Monday, 14 Aug 2023
Bookkeeping is one of the oldest business functions, which is an indispensable part of every organisation. Even not-for-profit entities need bookkeeping to understand how to make the best use of their funds for the social good. It is a necessary activity that helps businesses keep an account of their income and expenses.
Without this information, they will be clueless about their earnings and will spend without thinking. It can lead to wastefulness and tax lapses that can pull the business into bankruptcy.
Thus, businesses utilise a variety of bookkeeping methods and systems to stay financially stable and comply with state regulations. Entrepreneurs are unaware of these processes because of their limited financial literacy. So, here is everything you need to know about the different bookkeeping methods and systems. It will help you choose the best procedure for your venture.
Two main methods of bookkeeping are used by professional bookkeepers Melbourne to maintain the records of their clients. These are as follows:
As the name suggests, the single-entry method requires recording every transaction as a single entry in the books. The transactions are entered in the cash book as income or expense. The bookkeeper starts the recording by mentioning the cash balances, adding all the incomings, and subtracting the outgoings. The final amount left is the available cash with the business.
It is an easier method that requires less time and cost. Anyone can do this type of bookkeeping because it does not involve bookkeeping knowledge and skills. Thus, sole proprietors often rely on this method to save money and complete the task quickly. They can use it because they do not allow credit transactions.
The double-entry method is a bookkeeping system in which transactions are recorded in two accounts as, a debit and a credit, respectively. It is based on the premise that every transaction will have an impact on two accounts, and they must match each other in terms of balance.
The double-entry method follows the formula of Assets = Liabilities + Owner’s Equity. It is the more popular method of bookkeeping in Melbourne because it provides clear information. It is a complete recordkeeping system that requires the preparation of a balance sheet, which provides insight into the financial health of the business.
There are certain systems used by Melbourne bookkeepers to maintain the records accurately. These include the following:
Although it is an outdated system of financial management, some very small businesses may use it. They maintain paper-based records to keep the process simple with the help of receipt books, cash books, payment records, etc. These records involve making entries by hand in the journals and ledgers. It requires preserving all the paper bills, invoices, receipts, etc.
It works well for businesses with limited transactions that can be easily managed by the owner. The paper records must be protected from theft, loss and damage to claim deductions and file taxes. Also, doing the manual entries takes a lot of time and energy.
Since bookkeeping is a complex activity that consumes a lot of time and effort, the task has become digitised with the help of computers and software. These have been designed to automate the tedious tasks related to bookkeeping in Melbourne, such as recordkeeping, payroll management and inventory management.
Software like Xero and QuickBooks are some of the best accounting software used by small businesses in Victoria. These ensure complete accuracy of records and higher efficiency because of automation. They can be customised according to the needs of the venture and can be integrated with other apps to enhance productivity.
ATO also prefers digital recordkeeping to store and protect the records for a long period. They even provide tax deductions for commercial off-the-shelf bookkeeping software that businesses purchase for this purpose.
Moving a notch higher, the field of bookkeeping has adopted the latest technology to start using cloud-based bookkeeping in Melbourne. It is similar to digital bookkeeping but allows data storage in the cloud. It helps the business owner access real-time data, and the bookkeepers to work remotely.
It secures the data and keeps it safeguarded during cyber attacks and data thefts that can make the business lose its credibility and confidential information. It provides end-to-end encryption that maintains complete privacy.
Cloud-based accounting software can be used by multiple authorised users and helps share data effortlessly. The team members can log in and access the data from anywhere and anytime. It makes working on-the-go a possibility when the entrepreneur is travelling.
Business owners must choose the bookkeeping method and system that suits the needs of their venture. It usually depends on the size of the entity and the volume of transactions taking place in it every day.
If the financial data is too complex and enormous, it requires modernised accounting systems. Conversely, a simple and cost-effective requirement can be fulfilled by the traditional system.
