Cash flow is an important part of business. If you don't have more cash coming in than is going out, your business is not going to do well, and may go under. Bookkeeping is an essential tool for making sure you know your cash flow situation. Bookkeeping is simply keeping a record of the value of assets, liabilities, income, and expenses. It differs from accounting in that accounting is the system of recording, verifying, and reporting bookkeeping information. A bookkeeper's work is closely related to an accountant's, but is not the same. So what is it that makes a bookkeeper, a bookkeeper?

1. Bookkeeping Systems
2. Daybook and Journals
3. Petty Cash Book
4. Ledgers
5. Chart of Accounts

Let's define and take a look at each of these parts of bookkeeping to find out why each is important.

Bookkeeping Systems

There are two common bookkeeping systems: the single-entry bookkeeping system, and the double-entry bookkeeping system. The single-entry bookkeeping system is the more widely used in small businesses, because it uses only income and expense accounts and each transaction is only recorded once in a running ledger, much like a personal check ledger. The double-entry bookkeeping system is much more involved.

The single-entry bookkeeping system is the more widely used system for small businesses because it is less expensive to maintain and does not require the services of a trained professional. The primary record of this type of system is the cash book. A cash book is similar to a check register, but allocates the different incomes and expenses to an assortment of accounts, such as sales, inventory, office supplies, etc. The accounts will be unique to the business using this system. The overall use of the single-entry system is to record the total money earned, used, and on hand. This method of bookkeeping is more prone to mistakes as there is no way to check for errors, other than going back through every entry. This is why most businesses use the double-entry bookkeeping system.

The double-entry bookkeeping system is essential for large, more complex businesses. It is called double-entry because each transaction is recorded in at least two accounts such as the "Sales" account, "Bank" account or "Purchases" account. One account has a credit recorded, while the other has a debit recorded. This is a crucial record of credits and debits as the accounts must remain in balance and agree with each other when it is time for an accounting. If they don't agree, a mistake has been made in the record and must be found and corrected before the bookkeeper's accounting is done. Mistakes are easily found and corrected in this type of bookkeeping system.

Daybook and Journals

A Daybook is a descriptive, diary-like, chronological record of day-to-day financial transactions recorded on the day they occurred, for later posting to the appropriate ledger. It can also be called the book of original entry and is used in concert with other ledgers and journals. There are several types of daybooks. The sales daybook is a record of all sales invoices. The sales credit daybook is a record of sales credit notes. The purchase daybook is a record of all purchase invoices, and the purchase credits daybook is a record of all purchase credit notes. Then there is the cash daybook which may actually be comprised of two daybooks: receipts daybook of all cash received, and the payment daybook of all cash paid out. In some large businesses, daybooks are obsolete, but they are still commonly used elsewhere. Journals are often synonymous with daybooks. They are a chronological financial record for specific accounts before the values are accounted for in the general ledger.

Petty Cash Book

The petty cash book is a record of small value purchases that would not be practical to make the disbursement by check. The initial cash fund would be set up with a select amount of cash, say $1000. When money is taken out of the petty cash fund, it is recorded and a petty cash voucher will be put in and the money disbursed. At any given time the amount of petty cash available plus the vouchers must equal the original amount of the fund. The petty cash book helps to keep clear what the funds were used for so the appropriate account can be debited, and the vouchers replaced with cash from the correct account.

Ledgers

The ledger, or book of final entry, is a record of accounts with its balance. Unlike a journal or daybook, the ledger lists each financial transaction by type into separate accounts and gives a final balance. Each account in the general ledger is coded and value surmised. The ledger is the basis for a business's income statement and balance sheet.

Chart of Accounts

The chart of accounts is the list of account codes that can be identified by numeric, alphabetical, or alphanumeric codes. The chart of accounts assists the bookkeeper in identifying the different accounts in each of the ledgers. The list is usually arranged in the order of accounts as they appear on the business's financial statements.

With everything you have to keep straight for bookkeeping, its nice to know there are computer programs out there that help you do it right. In the next section we'll take a look at bookkeeping software and some helpful tips on what needs to be included to help your business run smoothly:

1. Easy to use interface
2. Will the software support growth
3. Does the software support upgrades
4. Can the information be exported
5. Support

When you are purchasing new software, you want to know all about it, but sometimes don't know where to start. Let's take a look at each of these tips in turn and find out why you should pay close attention to the details.

Easy to use interface

The first and probably most important question to ask is whether the software is easy to use. Most business owners that find themselves going back to bookkeeping with paper and pencil after purchasing an expensive software product do so because the software completely confuses them. You have a business to run and can't take months, weeks, or even days to figure out a new program and how to use it. If it takes more than just a few hours to learn about the software, you probably can't put the effort in to make it worth what you paid for it. Before you buy, check it out. Many manufacturers of bookkeeping software offer a free trial version for download. Take advantage of that offer and try it out. If it doesn't suit your needs, you can try something different, but at least you are going into your purchase with that knowledge. Most of the major manufacturers of bookkeeping software are aware that their clients want easy to use interfaces. The newer the version, the easier it will be to learn how to use it.

Will the software support growth

Every business wants to grow, that's how you make money, but if your bookkeeping software won't support that growth, its time to find something new. Before you purchase, find out how many clients it will support, how much data it will store, and if storage expansion is available. Find out how much volume it can handle. And probably most important, if I reach the bookkeeping software's capacity for storage, will it alert me in time? If it doesn't, there could be serious consequences such as data loss. Not all software is created equal, so find one that will grow with your business, not limit its potential.

Does the software support upgrades

Let's face it, in our time, technology changes, and most of the time for the better. If you are buying bookkeeping software, make sure you can upgrade it without loosing anything. If your data won't transfer to the new and improved version, then it has to be left behind, which is never good for your financial records. Find a program that supports and encourages upgrades.

Can the information be exported

Information sharing is important, especially when it comes to finances. You want to share your records with a few people, and probably number one on the list is your accountant. But what if he doesn't use the same software application as you? Before you purchase make sure you can export your financial records to other software applications without anything being lost.

Support

Last, but not least, be sure to know what kind of software support is offered with your bookkeeping software purchase. Many manufacturers offer online and phone support, while others have help integrated into the software itself. If you are new to bookkeeping, especially by computer, live support may be what seals the deal on your new bookkeeping program, while others just need a helpful tip here and there to get the job done.