Small Business Bookkeeping Basics: Best way to keep Small Business records
Small business bookkeeping is the very best option to save your cost and time. But running a small business is not so easy task. You need to improve your skill to be a master in small business bookkeeping.
If you are new to small business bookkeeping, you may be wondering where to start: how does it work? what exactly is bookkeeping for small businesses? What do you need to know about the fundamentals of bookkeeping?
With the help of the right tool, you can confidently do your business and better understand your profitability. You don’t need expert knowledge in bookkeeping, you need just basics. Moreover, the points we discussed below will help you a lot to manage your small business bookkeeping.
What is Bookkeeping?
Before going in deep first let’s discuss what is Bookkeeping and what is Bookkeeper actual is
Fundamentally, bookkeeping is the process of recording and organizing the financial transactions of a business, and a bookkeeper is a person that takes responsibility for the overall process.
Bookkeeping is the primary way to the business owners can find out if their business is profitable or not: With the help of tracking their numbers, they can quickly identify overall financial challenges and address them before blossoming into a full-blown crisis.
Commonly a Bookkeeper has a full responsibility to record and track transactions, make payments, print out invoices, and manage accounts or make statements. Accounting and bookkeeping are similar to each other the difference is bookkeeping is a basic form of accounting, you got basic accounting knowledge in Bookkeeping.
Role of bookkeepers
Understand Business Accounts
In bookkeeping and account is different from the Bank account, a bookkeeping account means records of all financial transactions for a particular type, like a Payroll account or a Sales account.
Bookkeeping supports five different types of accounts that are given below:-
- Assets:- Which are cash and resources owned by the business (eg, accounts receivable, inventory)
- Liabilities:- Business obligations and debts (eg, accounts payable, debts)
- Expenses or expenditures:- Cash that flows from business to pay for an item or service (eg, salaries, utilities)
- Revenues or income:- Which is the income earned by the business, usually through sales
- Equity:- The value remaining after the liabilities are deducted from the asset represents the owner’s interest in the business.
Set Up Business Accounts
Knowing the account first you need to track for your business by setting up to another account. Back in the day, chat with your account is stored in a physical book called General Ledger (GL).
But now days mostly account details are stored in computer software. It is recorded as a soft copy rather than hard copy or physical copy, this is also called General Ledger.
You can create GL with three different methods:-
- Cloud-based bookkeeping (e.g., QuickBooks Online)
- Any Spreadsheet Programs (e.g., Excel or Google Sheets)
- Desktop accounting bookkeeping software (eg, QuickBooks Desktop)
Desktop bookkeeping software usually requires high-up fees, but the software is yours then. With online, cloud-based bookkeeping software, you will have to pay a monthly fee to hold your online subscription, but it costs a lot less than desktop software.
Decide On A Bookkeeping Method
If you plan to do your own books at home rather than outsourcing for an accounting or bookkeeping method, then you need to make an important choice before you set everything up: are you single-entry bookkeeping or double-entry Going to use bookkeeping?
However, most bookkeeping is done using a double-entry accounting system, much like Newton’s Third Law of Motion, but in the form of finance. As you know that Newton’s third law, each action is an equal and opposite reaction. Similarly, in double-entry accounting, any transaction in one account requires the same and opposite entry in another account. It is not physics, but for managing a business, it is equally important.
Record Every Financial Transaction
You’ve created a set of your financial accounts and chosen a bookkeeping system – now is the time to record what’s really happening with your money.
Debit transactions to correct account Or credit transactions to correct account and also record this transaction correctly are very essential. Otherwise, your account balance will not match and you will not be able to close your books.
Balance the Books
The final step in basic bookkeeping is to balance and close the books. When you deposit account debits and credits – often quarterly or at the end of the year – the totals must match. This means your books are “balanced” and don’t have and discrepancy and error.
You are filing journal entries in accounts in the form of debit and credit. At the end of the period, you will “post” these entries in the general ledger to the account itself and adjust the account balance accordingly.
Whether you start your small business bookkeeping or seek advice from any business expert, you need to understand the basics that help you manage your finances effectively. You will save a lot of time as well as save a lot of money and grow your business effectively.