Bookkeeping is a routine of recording every financial transaction in your business. You need to identify revenue and expenses, record them into books, keep books up-to-date, maintain compliance, and others. Maintaining these records must follow certain principles. Experlu – an online platform for hiring bookkeepers and financials auditors is sharing bookkeeping principles in the latter part of the article.
A new entrepreneur or an owner of a fast-growing business may find it challenging to record their daily transactions after fulfilling administrative tasks. You can hire bookkeepers to help you do these accounting tasks and provide the necessary support to other finance and accounting professionals in your company.
What are the roles and responsibilities of a bookkeeper?
The primary purpose of hiring a bookkeeper is to maintain financial records, prepare tax returns, and analyse the company’s financial health. Some of the bookkeeper’s duties are:
● Recording Financial transactions
● Processing sales invoices, receipts and payments
● Preparing tax and VAT returns
● Managing income statements and balance sheets
● Update and maintain general ledger
● Reconcile entries into accounting systems.
● Preparing information for accountants, auditors and financial managers.
● Ensuring the company’s operation and financial activities comply with federal, state and local requirements.
If you are a startup business owner and are not willing to spend money on hiring an in-house bookkeeper, you can outsource the task to accounting firms. At 123Financials, you get exposure to a team of professionals who will help you deal with bookkeeping tasks and other accounting duties.
Principles of Bookkeeping
The primary principle of bookkeeping is to record the daily financial transactions and information. Here are a few different principles of bookkeeping that an individual needs to consider while recording these transactions:
Revenue Recognition Principle
According to the revenue recognition principle, a bookkeeper understands when they can record a transaction as revenue in the books.
If you follow the accrual basis of accounting, bookkeepers record a transaction as revenue when the owner earns it on selling goods and services, not necessarily when they receive the money. However, we recognise revenue for the cost basis of accounting after receiving the cash.
Full Disclosure Principle
The bookkeeper must complete all information on the financial statements and avoid misleading information on the sheet. Though auditors and financial advisors don’t like the full disclosure principle, it is good to present every document to avoid judgmental comments from financial examiners.
For example, you can mention the reason for the change of a specific accounting principle in the organisation, the reason for any non-monetary transactions, etc.
Monetary Unit Principle
Money is a unit of measurement. According to the monetary unit principle, the non-quantifiable items must be excluded from the financial reports. That means we need to record every financial transaction in terms of monetary units like a specific currency, and we cannot use a currency to measure a non-quantifiable item.
A few of the non-quantifiable items are employee skill level, management expertise, the time loss due to damages, customer service quality, etc.
Time Period Principle
According to the time period principle, businesses must record their financial statements at a specific time: monthly, quarterly, semi-annually, annually, or any time interval that the company prefers. This principle has particular characteristics in both cash accounting and accrual accounting.
Bookkeepers need to assign all the expenses and revenues of a company to specific accounting time periods.
Expense Recognition Principle
According to the expense recognition principle, a bookkeeper must recognise expenses in the same period as their related revenue generation. The principal is an integral part of the accrual accounting system where you recognise revenue when earned and expense when spent, irrespective of any money changing hands.
With this principle, if there is a period of time when a bookkeeper recognises revenue for selling products or services, they will also recognise the cost of those things.
You must record all business accounting data accurately and free of personal opinions.
Maintaining your bookkeeping tasks by following all the bookkeeping principles can be challenging for entrepreneurs. However, a professional having experience working in your industry, knowledge and skills can help you complete bookkeeping activities accurately.
The bookkeeper’s tasks are at the base of accounting activities which means a mistake in recording a transaction may result in financial statement errors and further lead to audits or legal issues. Therefore, consider the following principles in the article to conduct your bookkeeping tasks.