Bookkeeping Basics for Small Business Owners: Everything You Need to Start Doing Your Own Bookkeeping

Posting activity to your checkbook is a single-entry accounting system. When you write a check, you post one transaction that reflects a decrease in your bank balance. To understand the importance of bookkeeping, think about your company’s stakeholders.

Your cash flow statement helps you understand how money moves into and out of your business. To prepare a profit and loss statement, first include all the revenue your business made during that period. Finally, subtract your total expenses from your total revenue to get your bottom line. Before you start bookkeeping, you need to determine the right bookkeeping https://www.bookstime.com/articles/accrued-interest method and corresponding accounting method for your business. The specific answer to this question can vary somewhat depending on the extent of bookkeeping services your company needs, and how often you require the services of a small business bookkeeper. For full-time bookkeepers, the average annual salary sits around $77,000, according to Glassdoor.

Maintaining Cash Flow & Improved Financial Management

Note that the golden rules assume you use the double-entry bookkeeping system. Balancing your books allows you to catch any errors or mistakes in your bookkeeping. After you have a bookkeeping system in mind, the next step is to pick an accounting software. There’s a variety of spreadsheet software you can use, such as Microsoft Excel, that can be used for simple bookkeeping.

Purchase receipts should always be kept as proof that the purchases took place. It might feel daunting at first, but the sooner you get a handle on this important step, the sooner you’ll feel secure in your business’s finances. Remember that the basic goals of bookkeeping are to track your expenses and profits, and to ensure you collect all necessary information for tax filing. Business accounting software and modern technology make it easier than ever to balance the books. A platform like FreshBooks, specifically designed for small business owners, can be transformational.

Bookkeeping Basics: A Beginner’s Guide For Small Business Owners

Although it is popular or best suited for medium to large enterprises, small businesses that need more functionality than the average accounting software can provide can use it. Bookkeeping is more difficult when you merge your business and personal funds into one account. There is that tendency to overspend on personal things, and take money out of your business. When handling your bookkeeping tasks, approach them with a fresh and engaged mind. Usually, the time of the day when we are most productive is at the start of the day. If in May, your cash account had $2,000 in debits (increases) and $10,000 in credit (decreases), you would have to adjust the cash account balance by a total of $8,000 (as a decrease).

If you have employees working with your small business, let them know how important it is to save receipts and itemize them. Create a centralized system through which they have to record all receipts and itemize all expenses. If you have seen a bank statement and cannot recognize an expense no matter how hard you try to think and look at your books, you are doing a poor job at tracking and recording your expenses.

Preparing Financial Reports

There are two accounting methods that businesses use, they are accrual accounting and cash-based accounting. Every item you record for your financial transactions has to be accurate. It is important to take out time to validate the accuracy of the data you have. A little mistake can cause huge damage to your finances and cause you to work on the wrong assumptions. Liabilities refer to the debts and obligations that a business owes. Examples of liabilities include accounts payable, loans, interest payable, and unearned service revenue.

An online accounting system may provide a number of benefits that can save you time and reduce the risk of error. Assuming Riverside paid $100 in overhead, you can subtract revenue and material, labor, and overhead costs to calculate their profit from the Joneses’ project. Tracking your A/R, usually with an aging report, can help you avoid issues with collecting payments.

Most accounting software allows you to automatically run common financial statements such as an income and expense statement, balance sheet and cash flow statement. Business owners or accountants can then use these statements to gain insight into the business’s financial health. Bookkeeping is the regular practice of updating a company’s financial records to reflect all financial transactions, credits, and debits. Good bookkeeping is necessary to produce accurate, detailed financial reports.

Accounts receivable (A/R) is the money your customers owe you for products or services they bought but have not yet paid for. It’s important to track your A/R to ensure you receive payment from your customers on time. Generally, if your assets are greater than your liabilities, your business is financially stable. Note that certain companies, such as those in service-based industries, may not have a lot of equity or may have negative equity. With so many transactions you are now getting thanks to growth, keeping up with them can be overwhelming. As a business owner, you have no business learning about the latest accounting terminology or crapping 100s of accounting terms in your head.

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If your inventory costs fluctuate between the first and last items, this bookkeeping method helps keep the most accurate records possible. As a business owner, you’ll most likely have to create a complete financial report at least once a year, for tax purposes. However, there are plenty bookkeeping basics for small business owners of reasons to make quarterly, or monthly financial statements as well. Frequent financial reports are a great way to check on your budget, and figure out where you can make adjustments if necessary. Bookkeeping software helps you prepare these financial reports, many in real-time.