What is bookkeeping?
Bookkeeping is a systematic record of financial transactions in the appropriate books of records. What it means is, whether you make a sale or purchase something, a record will be maintained of the transaction. This record will allow you to easily keep a track of all your transactions and will help you analyse how you can cut costs and reduce taxes. Bookkeeping is a function of the accounts department of a business. However, many small businesses do not have fully staffed and efficient accounting departments and require the help of external bookkeeping services. 3CPS can help your business maintain its books through its network of CA/CSs and tax experts.
Why should you Maintain Books of Accounts?
- It is a Statutory Requirement for all businesses except for Sole Proprietorship.
- Helps you review your performance and take steps to improve.
- Maintaining books of accounts helps you when you need funding from investors.
What is the best time to hire a bookkeeper?
You should hire a bookkeeper as soon as you begin your business. This way you’ll avoid mistakes from the starting and reduce headaches.
Will I lose control of my business by outsourcing my bookkeeping?
No way! You shall still maintain 100% control of all decisions and all checks will still be signed by you. You choose what merchants get paid and when. We provide with the data and perform the specific task, but you approve all receipts for payment and sign all checks.
When should I hire a bookkeeping service?
You should hire a bookkeeping service as soon as you start your business. This way you can avoid mistakes from the beginning and thus reduce headaches. Depending on your needs our bookkeepers can complete an entire year’s bookkeeping in as little as 3 hours’ time. If its so simple, can you do it in less time?
Do I need a bookkeeping service? I know how to use EXCEL and would prefer it.
If you own a private limited company, then it’s recommended that you hire a professional bookkeeping service. Bookkeeping requires the use of double-entry journal accounting to ensure that the Trial Balance is correct. As a private limited company, whether you have one member or fifty members, the compliance, accountability and accuracy should be the same.
What’s the difference between a bookkeeping service and an accountant?
A bookkeeper puts together a complete database of your business’ income and expenses for your financial year. On the other hand, an accountant takes the bookkeeping data and creates the necessary books of accounts for tax compliance. The danger here is that the work of the bookkeeper has a direct affect on the work of the accountant. If the books of accounts are wrong, then the accounting reports will also be wrong. Hence, the importance of using a first-rate bookkeeping service is key to the success of your business.
Is it okay if I keep my receipts and show them to my Accountant at the end of the year?
Bookkeeping is relatively inexpensive and is crucial to the success of your business. It is important to keep an accurate record of your income and expenses, so you can make the right decisions at the right time thus reducing preventable losses. Small businesses are especially vulnerable in this area as they perceive great compensation from this exercise but underestimate the true value of labour and materials required. You would be better off with a bookkeeping service that will accept your receipts every two months and keep you profitable.
I had a sole-proprietorship and incorporated a Private Limited Company mid-way through the year. How does this affect my bookkeeping?
You must treat these as two separate businesses with two separate books of accounts. It is simple and clear rule that each business has its own books of accounts and GST registration as well. Also, each business requires its own separate business bank account.
What all the things need to be maintained in the books of accounts?
Books of accounts comprise of a Journal, a Ledger book, a Trial Balance, Original and carbon copies of bills/invoices/receipts /, Cash Book, Profit and Loss A/c, Balance Sheet and Cash Flow Statements.
Is there a legal requirement to maintain books of accounts?
Companies and LLPs are required to maintain books of accounts as mandated by their governing statutes, namely Companies Act, 2013 and Limited Liability Partnership Act, 2008. Further, Income Tax Act, 1961 also obligates the maintenance of the books of accounts, irrespective of the form of business, and has separate provisions related to it. Thus, there may be a situation where a Private Limited Company is required to comply with such legal provisions as well.
If I’m recording all my financial transactions (incomes, expenses, purchase, sales, etc.) in an excel sheet and keeping records of bank accounts/pay slips/vouchers, am I accounting all my transactions?
Yes, you are on the right track as you that would imply that you are preparing a part of books of accounts. But it does not cover all your transactions, so in order to keep records of all the transaction you need to maintain additional books of accounts like Journal, Ledger, Trial Balance, Cash Book, P&L A/c, Balance Sheet and Cash-flow Statements in commonly accepted accounting software, such as Tally or Oracle.
If I maintain books of accounts with the help of a professional firm, is it mandatory for me to get my accounts audited? If yes, what is the frequency of audit?
Maintaining or not maintaining books by handing over the job to a professional firm does not determine whether you need to undergo audit or not. Furthermore, there are several different types of audits such as, internal audit, cost audit, tax audit and statutory audit. Each audit has its own statutory requirements, thresholds of being conducted with relevant deadlines and due dates.
Is there any difference between accounting and accounting standards?
If accounting is the product, accounting standards are its manual. Accounting standards are enacted and published by The Institute of Chartered Accountants of India which are meant to be followed by businesses for true and fair recording of their transactions. All accounting standards are not mandatory for all forms of businesses. Simply put, the bigger your business, the number of accounting standards which need to be followed.
Do I have the option of not maintaining any books of accounts if I’m incurring losses in the early phases of my business?
No, you don’t have that option since you are legally required to maintain books of accounts irrespective of profits or losses. Not earning revenue cannot be an excuse for non-maintenance of books of accounts. In fact, as long as you are entering into financial transactions, you need to record the same. Another reason for maintaining books of accounts in the years of losses is that you can file income tax returns for the same and claim the benefit of setting off losses in the future years of profit.
Can I have the option of recording my transactions manually or is it obligatory to record it through any specific software?
Yes, you have an option of manually recording your transaction. It is not at all obligatory to do it through any specific software. But it’s always advisable to maintain accounts on a specific software to eliminate any errors or miscalculations.
I am a salaried individual in an MNC and a director in a family owned business. Can I account for the transactions made by me in the capacity as an ‘employee’ and for being the director in a business’ in the same books of accounts?
No. An individual and a business are two completely separate legal entities. You may be a major shareholder of the business and an employee at the same time, but you cannot mix your own account with the accounts of the MNC. You have to be very clear about the fact that once you transfer anything owned by you to the business, it will from then onwards be treated business property. Hence, separate accounts should be maintained for individuals and businesses. Its would be a prudent practice to maintain separate bank accounts also to ensure flexibility and transparency.