Bookkeeping basics: A guide for small businesses

Although it’s more complicated, it can prevent bookkeeping errors. And since it takes equity, assets and liabilities — on top of expenses and income — into account, it typically gives you a more accurate financial snapshot of your business. The advent of accounting software significantly lessened the tediousness of bookkeeping by handling debits and credits for you in the background. And technologies like optical character recognition (OCR) and bank feeds have come just short of fully automating the traditional bookkeeping process. Data entry can now happen as soon as you snap a photo of a receipt with your smartphone.

Generally speaking, accrual accounting is better for larger, more established businesses. It gives you a more realistic idea of your business’ income and expenses during a period of time and provides a long-term view of the business that cash accounting can’t provide. If you wait until the end of the year to reconcile or get your financial transactions in order, you won’t know if you or your bank made a mistake until you’re buried in paperwork at tax time. Regularly organizing and updating your books can help you catch that erroneous overdraft fee today, rather than six months from now, when it’s too late to bring up.

Types of bookkeeping accounts for small businesses

In this module, you’ll be introduced to the role of a bookkeeper and gain an understanding of how to use the accounting equation and double-entry accounting. It’s never too early to take ownership of your bookkeeping policies. By following the tips and best practices outlined in this guide, you’ll be more equipped to set a strong financial foundation for future growth, profitability, and ultimate success.

• By this stage, you’ll have set up all your financial accounts and chosen a bookkeeping method.
• It will help you physically run a periodic stock check to confirm that the inventory products match the record on the books.
• As a business owner, you are faced with business decisions day in and day out.
• If you want to know what’s happening in your business and make the right financial decisions, bookkeeping should be a non-negotiable part of your business.
• Whichever way you do it, it’s important to complete the process on a regular basis.
• The cash flow statement shows the movement of cash related to financing activities, investing activities, and operating activities.

A bookkeeper checks for errors when creating reports and managing the general ledger. You will check bank deposits for fraud, fix balance sheet errors, and maintain accurate payroll records. Bookkeeping is largely concerned with recordkeeping and data management.

A Beginner’s Guide to Bookkeeping

When it comes to budgeting for bookkeeping, the difference hinges on whether you hire or manage using software tools. Bookkeeping beginners need quick wins to get started quickly and efficiently. The tips below are industry standards that will help any small business excel at bookkeeping. The American Institute of Professional Bookkeepers, for example, https://www.bookstime.com/ grants the Certified Bookkeeper Designation. To earn this certification, you must submit evidence of at least two years of full-time bookkeeping experience, sign a code of ethics, and pass a four-part certification exam. There is very little point in doing all of these steps if you aren’t using this information to make better business decisions.

And don’t worry, the bulk of work has already been done once all of your transactions are classified and reconciled. These programs allow you to perform monthly, weekly, and even daily bookkeeping tasks. This process should be completed bookkeeping 101 at least monthly to stay on top of your finances. If the IRS finds out that these types of businesses don’t have a separate account, this could mean the END of their business and grounds for termination by IRS standards.

Income Statement

By this stage, you’ll have set up all your financial accounts and chosen a bookkeeping method. When it comes to bookkeeping tasks, there’s a great deal to learn. If you have mistakes to fix or transactions to track down, don’t stress.

• In this process, you tally up all accounts to ensure that no money or assets are missing.
• Because bookkeeping is based on double-entry accounting, each transaction affects two accounts — one gets debited and the other is credited.
• Bookkeepers and accountants both work on keeping accurate financial records, but they differ in how they operate.
• If your business chooses to keep this task in-house, it’s best to stick to a predictable expense tracking schedule.
• These reports provide you with a transparent and accurate view of your business’ current standing.

If you’re struggling with getting started with your bookkeeping, don’t keep struggle on your own. Although you don’t have to be an accountant to master bookkeeping basics, it can still be challenging — especially for a more complex business. You must always ensure secure storage of your bookkeeping records. Following the bookkeeping basics above will make the process easier and help you to stay compliant with industry standards. You can even pay a bookkeeper, accountant, or third-party company to manage bookkeeping accounts on your behalf.