Accounting is not just a basic need but also a statutory requirement for the company. As an entrepreneur, you should have control over your accounts. It will not only give you a true view over your business, but will also help you to take the necessary steps required any given point in time.
Bookkeeping is one of the many post-incorporation compliances that are to be followed by almost all companies. Let us first understand what exactly bookkeeping means.
Basically, all entrepreneurs keep a record of their financial transactions either in an excel form or a note book. Just recording your transactions in a suitable manner won’t fulfill the purpose of bookkeeping. Keeping the transaction in a prescribed format will only makes it acceptable as a statutory compliance. Bookkeeping involves maintaining a regular record of transaction in such a way that results can be extracted in various forms as desired. There are several purposes that the process of bookkeeping fulfills ‑ from profit analysis to balance sheet finalisation.
As you start growing, the first thing that hampers is your accounts, if you are maintaining it yourself. However, if the same activity is carried out by a professional, this exercise may yield fruitful results. During your growth phase, there exists several accounting software that can be used for the core purpose of accounting, which helps you generating several results that may be pertinent to shape your business growth.
Here are the following purposes that you meet if you are regularly doing bookkeeping:
- Statutory compliances:
Bookkeeping itself is a mandatory statutory compliance under Companies Act and Income Tax Act.
It is a legal requirement that you are fulfilling. But if you are regularly maintaining your books of accounts, here are the few beneficial insights you may gain during your bookkeeping:
- Saves your penalty or interest on taxes as you will be able calculate the deposit the same in due time.
- Keeping a record on transactions can alert you on various kind of registration that is required after certain turnover or sales.
- Easy preparation of VAT return that you require monthly or quarterly.
- Easy preparation of balance sheet and profit & loss.
- It will be easy for auditors to conduct audits.
- Keep a check on TDS transactions.
- Easy VAT and Service Tax calculation for monthly/quarterly maintain.
Bookkeeping plays a major role in every decision of your business plan. It is obvious that every business has sole objective of profit and every business plan has a sole vision of growing profit. After a certain period of time, your previous working only helps you to plan your further step. Bookkeeping gives you a bifurcated result that helps you keep a track on expenses so that you can control it, which will ultimately boost your profit. It also keeps a track on sales and helps you in planning.
Mitigate the risk factors
Where there is involvement of money, there is always a risk. As business goes through lot of things and also lot of people are involved, there are certain chances of risk, error, and mistakes. So when you keep a proper record of all financial transactions, it always helps in mitigating the risk of fraud, theft, error and embezzlement. If you have a good bookkeeping record, then such transactions can be easily traced in the initial stage itself. Also, when every person involved believes that a proper record is maintained with regular checks, bookkeeping act as a precautionary step for fraud and error.
Budget is one of the major issues of every business. It may be easy to decide, but very difficult to control. But bookkeeping is a solution to this problem. As you maintain regular books of accounts, it will be easy to keep a check on the figures as per your budget. Bookkeeping helps you in three ways in your budget analysis. Firstly, it helps calculating variance between your actual and budgeted figures. Secondly, it also helps you do the detailed analysis of variances and actual reason can easily be traced through books of accounts. Lastly, it helps you to set another budget as per your previous analysis.
Any kind of tax planning will be possible only if know the exact tax liability. If you are profitable, you won’t let it share 30 percent of it as it is t government. There are several tax-saving options in case of companies, but same can be implemented during the year only. Once a financial year is completed, there is probably less scope of tax planning. Thus, we should be aware of the tax liability arising in a company. And this is only possible if you keep a check on your profit regularly.
Bookkeeping is a crucial part of every business. From a small store to MNC, everyone keeps a record of all the financial transaction to understand the costing of its services or products. It’s not necessary to do bookkeeping on your own, but you should have such system in your organisation so that you can have control over your accounts.
Bookkeeping is just one of the post-incorporation compliances that every company is required to follow. For more information over compliances to be followed after company registration you may refer this article.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)