The Importance of Bookkeeping for Businesses and Nonprofits

An organization’s success significantly depends on how well the cash inflows and outflows are managed - we call this, “the art of bookkeeping”.

What is bookkeeping?

Bookkeeping is the systematic process of documenting and entering all financial transactions in an organization’s chart of accounts. In other words, it is the tracking of the numerical activity that has transpired.

Every business, whether for-profit or not, should maintain strong transactional data. Bookkeepers typically record and document all cash and credit inflows and outflows as well as non-cash/credit transactions through the use of journal entries. Journal entries such as depreciation expense and the reclassification of interest versus principal on a loan help depict the financial integrity of an organization.

Why is bookkeeping necessary?

1. Comprehensive Records:

Bookkeeping will ensure that all financial data is complete, accurate, and in most cases, reflect a real-time depiction of the finances of an organization. 

2.  Effective Financial Analysis:

With comprehensive records, bookkeepers and accountants are able to generate financial analyses that aid in determining the best strategies for improved liquidity and the financial health of the organization. 

3. Better Responsiveness:

A competitive market requires organizations to be positioned to rapidly respond to any market changes. Having real-time, up-to-date financial records allow organizations to be better equipped to meet the ever-changing demands and trends of the current market being served.

4. Attract Investors:

Strong financial records attract investors. Investors who have the ability to perform a financial health check on an organization are more likely to enter into a business arrangement with an organization.

5. Forecasting Made Easier:

Budgeting and forecasting highly depends on historical data. When a bookkeeper has regularly and thoroughly updated all transactional data, trends and variances can be established. Taking this a step further, forecasts and budgets can more readily and accurately be developed. 

6. Automatically Law Compliant:

Bookkeepers are current with accounting regulations. Having additional education and experience to assist with how to account for transactions in accordance with accounting standards will make the audit process smoother if an audit was to arise.

7. Assists Tax Preparation:

Without an accurate trail of transactions, it can be arduous to prepare tax returns. 

All in all, bookkeeping is the crux of the financial operations of an organization. It is by far the most crucial step towards creating strong ledgers and financial statements that can represent the organization’s financial health. 

How can Impact Accounting Partners help you?

If your organization has been struggling with getting accounting information timely or efficiently, now is the time to review your procedures and the effectiveness of your bookkeeping. If you would like assistance with your bookkeeping or technology stack, please email hello@impactaccountingpartners.com or schedule a consultation at https://calendly.com/hello-impact.