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What are the advantages of bookkeeping?

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Having a bookkeeping program for a business is a way to gauge how a business is performing. Wise business owners/managers institute quality bookkeeping programs into their businesses to keep track of finances- especially cash flow – money in and money out.

Three major advantages of bookkeeping are as follows:

1. It provides for presenting relevant, timely, and informative financial data

This financial data – provided buy an accurate bookkeeping system – gives managers the information they need to make daily business operating decisions. Bookkeeping will let a manager know how much cash is on hand at any given time. Therefore, a manager can monitor this cash account and then decide if ample cash is available to make purchases. This could be purchasing more inventory, or purchasing advertising in a local newspaper to promote the business. A manager would not know what funds are available for use without the company’s bookkeeping system telling him or her.

2. It provides for the management of cash

Bookkeeping enables a business to see how money is flowing in and out of its business. Each business must pay suppliers for the goods it purchases, which are then resold to the end-customer. Bookkeeping permits business managers to see how much funds outflow is taking place to suppliers.

In addition, cash management, through bookkeeping, enables a business to see how much funds are coming in from sales to customers. Bookkeeping helps keep all customer accounts organized and up-to-date. Therefore, bookkeeping enables a business to see if they are spending too much on inventory, while not reaping the cash inflow from sales that they should. Bookkeeping figures give managers an alert that they must manage their cash flow better.

3. It provides for internal control

A good bookkeeping system is a safeguard against persistent internal theft. Bookkeeping numbers will alert a business as to whether an employee is channeling company assets elsewhere. For example, a dishonest employee may be channeling funds to his or herself, and then trying to mask this activity through altering bookkeeping records. A forensic audit of bookkeeping records (along with employee monitoring) can help detect this fraudulent activity. The issue here is that there must be an accurate bookkeeping system in place that can be investigated to trace the fraudulent activity.

It is worth it for a business to have a good bookkeeping program in place to monitor operating performance. Bookkeeping also helps a business be organized as concerns payroll expenditures and payroll taxes. Furthermore, a bookkeeping system is a way of keeping track of daily operating expenses. A business, via its bookkeeping system, can see if it is spending too much on electricity, heat, water, maintenance and repairs, and more. Bookkeeping figures will let a business manager know where costs must be cut to ensure the business remains viable and profitable.

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