Why Bookkeeping Is Important

Bookkeeping is truly a matter of keeping track of all of your expenses and your revenues. But it is also a matter of keeping everything classified properly, keeping track of the taxes you collect and owe, and making certain that you know when items are due – both to you and by you.

Keep Proof of Expenses
Firstly, you have to make certain that you obtain and keep all of your receipts for business-related expenses. This is crucial. If you do not have the receipts, then the government will not allow the expense. They will consider any expense that cannot be backed up a personal expense, and therefore, taxable income to the owner! It cannot be emphasized enough that you need to back up every one of your expenses with tangible proof that it is for business.

To track the expenses, you need to enter them into your bookkeeping system. Your system can be something on the computer, such as QuickBooks, Simply Accounting, or even a simple Excel spreadsheet system. If you understand the double entry accounting system, then a spreadsheet will be simple for you to use. If you don’t, a computerized program is probably better. Of course, this all depends on your computer savvy and understanding of bookkeeping in general, as well as the size of your business. There is no way a $1 million business can get away with a simple spreadsheet program.

Debits and Credits (Costs and Revenues)
There’s no point in trying to explain debits and credits, as this concept is often too confusing for most people to understand in a short article. Suffice to say that these concepts usually seem backward to anyone who is first learning them. However, you do need to understand the concept of costs and revenues. Any cost is something that you pay for, without taxes, and any revenue is something that comes into your company, before taxes. Taxes are tracked separately, and go into their own account.

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