What is bookkeeping? What are the importance and advantage of preparing bookkeeping? Explain.

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Bookkeeping

 

             Bookkeeping is the activities concerned with the systematic recording of financial transaction made by a business firm on a day to day basis.

             It allows a firm to keep an upto date record of the current incoming and outgoing amounts owed by customers and business firm.

             For each transaction, there must be a document that describes the business transactions.

 

Importance of bookkeeping

 

             For maintaining accurate record of financial transactions of a business firm.

             For providing detail information about expenses and income to fulfill tax obligation.

             For helping accountant to prepare financial statement to show a firm’s financial position.

             For ensuring that cash flow is healthy and a firm is in strong position.

             For assisting in formulation of necessary business strategy by proving necessary information.

             For providing detail report of a firm’s status to investors in order to increase their confidence on their investment.

             For helping decision makers to make appropriate financial decision.

             For fulfilling necessary legal requirements to save a firm from legal trouble.

 

Advantages of Bookkeeping

 

             Keeps detail record of financial transactions to supervise business account.

             Meeting legal obligation in maintaining accurate and upto date financial report for the business form.

             It allows creating accountability and transparency in financial records.

             It allows making informed decisions about the business as it provides accurate data related to financial transactions.

             It is helpful in preparing financial statement of the firms.

             It retains existing investors and attracts potential investors by providing detail information about a firm’s performance.

             It enables a business to see how cash is flowing in and out of its business firm.

             It safeguards firm’s resources from internal theft and frauds.

 

Bookkeeping is essential to any business and small firms. It act as a financial informer to decision makers of such firm to take appropriate financial decisions in a suitable time for the accomplished a firm’s goals and objectives by keeping record of financial transaction made by a firm.

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