Accounting and bookkeeping are the most vital part of any company of business in India. Collectively, it is a process to track, maintain and analyse financial records in order to facilitate taking company decisions. This process is best handled by professionals in order to maintain stable and accurate records in an orderly manner.
If a business has a sale, turnover or income receipts exceeding Rs. 25,00,000 in any of the preceding 3 years, makes it mandatory for it to maintain books of accounts. The professions inclusive include, legal, medical, engineering, architectural, accountancy, technical consultancy, interior design, authorised representative, film industry and company secretary.
Accounting and bookkeeping are interdependent terms. Accounting is the larger spectrum under which bookkeeping is a vital requirement. The relationship of the two is best understood as an assistant-boss relationship. Bookkeeping (the assistant) is responsible for accurate recording of financial transactions whereas Accounting (the boss) requires classification, summarizing and reporting of the transactions. Both, accounting and bookkeeping are applicable to financial terms in terms of money. Assets do not come under this record.
Accounting comprises a design of accounting systems which bookkeepers use to prepare statements, audits, cost studies, etc. Accounting tables make it easy for a stakeholder to understand the financial position of an entity for a period. The accounting process involves identifying and recording of financial transactions, preparing of ledger accounts and trial balance, preparation and analysis of financial statements. Bookkeeping is recording transactions in a certain manner related to the business operation on an entity. The process of bookkeeping involves, fining and recording financial transactions, preparing ledger accounts and trial balance.
As both, bookkeeping and accounting are limited to strictly pricing numbers, keeping accurate records have direct advantages over them. Accurate and updated records allow to track all expenses inward and outward of a company. This means it becomes easier to cut down expenses as well as increase income. The law mandates firms to comply by the legal standards of bookkeeping and accounting. At the time of tax payments, corporate firms are required to submit financial records in form of balance sheets, accounting and bookkeeping here saves time and effort if maintained on a regular basis.
Corporate taxes which are calculated on basis of the profit made in the business largely depend on efficient bookkeeping, as bookkeeping service creates profit and loss accounts of the business. Properly managed bookkeeping can ensure reduction in tax liabilities and avoid overpayment of taxes. Last but not least, it helps in budget monitoring. Maintaining accounting records allows you to understand in one glance of how the budget is being circulated throughout the business and point out if any reconsideration might help in increment of profit numbers.
Failure to produce accounting records in audits may lead heavy penalties and inaccurate accounting figures in future. Highlighting the importance of accounting and bookkeeping clarifies as to why outsourcing professionals are best fit for the job. Additionally, accounting and bookkeeping are tedious and time-consuming tasks, which if not handled professionally can put a stopper in rest of the operations of a business. Hired accountants and bookkeepers are paid for the work done and not the number of days required to actually do the work, this makes it cost efficient.
In a nutshell, accounting and bookkeeping practises are defined in order to ensure that businesses function to the best of the abilities with least amount of money going down the drain. Every business contributes, in some amount, to the economy of the country. Practise of maintained records minimalize the probability of recurring losses to the company and on a larger scale, to the economy.