What is Bookkeeping? What tools/software's are used for bookkeeping?

What did I want to do?

• I wanted my kids Ash (12 years old) and Adh (10 years old) to get an understanding of accounting concepts... gradually.
• I wanted to use this opportunity to make them do the actual bookkeeping so they get to see different invoices. This will give them an opportunity to practice entering transaction records. Based on each new type of transaction they record, I can teach those relevant concepts.
• We have already gone through the basics of accounting.

What is bookkeeping?

• Bookkeeping is the process of entering and recording a person's or company's transactions.
• These transactions could include incoming money for the sales that the company makes.
• These transactions could include outgoing money for the expenses that the company spends on.

Why should you do bookkeeping?

There is a long list, but let's keep it simple. Some critical reasons why we need bookkeeping:

• Budgeting: Budgeting is the mechanism to understand, estimate and forecast the potential future expenses and income. This will help us make decisions to change in business based on the estimated future expenses and income.
• Preparing financial reports & statements: Financial statements need to be formally documented, typically quarterly or annually, to meet regulatory requirements.
• Filing Taxes: Businesses generally have to file tax returns at the end of the financial year, including any additional taxes such as GST or Payroll taxes, which may need to be filed more frequently.
• Peace of mind: It is better to keep records in bookkeeping routinely in a timely manner. Not providing financial statements on time or failing to pay taxes on time can lead to heavy penalties.
• Creating forecasts: Forecasting is a way to plan and predict future cash flows and budgets.
• Managing invoices: Recording the invoices received is essential to ensure that businesses pay the suppliers and vendors on time.
• Bank reconciliation: Bank reconciliation is mapping the transactions in the bank account to the data we have recorded in the bookkeeping system.
• Payroll: Payroll is the calculation of employee pay/salary/wage, deducting things like tax and other contributions, and then distributing money to the employee the right amount.
• Business Planning: Business planning to ability to plan the next steps of actions the business needs to execute within a specific time plan (usually 6 months or 1 year).

What tools are available to help with bookkeeping?

This is not a comprehensive list.. but these are the tools that are available in the market. I researched these tools before settling with one.

Note: I decided to use Xero for my small businesses.

• Quickbooks
• Xero
• MYOB

Next Step

Now that the kids understand what bookkeeping is, the next steps are to:

• Give them access to the bookkeeping software
• Record the first invoice