Bookkeeping for Beginners: Why Learn It & What’s It All about?

In today’s business environment, in which it has become easier than ever to outsource tasks, is there really a point for a novice to learn bookkeeping? By all means – and perhaps more so than ever. The whole point of entrepreneurship in the digital age is to know how to do a bit of everything yourself. As such, if you’re a business owner, it certainly pays off to learn how to keep the books yourself (or, at the very least, to understand what they say). Of course, hiring a professional accountant to help out with taxes at the end of the year is still a valid solution. However, if you’re serious about getting your business to take off the ground, it’s important to understand your finances, in order to know how to adjust them where and when they need to be adjusted.

using a calculator

Tracking finances

This is why adult learners are opting for online bookkeeping courses in ever-increasing numbers these days. Online training surely comes with a lot of perks, especially for the busy entrepreneur, who has to juggle professional requirements, errands, a personal, and also a social life. Before you sign up for any such courses, though, let’s run through a primer of essential bookkeeping knowledge. Here are the basics you need to know about.

Who needs to be in on financial information

When you run a company, there are essentially two types of users for its financial information. The two categories can be described as follows:

• External users – These are lenders, supplies, investors, clients, government authorities, and taxation organizations. They need your financial information as proof of your company’s solvability. Lenders, for instance, don’t have anything else to go on, when deciding whether or not to award you credit, save for your books. The same principle applies for both (potential) investors and clients: no one wants to infuse money into a company whose finances are not in good order.

• Internal users – This category includes the owners and managers of the business, as well as its employees. The degree to which they are aware of the financial information varies according to the degree of decision-making authority they have within the company. Essentially, all financial information serves the purpose of helping people make informed decisions. The more invested into the decision-making process these users are, the more aware of financial information they should be.

This is where accounting and bookkeeping step in, to help both internal and external users make sense of the financial information. Wait, aren’t the two concepts actually the same thing? No, in fact they are not. Before you decide whether or not you actually need online bookkeeping courses, it’s a good idea to understand what these two aspects of a business’s finances are all about. Accounting is the science of dealing with financial information. This includes several ways of handling such information, like analyses, reports, summaries, reviews, and other ways of interpreting it. Bookkeeping, as its name suggests, is all about keeping the ‘books’ (i.e. the records) of all the financial activities (i.e. transactions) that a company or an individual is involved in. For bookkeeping purposes, the transactions are recorded and categorized, while subsequent reports on these activities will provide an overview of financial information. Usually, an accountant handles both the accounting system and the bookkeeping system of a company. They then instruct the owner or one of the employees on how to keep the books on a day to day basis.

 

businessman graphic

Bookkeeping Professional

Of course, nowadays, in the age of readily available online training in any imaginable subject, bookkeeping is also done with the aid of computer software and not manually. However, it might pay off to understand some business concepts that were often employed in the manual method of bookkeeping and that form the basis of today’s automatized systems.

Single proprietorship companies are owned by a single person, as their name indicates. They are actively running the business and acting as its manager. Partnerships are companies whose ownership is split between two or more people. These partnerships are sanctioned by a legal arrangement, which stipulates profit share, responsibilities, and other aspects. Corporations are companies with multiple inactive owners (shareholders), whose interests are represented through certificates of ownership. Limited Liability Companies are somewhere in between a partnership and a corporation, in terms of representation and legal provisions. Business aspects that are relevant for accounting and bookkeeping include:

  •   Taxation. Depending on the type of company you decide to found, you can be asked to pay taxes to the federal authorities, the state authorities, or both. Some businesses are only taxed once (and are called “pass-through”) while others get taxed twice.
  •   Control. In a sole proprietorship you are the only person in charge of making decisions for the company.
  •   Registration. The initial and recurring costs of forming a company differ from one type to the next.
  •   Personal liability. Business owners can sometimes have their personal assets protected from legal liability; in other cases, one owner is liable for his or her business partners.
  •   Capital. Depending on the size of a business, getting it off the ground might require investment.
  •   Business activity. Some types of activities require licensing. Others, depending on whether they are manufacturers, wholesalers, or retailers, need to keep books of their product stocks, aside from transaction bookkeeping.

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