Whether you're a creative entrepreneur, a small business owner, or simply someone looking to navigate your personal finances, understanding bookkeeping is the first step towards stewarding your money matters.
Sooo... what exactly is bookkeeping? In essence, it's the systematic recording, organizing, and summarizing of financial transactions within a business or personal finances. It's the meticulous process of tracking your financial transactions -- money in, money out, and where it goes. From recording sales, purchases, and expenses to tracking invoices and receipts, bookkeeping ensures that your financial history is detailed, accurate, and ready for analysis.
There are three main financial statements created through bookkeeping that act as tools to measure the health of your company's operating activities. Your bookkeeper will prepare these three statements, and your CPA will use the statements to prepare your taxes. These fundamental accounting statements are as follows:
Balance Sheet: the balance sheet provides a snapshot of a company's financial position at a specific point in time, typically the end of a fiscal quarter or year. It consists of three main sections: assets (what the company owns), liabilities (what the company owes), and equity (company's net worth). This statement gives an overview of the company's health and it's ability to meet short-term and long-term obligations.
Profit & Loss Statement: the profit and loss statement shows a company's revenues, expenses, and profits over a specific period of time. This statement indicates how well the company is performing in terms of generating profit from its operations. Understanding this statement helps in making decisions regarding pricing and cost control.
Cash Flow Statement: the cash flow statement tracks the flow of money in and out of a business, and categorizes it into three main sections: operating activities (revenue and expenses), investing activities (buying and selling assets), and financing activities (repaying loans and paying dividends). This statement provides insight into the company's ability to generate cash and meet its short-term obligations.
Why is this important? Well, accurate bookkeeping paints a picture of your financial health and is the foundation for success. It empowers you to make informed decisions about your business - knowing where to invest, how much to charge clients, understanding profits, and being tax-ready without the stress.
The best part? You don't have to do it alone! There are bookkeepers dedicated to making sense of your business finances for you. Whether it's setting up systems, offering guidance, or handling the entire monthly bookkeeping process, our goal is to keep your books in order so you can focus on stewarding your small business well.
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