Running a small business requires you to keep your books accurate. It enables you to keep track of your daily financial data, keep an eye on your cash flow, and evaluate your success. Every firm must follow basic accounting concepts to ensure the most accurate financial situation.
Daily bookkeeping tasks involve several different responsibilities. What bookkeeping duties should be completed each day? What transaction needs to be reviewed every week? You should organise your tasks into monthly, quarterly, and annual priority lists.
A bookkeeping task list or checklist will be helpful because there are many things one must manage to stay on top of their accounting records. We’ll go over the fundamentals of day-to-day bookkeeping principles in this article.
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Principles of bookkeeping
Basic day-to-day bookkeeping principles are a business’s guidelines when reporting financial data. Several fundamental bookkeeping rules have evolved through comprehensive implementation.
The foundation upon which the entire bookkeeping rules are constructed consists of the following:
Revenue is the total amount of cash, receivables, or other considerations received by an organisation through its regular operations, including the sale of goods, the provision of services, and the use of its resources by third parties, which result in interest, royalties, and dividends.
It does not include money received on behalf of third parties, such as taxes. In an agency partnership, the revenue is the amount of commission and not the gross inflow of cash, receivables or other considerations.
2. Full disclosure principle
The Full Disclosure Principle states that financial statements should be used to convey information rather than conceal it. According to this principle, the bookkeeper must include all relevant and trustworthy information that the company claims in the financial statement to represent for users to utilise it.
The information must be considered and represented in accordance with its substance and economic reality, not just with its legal form.
3. Matching principle
The Matching Principle states that the costs spent during a bookkeeping period should equal the revenues recognised during that time. For instance, if a period’s sales are entirely recorded as revenue, the cost of those sales should likewise be charged to that period.
According to this idea, prepaid expenses, unpaid expenses, accrued revenue, and unearned revenue must be adjusted. Matching does not require that costs and revenues be identifiable. The bookkeeper must only charge expenses on those sales that have been fully paid up until that point and not record revenue on all sales.
Since it ignores the time and magnitude of actual cash inflows and outflows and instead focuses on the incidence (i.e. accrual) of revenue and expenses, this idea is essentially an accrual concept.
4. Conservatism principle
The conservative principle requires that possible expenses and liabilities be recognised immediately, even if bookkeepers are unsure how to report an item. It instructs the bookkeeper to anticipate losses and select the option that would produce lower net income and a lower asset value.
For instance, potential lawsuits might be considered as losses and are reported but potential gains from other ways are not.
5. Materiality principle
The materiality principle lets bookkeepers use their best judgment whenever they record transactions and fix mistakes.
When a bookkeeper prepares tax returns or reconciles the books, the materiality concept is frequently used. They can ignore the error if they find that the numbers are incorrect by a small margin in light of the company’s total size.
No dollar amount, percentage, or threshold is used for the materiality principle. It’s up to the bookkeepers to use their professional opinion to decide.
6. Cost principle
The value of products changes over time. But the cost principle states that the value of a product does not change its cost on the financial reports.
Consider purchasing a building whose worth has increased over the recent years. However, the asset still needs to be recorded as the purchase price. The simplest way to understand this principle is that you cannot confuse value and cost.
Depreciation entries or a gain or loss from the sale of an item will represent value changes. However, you cannot rely on your financial accounts if you want to determine the value of your business without selling any assets.
7. Monetary unit assumption
According to the monetary unit assumption rule, you must record your business relationships in a single currency. For those accepting foreign payments and conducting business worldwide, this will need additional work.
In accordance with this principle, currencies’ purchasing power must also remain constant, which means inflation over time must not be considered. Therefore, you cannot use inflation in your financial reports even though your company has been operating for 20 years.
Why are the principles of day-to-day bookkeeping significant?
The goal of establishing and following accounting standards is to convey financial information from one firm to another in an acceptable and understood manner. Businesses must follow these guidelines when creating their financial statements if they intend to disclose them to the public.
The business legislation and other rules specify the bookkeeping principles a company or other firm must use based on the features of the entity. Generally Accepted Accounting Principles (GAAP) is the Standards Bookkeeping principle.
It serves as a guideline for businesses on compiling and presenting financial statements by providing the framework foundation of Bookkeeping rules, concepts, objectives, and responsibilities.
The primary function of bookkeeping
A bookkeeper’s primary responsibility is managing your company’s financial data. A bookkeeper should be able to compile reports that give you an overview of the economic situation of your company at any given time.
More specifically, A bookkeeper’s duties include:
● Keeping a record of financial transactions. This includes entering data for all invoices, payments, and other financial transactions.
● Keep track of every transaction that enters or leaves your accounts, posting debits and credits.
● Generating invoices, creating, sending, controlling, and documenting any payments you owe or are due.
● Maintaining and balancing general ledgers, subsidiaries, and historical accounts. A general ledger is the primary system for maintaining financial records in your company.
It contains transaction data organised by type (such as assets, income, expenses, obligation, etc.) and all the account information required to create crucial financial statements.
● Responsible for Handling all payroll functions if you hire freelancers or contractors to assist you with business duties.
● A bookkeeper should ideally update your books at the end of every working day. You will always be aware of the actual state of your finances in this manner.
Hiring a part-time or freelance bookkeeper to balance your funds once a week may make more sense if you’re starting and don’t yet have daily income or spending.
Bookkeeping tasks you should perform daily
The bookkeeper communicates regularly with department heads to discuss their inventory requirements and serves as a link between several departments.
The bookkeeper contacts the vendor and orders new inventory if any department is running low on stock. Additionally, bookkeepers in small business organisations are in charge of keeping track of and updating inventory information.
For clients and colleagues, a bookkeeper must create an environment of open communication. Bookkeepers must connect with other staff members to manage travel expenses, refund employee expenses, reconcile petty cash, and perform other tasks.
On the contrary, clients might require more time to clear their payments and may want to clarify some details in their invoices; in either case, they will get in touch with the bookkeeper.
A bookkeeper should often speak with clients and co-workers via phone, email, or other means of contact.
Manage your emails
If you still do not use paperless accounting, your bookkeeper should go through daily emails and sort essential emails, such as customer checks, bank and credit card statements, purchase invoices, etc.
The daily online bookkeeping services you can access if your firm has gone digital include checking client emails, issuing digital invoices, paying bills online, etc.
Bookkeepers must collaborate with the HR department and handle payroll accounts for each employee per the various employment conditions and legal employment regulations. Even though payroll is only done once per month, payroll accounts must be balanced throughout the month for employees to be paid on time.
Bookkeepers must review all journal entries at the end of the day to determine which entries require revision. For instance, if you have printer ink listed under stationary expenses but want to transfer it to consumable goods, do it immediately because you might forget if you wait.
Petty cash management
For daily business operations to run properly, petty cash is necessary. Therefore, bookkeepers must keep a petty cash book, record slips whenever money is taken out, input petty cash entries into software, and reconcile the book at the end of each month.
The main goal of bookkeeping is to keep daily records of all financial activities and data relevant to a company. The bookkeeping principles guarantee the integrity and accuracy of each financial transaction.
You will better understand how and why things are done in a specific manner if you are familiar with these standards. Additionally, it will facilitate communication between you and your bookkeeper.