Bookkeeping basics: A guide for small businesses
This accounting method is useful for businesses with inventory or accounts payable and receivable. Single-entry accounting records all of your transactions once, either as an expense or as income. This method is straightforward and suitable for smaller businesses that don’t have significant inventory or equipment involved in their finances. It doesn’t track the value of your business’s assets and liabilities as well as double-entry accounting does, though. Accounting is the umbrella term for all processes related to recording a business’s financial transactions, whereas bookkeeping is an integral part of the accounting process.
Keep your personal and business finances separate
Instead, small companies generally hire a bookkeeper or outsource the job to a professional firm. One important thing to note here is that many people who intend to start a new business sometimes overlook the importance of matters such as keeping records of every penny spent. Most of the time, a qualified professional can correct or document these errors. 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.
Choose an entry system
While bookkeeping provides oversight into each individual transaction (in order to catch discrepancies and correct mistakes), accounting provides a thorough analysis of these numbers. Though often confused for each other, there are key differences between bookkeeping and accounting. At its core, bookkeeping is about recording financial data, while accounting is about interpreting financial data. Bookkeepers make sure the information in the books is accurate and that the books are reconciled each month. It’s important to note that not all lenders and investors require certified or audited financial statements.
- There are many ways to divide bookkeeping responsibilities and leverage powerful technology and small business accounting software for more accurate expense tracking.
- Bookkeeping is different from accounting in that it is the critical first step in tracking all business activities.
- If not done at the time of the transaction, the bookkeeper will create and send invoices for funds that need to be collected by the company.
- You can use these to make business decisions, but they should not be presented as audited, certified or official financial statements.
Note that certain companies, such as those in service-based industries, may not what is a pay stub have a lot of equity or may have negative equity. Accrual basis accounting records those invoices and bills even if the funds haven’t been exchanged. Generally, accrual basis is the recommended accounting method and more aligned with generally accepted accounting principles. But if you have the time to dedicate to updating your books regularly, doing your own bookkeeping may be feasible. Those baby steps can help you manage your organization on a new and improved system.
The value of inventory can significantly impact a company’s financial statements, so accurate tracking and management is vital. This method doesn’t record invoices or your company’s outstanding bills until they’ve been paid. Accounting software makes it possible to do much of this on your own, though you may decide to outsource some basic bookkeeping tasks to an online bookkeeping service as your small business grows. If you’re like most modern business owners, odds are you didn’t become one so that you could practice professional-level bookkeeping. Outsourcing the work to a seasoned bookkeeper can allow you to focus on your business plan and growth. Simply put, business entities rely on accurate and reliable bookkeeping for both internal and external users.
After you have a bookkeeping system in mind, the next step is to pick an accounting software. Spreadsheets, such as Microsoft Excel, can be used for simple bookkeeping. More commonly, entrepreneurs use comprehensive accounting software like QuickBooks that can handle a larger volume of transactions and provide a deeper analysis.
Business
As a business owner, bookkeeping might not rank high on your list of priorities. However, maintaining accurate financial records is key to your business’s success. You should also browse the chart of accounts and make sure financial analysis it’s organized in a way that makes sense for your business.
Most businesses use an electronic method for their bookkeeping, whether it’s a simple spreadsheet or more advanced, specialized software. While the basics of which financial statement is the most important accounting haven’t changed in over 500 years, the practice of bookkeeping has. Bookkeeping was once done manually using actual books called journals and ledgers.
