Importance of keeping a good set of accounting records for your business

Importance of Keeping Accounts

Lenders, financial advisers and debt-management firms often advise small firms to employ a double-entry system of bookkeeping to ensure that profits and losses are accounted for in full. Accounting mistakes can be extremely costly, so minimizing errors on the front line is essential. If mistakes go unnoticed, businesses can quickly rack up debts. Unexpected tax penalties might also be imposed at the end of the financial year.

Maintaining a good set of accounts enables firms to know exactly where money is coming from and where it is going. An individual will often sink into debt when he or she fails to address an income and expenditure imbalance. The same is true of any business. Understanding how cash flow is operating on a day-to-day basis can make the difference between profitability and bankruptcy.

Accurate accounting can also help firms save money. Daily or weekly cash-flow reports provide managers with up-to-date information on the financial health of their companies. The reports can also uncover disbursements for services that may be tax deductible. Businesses that employ more than one person should also maintain additional ledgers for payroll to ensure that tax is dealt with easily at the end of each year.

Physical Records

Documents, receipts, cheque slips, contracts, orders and any other tangible record of a financial transaction should be filed under lock and key. Accounting software is immensely useful for evaluating profits and losses, but apart from sometimes saving images of scanned documents, it is unable to retain evidence of all transactions, many of which will not be electronic. Maintaining a physical filing system remains important for most small firms.


Times may be tough, but finding the money to invest in good accounting software can pay off in little time at all. An effective accounting system can facilitate budgeting, expose cash-flow problems and identify areas in which money can be saved or invested.

Accounting software should be regarded as the first step towards stabilizing the business activities of a small firm. The programs provide managers and proprietors with real-time information about the financial health of a company. Software is just as useful for managing a business on a day-to-day basis as it is for assessing finances over the month, quarter or year. Managers and in-house accountants might undertake training to learn how to use software effectively.

Professional Accounts

All business owners should realize that installing accounting software, filing receipts and reviewing cash-flow reports are necessary steps to take to ensure the efficient operation of a company, but they should also know that none of these steps can take the place of a professional accountant.

In-house or third party accountants should always be used to go over the company books at the end of the financial year. Accountants are trained to spot basic errors and they are adept at finding ways to save money. Relying on the services of a professional accountant can also prevent a business from paying more tax than is necessary. When handling financial matters, it is always sensible to scrutinize data several times.


One measure that all small firms should implement is an efficient, reliable system of accounting. If checks are to be balanced effectively, companies must keep a record of all financial transactions. The current state of the economy affords no room for error on this, as small business owners must scrutinize every cent that leaves and enters the company.

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