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Some people wrongly assume that bookkeeping is the same as accounting. Bookkeeping is the process of keeping full, accurate, and current business records. Proper methods can help businesses effectively manage cash flow, monitor profits and losses, and develop plans for the future based on financial trends. Furthermore, keeping accurate records is required by both federal and local tax agencies.
The bookkeeping process involves making a record of the monies received by a business as well as the monies paid out. It encompasses money a company owes to vendors, employees, tax agencies, contractors, and any other individual or entity. Likewise, accurate records of amounts owed to a company by outside individuals and organizations are also recorded.
Though necessary and beneficial to business owners, the task can be very time consuming. With no exceptions, every monetary amount that is paid or received must be recorded. Accuracy is of the utmost importance. Rushing at the end of the quarter or the year to reconcile the books often leads to errors which cost small businesses big tax penalties.
A company's books are used to determine the amount of taxes the company must pay. Sometimes, a tax agency may decide to investigate the information reported on a 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. Failure to do so could lead to hefty fines, penalties, or in severe cases, imprisonment.
Accurate financial records can also help you grow your business. Before approving business loans the lender will have to examine your books. Presenting accurate and organized records shows the lender that you are exactly the type of responsible and intelligent loan applicant they are looking to do business with.