Retrieving all the information, categorizing it, including it into an accounting system, and producing financial reports accordingly systematically are what define bookkeeping. In simple words, bookkeeping is the procedure of recording all transactions chronologically to make necessary decisions for the betterment of the business. All these tasks are generally done by the bookkeepers in NYC.
However, many small businesses do not understand the value of bookkeeping. It means that could not develop such a system, which are compliant with all the financial laws and according to the accounting standards. More importantly, they cannot extract the benefits, which can be extracted by using bookkeeping in running the business.
Bookkeeping helps you expand your business.
Do you know that many small companies remain small only because they do not follow accounting standards? It is a known fact if you are not sure about future scenarios and have not budgeted your income and expenses. It becomes difficult for you to grow your business if you do not have a plan. Bookkeeping helps you plan out how to run a business and grow to become corporate.
Bookkeeping answers all your financial questions.
Filing tax returns is the responsibility of every business, whether small or large. You need bookkeeping services in NYC to file these returns. The reason is that filing tax returns need financial reports, which can be generated if you have an accounting system. This system can only generate reports if you have entered all the business transactions chronologically, which is called bookkeeping.
Another example in this regard is to incorporate Workers Compensation Audit NYC. The governments implement this audit on all organizations, whether small or large. Bookkeeping helps you prepare your company to follow this act. In the case of not following this audit, your business may face the circumstances that can take you to the enforced business closure.
Breaking down bookkeeping steps
Bookkeeping is a process that you can break down into different steps. However, most of the experts break it into six separate sections. The first four ones are related to the utilization of accounting knowledge and extraction of benefits from bookkeeping. The last two steps set fix responsibilities on the individuals and companies.
Collect all the information and documents.
Source documentation is the most relevant information that bookkeepers in NYC need to start bookkeeping. Therefore, they initiate it by gathering source documentation from everywhere.
Recording business transactions is a must, whether it is an income or expense. It always helps you generate business reports. The evidence of all the business transactions remains available. So, companies need to gather all information related to business transactions.
The best practice in this regard to have access to all your bank accounts. You must have all the receipts, invoices, and sales orders to perform this task.
Categorization of all these business transactions
All small companies and some large organizations have a boatload of receipts, and all are clueless about what the purpose is of all. Understanding bookkeeping helps you the real purpose of every document.
With bookkeeping, you can categorize all these receipts. We can categorize all these transactions under the following heads:
- Business Capital or Equity
You can make accounting entries by addressing all these heads and recording all the transactions. This process is key to incorporate bookkeeping in your organization.
For example, if you buy an asset by paying through cash, you will add the assets into the asset section and credit the cash with an equal amount. Another example is recording the cash sales.
In this case, you add the cash with the amount that you have received and credit sales. We can give numerous other examples as well. However, it is necessary to utilize a bookkeeper in NYC to understand all these terms and implement bookkeeping in your organization.
The bookkeepers in NYC also take the responsibility of reconciliation of every transaction. Reconciliation is the process of matching all the business transactions with the bank statement. It helps us understand where cash is coming and where we are spending money. It also helps identify the errors and omissions in the case of missing or duplicated transactions.
Generation of Financial Statements
Financial statements are the most crucial documents for the life of the business. Generating financial statements is the last but the most crucial part that bookkeepers in NYC perform on behalf of your organization. Mainly, three financial statements matter a lot, which are:
It tells you the financial position of the company. It has all the assets and liabilities with the company’s equity. This means that you get information about all the tangible and intangible assets, debtors, cash, and bank balances. On the other hand, you can also find the actual capital, all the liabilities with account payables and creditors. Moreover, you can also get an idea of the income from this statement.
This sheet helps you understand the profits or loss of the company for a specific period. You have all the records of revenues and expenses while having an income statement for a specific period.
Cash Flow Statement
Three major components are a part of the cash flow statement, which are:
- Cash from operations
- The Cash from financing
- Cash from investments
A cash flow statement helps you understand how cash flows in or out from the balance sheet and income statement through transactions. It tells you the complete story of all transactions that you have made through cash.
A cash flow statement helps your investors and creditors determine your exact wealth and decide accordingly. The reason is that without cash, no business can survive.
Understand what your financial statements are saying.
After the generation of financial statements, the story continues to improve business performance. The most critical aspect in this regard is the understanding of the financial statement. Factually, the business owners do not like financial statements even when they are financially savvy businessmen. However, understanding the actual business success is directly proportional to the financial statements.
The accountants and CPAs in New York help you understand financial statements and take the necessary measures, which are required. Business insights also help you find new opportunities in the market and keep an eye on threats that the businesses may face in the upcoming financial year.
Understanding about Balance Sheet
Remember that both sides of the balance sheet must be balanced. The sides are assets and liabilities. Previously, the balance sheet was designed by keeping both the sections in front of each other. However, now the asset section is at the top, and liabilities are after the asset section.
Assets are of two types, which are current and long-term assets. First, current assets are discussed in which accounts receivable and inventory. The fixed or long-term assets are like equipment after subtracting depreciation available.
We deal with liabilities in the same pattern. We need to present current liabilities at the top in which accounts receivables, credit cards, and wages payable. To develop an understanding of current liabilities, it is essential to mention that these are the debts, which are due to you within the previous financial year. After that, long-term liabilities are presented in which car loans, capital leases, and bank loans.
Another crucial section in the liabilities section is equity. It tells you about the investment that the business owners have included to show their ownership. You can call it the net worth of the business or bookkeepers in NYC value. We can calculate it by subtracting liabilities from assets. Retained earnings are also added in the liabilities section of the balance sheet.
Understanding the income statement
At the top of the income statement, the accountants present revenue. It means that you display the total amount after selling services or products in a financial year. You can also break down all the incomes under different types. After that, we need to present the cost of sales or cost of goods sold.
You can calculate the gross profit after subtracting the cost of goods sold from gross revenues. After that, other expenses are listed. You can calculate the net profit after subtracting expenses from gross profit. You can subtract the taxes and other duties that governments implement. The next amount tells you the exact amount of profit or loss.
Understanding about Cash Flow Statement
It helps you understand the flow of cash going out and coming into your business. We divide it into three different sections, which are:
- Operating inflows and outflows
- Financing inflows and outflows
- Investing inflows and outflows
Operating cash flows are those through which your business license NYC manages regular and outgoing activities, like income by selling products or services and spending money to controlling the sales. Some companies also manage cash activities to raise capital.
For example, you get loans from banks and pay interest against it. These flows are considered financing cash flows. Stock issues to the investors and equity funding are also a part of financing cash flows.
Some businesses invest in different markets, like the stock market for generating profits. Dealings with such investments are discussed under-investing cash flows.
The last but not least step is to make decisions after analyzing your business situation. Bookkeepers in NYC it helps you in both ways. Sometimes, you need to perform better to make the business more profitable. Second, it helps you manage the losses and improve business performance more aggressively.
The bottom line
Hiring a tax bookkeepers in NYC or outsourcing accounting services helps you manage the financial position more effectively. You do not need to be an expert if you are following our suggestion.
However, a basic understanding is a must, otherwise, you cannot understand how business is performing in the market and how you can improve the company to explore new opportunities and identify the threats, which you may face in the upcoming years. see more