September 17, 2023

Learn what is the best way to record your transactions for your Business.

It can be a bit of a brain snap trying to work out the difference between Cashbooks, Bookkeeping and Accounting.  Each of those generally refers to the complexity of the systems used to record transactions and then format that data into a desired interpretable outcome that business owners can make decisions on. 

So the question is... what level of complexity do you need to undertake  transaction recording and business management to ensure you're on track to survive the world of business?

Management action based on performance results is the key to business success. Whether you’re a small business owner, self-employed, or running a home-based business, making sure your are tracking your transactions is critical.

Fundamentally you have three options and each option varies in the level of expertise needed.  Selecting the right level is essential to ensure the correct allocation of resources at the small business level.  Selecting something that is too complex and beyond you capabilities will create frustration and tension and ultimately result in costly training or the engagement of other persons to assist in your data collection.

This data collection can be done through a cashbook, a bookkeeping system, or an accounting system. Each of these methods has its own merits and complexities.

For small businesses, a cashbook often proves to be the most efficient and manageable option. So let's have a closer look at these options, just for you, so you can make an educated decision on the best way to record and manage your business transactions.

Now keep in mind that eCashbooks is a proud sponsor of keeping things simple and not over complicating your business life with endless wasted hours on "doing the books".

What is a Cashbook?

A cashbook is the simplest form of business record keeping.  It dates back to the early evolution businesses and the needs of business owners to track the monies.  It's a system that comprises a simple ledger that lists Money In and Money Out, the cash inflows and outflows, including bank deposits and withdrawals. This simple yet effective tool provides a snapshot of the business’s cash position at any given time. 

What is Bookkeeping?

Bookkeeping is the next level up. It involves recording, categorising, and reconciling all financial transactions in a business, not just cash-based ones. This includes sales, purchases, income, and expenses. Bookkeeping ensures that records of these individual financial transactions are accurate, up-to-date, and comprehensive. It’s the basis by which a businesses financial position can be assessed.

What is Accounting?

Accounting goes beyond bookkeeping by using the financial information compiled to produce financial models and provide strategic insights. It involves summarising, interpreting, and communicating the financial transactions, which have been classified and summarised in a way that business decisions can be made effectively. Accounting provides a comprehensive view of the business’s overall financial position.  It is required for business of significant size that need to make sense of the multitude of transactions that flow through the operation.

Differences and Skill Levels

The primary difference between these three lies in their complexity and the scope of financial information they handle. A cashbook only records cash (including electronic) transactions, making it the simplest form of financial record-keeping. Reconciliations are not an absolute in any cashbook systems. Bookkeeping covers all financial transactions, making it more complex as it requires categorisation and reconciliation of all financial data. Accounting is the most complex as it involves analysis and strategic interpretation of the financial data and generally needs a three year college degree to assist in its understanding.

The skill level required for each increases accordingly. Managing a cashbook requires basic numeracy and an understanding of your business’s cash flow. Bookkeeping requires more advanced skills like data categorization, reconciliation, and proficiency with bookkeeping software. Accounting requires formal education in accounting principles and practices.

Why a Simple Cashbook is Enough

For small businesses, maintaining a simple cashbook can often be enough to meet their needs. It helps track cash flow – an essential aspect of small businesses – and can be managed with minimal accounting knowledge. It’s an efficient way to keep your financial records organised without getting into the complexities of full-scale bookkeeping or accounting.

While bookkeeping and accounting are important for large businesses with complex financial structures, for small businesses and self-employed individuals, maintaining a well-organised cashbook will often do. It provides the necessary information to understand your business’s function without overwhelming you with unnecessary details.

Be aware that accountants are familiar with "accounting" and generally like their business clients to use comprehensive accounting systems.  This often does little to the confidence of business owners and as a consequence makes them heavily reliant on their accountants for support.

eCashbooks blends the simplicity of the cashbook system with some really handy outputs to help you manage your business.  This coupled with an accounts receivable system and some nifty analytical tools will surprise you with what can be done with limited simple information.

eCashbooks, sign up now and make this blog post pay for itself.






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