What is bookkeeping, and how does it work?

Every entrepreneur must know what is bookkeeping. Bookkeeping is an orderly system of collecting, recording, and summarizing information in monetary terms about the property, liabilities of the organization, and their movement and documentary of all other business transactions.

Bookkeeping, following the law on bookkeeping, may be conducted by the chief bookkeeper, employed by the company under an employment contract, the General Director in the absence of a bookkeeper, a bookkeeper who is not the head bookkeeper, or a third party (bookkeeping support).

Specific features of online bookkeeping

The main objective of online bookkeeping is the formation of complete and reliable information (financial statements) about the activities of the organization and its property status. Such actions necessary for internal users of financial statements – managers, founders, participants and owners of the property of the organization, as well as external – investors, creditors and other users of financial statements, based on which it becomes possible following:

  • Prevent negative results of the economic activity of the organization;
  • Identify internal reserves to ensure the financial stability of the organization;
  • Control compliance with the legislation regarding the implementation of commercial operations by the organization;
  • Control feasibility of economic operations;
  • Control the presence and movement of assets and liabilities;
  • Control the use of material, labor, and financial resources;
  • Control compliance of activity with the approved norms and standards.

Thus, online bookkeeping is a kind of bookkeeping service that has crucial importance for small businesses. 

Principles of small business bookkeeping

The following principles can be considered the basic principles of bookkeeping:

  • The principle of autonomy – any organization, exists as an independent legal entity. In bookkeeping, only property, which is recognized as the property of this specific organization or enterprise, is reflected.
  • The principle of double-entry — all business transactions are recorded simultaneously on the debit of one account and the credit of another account for the same amount.
  • The principle the current organization operates under and plans to maintain its position in the economic market in the future.
  • The principle of objectivity – all business transactions should be reflected in accounting, be registered throughout all stages of bookkeeping, be confirmed by supporting documents based on which accounting is conducted.
  • The principle of prudence in small business bookkeeping implies a certain degree of caution in the process of forming judgments necessary in calculations made under conditions of uncertainty, to avoid overstating assets or income and understating liabilities or expenses. Adherence to the precautionary principle prevents the occurrence of hidden reserves and excess reserves, the deliberate understatement of assets or profit, or deliberate overstatement of liabilities or expenses.
  • Also, there is an accrual principle – all transactions are recorded as they occur, not at the time of payment, and relate to the reporting period when the transaction was made. This principle can be divided into:
  • the principle of registration of income (revenue) — income is reflected in the period when it is received, not when the payment is made;
  • the principle of conformity – the income of the reporting period should be correlated with the expenses due to which this income was received.

These are the basic principles of modern bookkeeping for small businesses. 

What is bookkeeping, and how does it work?

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