Are you a small business owner who wants to handle your bookkeeping but doesn’t know where to start? This guide will show you some of the basics of small business bookkeeping so you can keep track of your finances and make better decisions for your business.
What is bookkeeping?
Keeping track of your company’s financial transactions is done through bookkeeping. This includes keeping track of inventory, accounting for sales and purchases, and recording income and expenses.
Why is bookkeeping important?
Bookkeeping is important because it helps you track your business’s financial health. It’s also a good tool to help you manage debts. By keeping accurate records, you can make better decisions about where to allocate your resources. Here are the basic steps you need to know:
1. Set up a system for tracking your income and expenses
There are many different ways to do this, but the most important thing is to choose a system that works for you. You can use a logbook, an Excel spreadsheet, or special software designed for bookkeeping. Whichever method you choose, be sure to track all of your income and expenses in one place to keep them organized and to easily track where your money is going.
2. Record every transaction and sales
This is crucial to know for tax purposes and to understand the financial state of your business. Keep a record of every sale’s date, the buyer’s name and contact details, the item or service sold, and the amount. This can be done by always preparing a sales invoice. Every business-related purchase must also be recorded. If you intend to claim the expense as a tax deduction, you should also keep the proof of purchase.
3. Reconcile your books
Reconciliation means regularly checking the transactions in your business books against the bank statements to make sure that the numbers match. If they don’t, you may need to figure out the discrepancies. The causes of the discrepancies are usually bank fees, interest payments, deposits, and payments that haven’t yet reached your bank accounts. You might want to run an inventory check to see if there are any stocks or sales that are not accounted for. You may do reconciliation daily, weekly, monthly, or less frequently.
4: Close every month
Once your bank accounts have been reconciled and any adjustments made, you’ll want to close the month and make your financial statements. Your basic financial statement could include the following:
- Income statement – It shows your income and expenses and tells you whether your company is profitable or losing money.
- Cash-flow statement – It shows how much cash is coming in and going out of your business.
- Balance sheet– It’s a summary of your assets, liabilities, and equity. Your equity is total assets minus total liabilities.
There are still so much more if you’re really interested in doing your bookkeeping by yourself. Conduct research and learn from experienced bookkeepers. Good luck!
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