Basic Bookkeeping for Beginners: 6 Steps to Get You Started

Whether you manage it by yourself, hire someone in-house, or outsource it to a company, having a sound bookkeeping process in place is critical to the management of your business. Doing your bookkeeping in Excel is a good option if you don’t want to spend extra money on software since you may already have the program installed on your work computers. Plus, there are tons of free Excel templates available, so you don’t have to reinvent the wheel with your business spreadsheets. You could also use a web-based app like Google Sheets, which functions similarly to Excel.

Payroll

For both sales and purchases, it’s vital to have detailed, complete records of all transactions. You’ll need to note the amount, the date, and any other important details to ensure you can accurately summarize your finances when it comes time for tax season. 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 revenue and to ensure you collect all necessary information for tax filing.

How a Bookkeeper Is Different Than an Accountant

• In addition to tax consequences, your personal liability in the event of a lawsuit can vary dramatically by business structure, so be sure to consult with an attorney.
• The crucial thing is to make sure you have one so you can run your business smoothly.
• It’s important to do a detailed analysis to avoid missing signs that expenses are building up.
• Accounting software also helps reduce errors when compared to manual bookkeeping thanks to its automated features, improving the accuracy of your income statements and other financial records.
• Even if you’re using accounting or budgeting software, you’ll need to confirm that your balance sheet, accounts payable, and accounts receivable match up with your bank statement every month.

However, if your business was steady this year and you once again owe over $3,000, you’ll need to start paying by quarterly instalments. However, the accrual method is the required https://www.bookstime.com/articles/direct-write-off-method method for large corporations in Canada, and besides that, it tends to provide you with a more accurate picture of your overall finances. Proper bookkeeping also allows you to determine the areas within your company that could benefit from improvements. If you’re a small business owner, it’s necessary to set projections and forecast the future of your business. Bookkeeping accounting lets you know if your small business needs extra employees or requires operational changes. Accurate bookkeeping helps you trace your firm’s financial records and evaluate its performance levels.

Be Prepared for Large Expenses

Accounting software also helps reduce errors when compared to manual bookkeeping thanks to its automated features, improving the accuracy example of small business bookkeeping of your income statements and other financial records. The easiest way to do small business bookkeeping is by using accounting software, such as FreshBooks. FreshBooks makes it easy to automate large parts of the bookkeeping process, simplifying this vital task while ensuring accurate financial reports, tracking, and records.

Reconciling Your Accounts

• Typically, checking accounts also come with a debit card for easy access to funds.
• Tracking your expenses is an essential part of managing your finances.
• Accrual accounting provides a more accurate picture of a business’s financial health than cash accounting, as it considers all of the financial transactions for a given period.
• ZenBusiness has helped people start, run, and grow over 800,000 dream companies.
• To keep your financial records, you’ll need a chart of accounts—a complete listing of every account in your accounting system.
• If you’ve had college accounting courses, you might be able to substitute them for required courses, but you’ll still need to pass each exam.

There are also other opportunities to earn a bookkeeper specialization, such as through a university like UCLA. When choosing an accountant, interview several candidates and go over your accounting needs and expectations with each one. Choose the accountant that can offer you the best working relationship. The steps below will walk you through actionable steps you can take to manage your small business’s finances effectively. If you decide to extend credit to customers, you will need a consistent system of creating and sending invoices.

What happens if you get audited and don’t have receipts?

Once you’ve got a handle on how to begin bookkeeping for your small business, it’s time to set yourself up for success with an ongoing bookkeeping system. The debited account is the one that receives or loses value, and the credited account is the one that gives or gains value. The golden rules of accounting can help ensure that your bookkeeping is accurate and retained earnings up-to-date. 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. Recording just the cost of those supplies with the cash method might give you an inaccurate picture of how much you are — or should be — spending on supplies.

This involves keeping track of all the money that comes in and out of a business. Financial transactions are business activities that involve money, such as sales, expenses, and payments. Recording and organizing these transactions in a timely manner is essential for effective bookkeeping. Inventory is the stock of goods a business has on hand or in transit, waiting to be sold. The value of inventory can significantly impact a company’s financial statements, so accurate tracking and management is vital. An accounting ledger is a book or system you use for recording and classifying financial transactions.

• Whether this is your side gig or full-time business, you can get a website customized for your business with a company that offers specialized marketing services.
• You can also choose to become a certified public bookkeeper to market yourself better as a bookkeeping professional.
• The accrual accounting method records financial transactions when they occur rather than when cash exchanges hands.
• Tracking purchasers who have paid against those who haven’t illustrate your company’s accounts receivable turnover ratio.

Choose an accounting method

This is a trend that’s changing how bookkeepers and accountants do business, so you must understand how it works since it’ll have a direct impact on your business. My recommendation is that you use QuickBooks Online, which we rated as the overall best small business accounting software. You can get QuickBooks Online Accountant for free when you join the QuickBooks Online ProAdvisor program, which is also free.

• With proper bookkeeping, you can determine the types of taxes and calculate the amount payable in advance.
• Proper record-keeping for small businesses makes the process easier and keeps you compliant with the law.
• It will be even easier to keep your records organized, stay on top of time management, send out invoices, and more in a cloud-based accounting software like QuickBooks Online.
• There is no cost to obtain an EIN, and the process involves filling out an application and sending it via mail, fax, or online.
• You can get QuickBooks Online Accountant for free when you join the QuickBooks Online ProAdvisor program, which is also free.
• Single-entry and double-entry bookkeeping are the two types of bookkeeping you’ll need to choose from.
• There are also other opportunities to earn a bookkeeper specialization, such as through a university like UCLA.

However, it’s important to note that your bookkeeper won’t be the only person working on your business finances. So you’ll want to understand which tasks your bookkeeper is and isn’t responsible for handling. Small-business bookkeeping involves setting up a framework, choosing your method and keeping track of details. The assets section of your balance sheet tells you how much value your business has, while the liabilities section tells you how much money you owe. But you still need to note that the money exited one account and entered another so you don’t accidentally duplicate any of your income or expenses.