Accounting Bookkeeping Is A Foundation of Business Success
Accounting bookkeeping is the foundation of keeping score in your business. It is very similar to knowing how to keep score in golf or bowling. If you want to improve your golf game or your bowling game learn how to keep score in those sports. You will be surprised at how quickly your performance will improve.
Accounting bookkeeping in business is the scorecard for your business game. When you know the score, you know where you are doing well, and where you need to improve. You can then concentrate your energies in areas that need improvement. There is something magical about seeing the score in plain, concrete text and numbers.
Research surveys done by some university business schools have shown that the vast majority of successful business owners understand accounting bookkeeping. And conversely, a small minority of business owners that fail understand it.
Most accounting bookkeeping today is done by computer software. That is both a blessing and a problem. The blessing is that it is faster and reduces errors among other things. The problem is that it gives business owners a false sense of security in understanding the financial performance of their business operations.
Using computer software to do your financial tracking when you don't understand it is like doing math on a calculator when you don't understand how to add, subtract, multiply or divide, etc. You certainly can do it, but mentally you don't know the relationships or details of what is happening in the transactions.
If you want to understand the financial performance of your business you need to learn accounting bookkeeping from the ground up. That is, you need to learn how to do it manually, by hand.
The best way for a CEO to keep score in his business is to do the bookkeeping manually at least using summary totals from day to day financial results. You can still do your financial recordkeeping by computer software, but for your own purposes you need to have the numbers and financial facts at your fingertips, and visually before you.
A business owner needs to work through the numbers and financial facts in his head to really get a grip on how his business is doing financially. There is only so much time in the day of course, so you will need to get some help with the financial recordkeeping if your operation is of significant size or sales volume.
Most small business owners tend to do their financial recordkeeping by the cash method. The cash method is when you record revenues and expenses as the financial cash transactions occur. You only record financial transactions when cash changes hands. They then give the numbers to an accountant to do the double entry recording.
Double entry bookkeeping, called accrual accounting, is the preferred method for really having an accurate picture of your business financial performance. The double entry system matches revenues and expenses in the period that the transactions occur regardless whether cash changes hands or not.
Generally, using computer software to do your accounting bookkeeping is like doing cash accounting on the surface, but your software program is actually doing double entry recordkeeping in the background. You only need to enter the transactions, cash or not, and the computer program does all the double entry recordings without your knowledge in its core program.
The fact that computer accounting software does double entry recordkeeping in its core should tell you something. It should tell you that simply doing single entries for financial transactions such as just recording a sale or an expense isn't excellent financial recordkeeping.
Once you know how to perform double entry financial accounting you will really know how to manage your business. Your confidence and active management of your business will also improve.
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