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

For example, you may have estimated certain invoices that are later solidified with an actual number. The debited account is the one that receives or loses value, and the credited account is the one that gives or gains setting up the zip value. The golden rules of accounting can help ensure that your bookkeeping is accurate and up-to-date. To uncover errors, check whether you forgot to record an entry in either column of your accounting ledger. Tracking your expenses is an essential part of managing your finances. By keeping track of every dollar you spend, you can gain insight into where your money is going and make informed decisions about allocating your resources.

Accounting equation

Outsourcing your bookkeeping is another option, and this guide on how to find the best virtual bookkeeping service can help you get the process started. But for the sake of explaining the basics of bookkeeping, here are the first seven steps you’ll need to walk through to get your bookkeeping machine humming. When you’re stuck in the minutiae of reconciling your transactions, this won’t feel like “seven easy steps”. The IRS also has pretty stringent recordkeeping requirements for any deductions you claim, so having your books in order can remove a huge layer of stress if you ever get audited. There are several effective ways to manage bookkeeping responsibilities in-house or externally by using helpful tools and technologies. When it comes to budgeting for bookkeeping, the difference hinges on whether you hire or manage using software tools.

If you have mistakes to fix or transactions to track down, don’t stress. Most of the time, a qualified professional can correct or document these errors. When hiring external team members, keep in mind that some of the responsibility still falls to you as the proprietor. Accountants rely on bookkeeping records to analyze and advise on the financial activity, health, and growth potential of a business. Bookkeeping focuses on recording and organizing financial data, including tasks such as invoicing, billing, payroll and reconciling transactions.

Choose accounting software that works for your needs.

You can also learn how to use Excel to keep your books or create your business budget with Google sheets. If you’re paying employee taxes or sales tax, you’ll need to prepare a quarterly report for remitting payments to the IRS and other required taxing agencies. Income is recorded as it’s received; otherwise, it’s not considered revenue. A disadvantage of the cash method is that it only provides a short-term look at your company’s financial health. Cash-based accounting is the simpler of the two methods and is used for short business cycles when inventory is not involved. Businesses that sell directly to consumers and have annual revenue over $25 million can’t use this method.

1. Once the entries are assigned to the correct accounts, you can post them to the general ledger to get a bird’s-eye view of your current cash status.
2. Local bookkeepers, in-house bookkeepers, and freelance bookkeepers, to name just a few.
3. Comparing revenue and expenses in income statements across months or years reveals trends in sales growth, profitability, and cost management.
4. The more information (and supporting documents) you can give your CPA at tax time, the more deductions you’ll be able to legitimately claim, and the bigger your tax return will be.
5. A small business can likely do all its own bookkeeping using accounting software.

bookkeeping tips every small business can benefit from

Income statements feature the business expenses and revenue by different categorized profit centers. Accounting software eliminates a good deal of manual data entry, making it entirely possible to do your own bookkeeping. However, it can be difficult to catch up if you fall behind on reconciling transactions or tracking unpaid invoices. Regardless of your small business’s complexity, bookkeeping will still take time out of your week, so be sure you have the resources before committing to handling it yourself.

When accurate financial reports are so readily available, it only makes sense to check them routinely in order to take the temperature of your business. Consider adding this as the final task depreciation definition on your weekly bookkeeping check-in. After you’ve entered your transactions and double-checked your documentation, run a quick report.

The customer is more likely to pay fast, given that the service is fresh in their minds. You can set invoice reminders so your customers remember that they pay you within 30 days of the delivery or receipt. If the cost starts to approach the actual cost of outsourced bookkeeping, it’s time to consider taking the load off your back. For growing businesses, it’s important to recognize the best time to make the most out of the opportunities that arise. But you need the receipts for expense categorization, documentation for deduction support, and more. Also, well-documented and organized receipts can significantly help during audits.

Consider exploring these solutions to unlock a new level of efficiency and peace of mind in managing your business finances. Developing a strong foundation in accounting empowers you to confidently navigate the financial world. Understanding key accounting principles, like accrual accounting or the matching principle, will help you interpret financial statements and make informed decisions.

Keep Track of Accounts Receivable

However, you may reach a point where no enthusiasm or persistence level can help. Bookkeeping is often the first aspect of the business to suffer. The income statement keeps committee on accounting procedure track of the cash that flows in and out of the business. When you review the sales shown on your financial reports for the past few months, you can get insight into your future sales.