multiply the sale price by the number of units sold to get the sales revenue. Revenue is calculated differently by accrual accounting and cash accounting. Accountants consider sales made on credit when utilizing the accrual accounting method to compute revenue. Cash accounting counts sales as revenue only after the company has been paid.

KLOUDAC Accounting Firm Dubai, UAE

KLOUDAC is a recognized accounting firm in Dubai, UAE with 15 years of service experience. We have built connections with over 500 customers. It has also won the certification of Xero Payroll and certification of Xero advisor from the world leading online accounting software – XERO. Moreover, KLOUDAC is a golden champion partner of Xero.  Accounting and Bookkeeping is more convenient for the SMEs via KLOUDAC since they provide their clients with a whole package of services such as Financial Consultancy, Business setup, Audit and assurance services, Taxation services, Recognized accounting software and more.