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Bookkeeping is a systematic way to document and record the financial activity of a business. It involves logging each credit or debit in an account, known as the general ledger.
The information recorded is used to create reports and documents. It is vital to a company’s operation because it provides an accurate, real-time view of its financial status. Visit https://www.wellbalancedbookkeeping.net/ to learn more.
A bookkeeper records the financial transactions that occur within a business. This includes sales revenue, purchases, debt payments, and more. The bookkeeper then summaries these transactions in books called journals and ledgers. The summaries are used to produce reports that communicate the financial results of the business activities. Bookkeepers use the double-entry system of accounting when recording financial transactions. Each entry into an account has two equal and corresponding sides known as debits and credits. This ensures that total debits will always equal total credits and that all accounts will balance.
The first step in recording a transaction is to identify the event that occurred. This could be a cash sale, the receipt of a check from a client, or the payment of an invoice to a vendor. Next, the bookkeeper must classify the transaction as either a revenue or an expense. This classification helps the bookkeeper recognize the overall effect of the transaction on the company’s financial statements.
Once a transaction is identified and classified, the bookkeeper must record the event in an account in the company’s general ledger. There are many different types of accounts that can be impacted by an accounting transaction, and it is important that the correct account is selected. In addition, the entry must be recorded in the proper sequence of accounts. This is why it is so important to have an accurate chart of accounts that is updated regularly.
Some companies follow a cash basis of accounting, which means they only recognize revenue when money changes hands. Other companies, however, choose to follow accrual accounting, which recognizes revenue and expenses when they are earned, regardless of whether the company has the cash on hand to pay for them.
When the accounting cycle is complete, the bookkeeper will prepare financial statements for internal and external users. These statements include the balance sheet and the income statement. The balance sheet is a snapshot of the company’s financial condition, while the income statement shows how much revenue the company generated and how much expense it incurred during the period.
Payroll is the process of managing the wages, salaries, and taxes for the people who help your business thrive – your employees. It includes tracking deductions and withholdings to ensure compliance with tax regulations, using software to streamline payroll processing, and keeping up with the changing rules of federal and state labor laws. Payroll is one of the most critical functions for any business, so it’s important to get it right every time.
Many small businesses don’t have the budget to hire full-time accountants or HR professionals to handle their accounting and payroll responsibilities. For that reason, it’s common for small businesses to outsource these tasks to third-party bookkeeping and payroll services. While these services cost more than hiring a bookkeeper and an accountant in-house, they can save you money and time in the long run.
While bookkeeping and payroll are two separate functions, they work closely together. The payroll function records the amount of money you owe to your employees, including their salary, overtime, and benefits. The bookkeeping function then records those transactions in your financial statements. This helps you understand your company’s finances and make better decisions for the future.
In most cases, you can outsource your bookkeeping and payroll needs to the same third-party service. However, you should check with the company to ensure that they manage both functions. This is especially important if you have a large number of employees, since the tax laws for each type of employee can vary widely.
Xero’s core bookkeeping features can be accessed by both your bookkeeper and your payroll specialist. These features can help you avoid costly errors and save time by allowing you to easily verify the accuracy of your data. The best way to do this is by comparing your debits (debits on the left side of your ledger) and credits (credits on the right) to ensure that they match up.
Once you’ve verified that your payroll data is correct, you can then use your books to make a final record of the payments you made. To do this, you need to make a second journal entry. This will decrease your Payroll Payable account (a liability) with a debit and decrease your Cash account (an asset) with a credit.
The purpose of financial reporting is to communicate financial information to external and internal stakeholders. This is typically achieved through the core financial statements of a business, which include the balance sheet, income statement and statement of cash flows. However, more detailed reports may also be generated depending on the needs of the end-users. For example, a company’s management may want to generate more detailed sales reports for the purposes of trend analysis and KPI management.
External stakeholders can be investors, creditors, lenders or other third parties who require accurate financial reporting to assess a company’s capacity to meet its debt and invoice payments. Having a standardized and organized reporting system in place will help businesses gain the trust of third parties, and make it easier for them to obtain loans, investments or investor funding.
Financial reporting also helps businesses to analyse their situation and make informed decisions such as identifying best-selling goods or services, growth departments, re-investment opportunities and the current value of assets. In addition, analyzing cash flow is important for ensuring that a business has enough money to cover expenses and meet its debts.
Using a bookkeeping software, it is possible to automate many of the tasks required in financial reporting, making the process of keeping track of all your business’s transactions as easy and efficient as possible. However, a manual approach to this task will still require an understanding of how to create the correct chart of accounts and reconcile the different sets of numbers to ensure they match up.
In addition, if your business is public-listed, you will need to follow the rules of Generally Accepted Accounting Principles (GAAP) in order to remain compliant with Securities and Exchange Commission (SEC) regulations. In general, GAAP requires financial statements to be produced at the end of each accounting period. This includes preparing and filing quarterly 10-Q statements and annual 10-K statements with the SEC. In addition, these filings are usually accompanied by extensive notes to the financial statements and supplementary schedules. All of this is a big reason why many small and medium-sized companies choose to outsource their financial accounting.
When it comes to taxes, bookkeepers make the process easier by ensuring compliance with regulations and maximizing tax deductions. They help businesses stay on top of financial data so they can assess their financial health, create budgets and financial plans, and identify areas for cost savings or revenue growth. This information is vital to establishing a solid foundation for financial success and navigating economic challenges.
When determining the amount of sales tax to collect from customers, bookkeepers use their meticulous records to create journal entries that note the date, type of transaction, and credited or debited amounts. These details are important for calculating and reporting accurate sales tax payments to the IRS. Additionally, bookkeepers must ensure that the total sales tax charged to a customer matches the amount of sales tax collected from the company’s products or services.
Once all of this information is gathered, bookkeepers prepare and file taxes for their clients. This requires ensuring that all necessary documents are in order and submitting them by the appropriate deadlines to avoid penalties or interest charges. They also collaborate with tax professionals like CPAs or tax attorneys to streamline the process.
Because they are intimately familiar with their clients’ financial records throughout the year, bookkeepers are often able to spot deductions or credits that might otherwise go unnoticed when information is divided between multiple professional entities. For example, a tax accountant who doesn’t manage the bookkeeping might overlook an eligible sales tax deduction. On the other hand, a bookkeeper who also manages tax preparation can integrate this deduction into the client’s return without the hassle of separating and resubmitting documents.
In addition to reducing stress and time constraints during tax season, having a single firm manage both bookkeeping and taxes ensures that all of the information is accurate, organized, and streamlined for the most efficient results. Moreover, by allowing one firm to handle both functions, the company is less likely to experience errors in its accounting or tax filings that could result in costly penalties or fines. This is why a lot of small business owners prefer to work with a firm that specializes in both bookkeeping and tax preparation.