10 Importance of bookkeeping and accounting

Bookkeeping and accounting are core parts of a business. Without it, businesses may miss a mark. One of the reasons why businesses fail is the lack of proper recording of their financial data. For example, how do you know the total sales made for the month? This article discusses 10 importance of bookkeeping and accounting in an organization.

Setting up a business structure

With bookkeeping and accounting, the business structure can be set up. This includes setting up processes from initiating sales to giving out receipts and recording those receipts in the books of accounts. The business structure involves coding inventories and other assets so that they can easily be identified.

Keeping proper and accurate records of transactions

The second importance of bookkeeping and accounting to any business is the capacity to provide proper and accurate records of business transactions. As financial data from source documents enter the organization, it is paramount that they are recorded in their proper books of accounts. And the record is done accurately. 

Preparing budget

It is the job of the accountant to prepare a yearly budget. Without a budget, a business may use its limited finances carelessly. A budget helps entities focus on expenses and expenditure that matters. From it, expenses can be tracked and irrelevant ones can be stopped. 

Knowing all debtors’ and creditors’ debts

When proper records are kept it will be easier to know each debtor and creditors of the business and the correct amount owed. There is a difference between saying a debtor owes a business about 10 dollars and saying you owe me 11 dollars 24 cents without proper records to prove it. Bookkeeping ensures that you know the precise amount a debtor owes you and that you owe a creditor. Therefore avoiding loss of funds. 

Avoiding or reducing thief

If proper and accurate records are not kept, it will be easier for employees and managers to steal from an entity. This is because such thieves cannot be traced. And no particular staff can be held responsible. However, with proper records and business structure, it can be minimized.

Setting the price of a product or service

Another importance of bookkeeping and accounting is the ability to set prices for products and services. Here, it is easy to set up the selling price for a product after considering the costs involved and the profit margin you should earn from each sale. 

Keeping track of inventories

It is impossible to track the inventory level if accurate records are not available in the organization. All inventories purchased should be recorded as well as the number of inventories sold. The difference between both figures represents the number of inventories in the store. Periodic stock-taking can help monitor inventory. This helps avoid stealing stocks as well as knowing if employees are complying with the inventory policy of the entity.

Monitory cash and other funds in the business

Cash monitoring is an important aspect of bookkeeping and accounting. The bookkeeper ensures that all cash received and paid is recorded in the appropriate books of accounts. At the end of the day, he ensures that cash with him or her equals that in the books. Other funds that pass through the bank accounts of the entity are also monitored through weekly or monthly reconciliation. 

Keeping an eye on property, plants, and equipment

Another benefit is that the property, plant, and equipment of the entity can be monitored and measured accurately. Proper records ensure that these items are observed closely on one hand. And are depreciated regularly to show their effects on profit on the other hand.

Ascertain the profit of the business

Proper and accurate records in the books of accounts of business result in preparing the correct financial statements. From here, the profit earned by the business is known. Business owners are always interested in profit. They want to know if their efforts pay off.