Bookkeeping Basics for Small Business Owners: Everything You Need to Start Doing Your Own Bookkeeping Bench Accounting

When you keep detailed, organized records of your business transactions, tax season suddenly won’t feel like such a daunting chore. By being proactive with your bookkeeping, you’ll save your small business time when it comes to taxes. Simply turn your financial statements over to your CPA or other tax filings expert, and let them handle the rest. At Interior Design Bookkeeping the end of each pay period, you’ll calculate the gross pay for each employee (using their payroll information) and then apply any taxes and withholdings.

• Audits, investigations, and even potential legal actions may be taken if a company fails to maintain accurate records or report income correctly.
• If your business incorporates brick-and-mortar sales with online sales, payroll will be different between the two.
• However, if your business is incorporated, or if it’s your sole source of income, the single-entry method just won’t cut it.
• Asset accounts start with the cash account since cash is perfectly liquid.
• With accurate bookkeeping, you can tell how much your business is making in terms of income and track your spending to ensure that you have enough cash on hand to cover your business expenses.
• Jesus Morales is an Enrolled Agent and has 7 years of bookkeeping and tax experience.

Why does a small business need a bookkeeper?

• Any monies you owe to suppliers or other agencies for goods or services provided are placed under Accounts Payable.
• This system can be easier to track if you run a business where payments are always made immediately, like a coffee shop.
• Since good record keeping relies on accurate expense tracking, it’s important to monitor all transactions, keep receipts, and watch business credit card activity.
• Consistent observation of financials ensures setting a more accurate budget, forecasts, and financial plans, which enable firms to identify trends and opportunities.
• Other smaller firms may require reports only at the end of the year in preparation for doing taxes.

From balance sheets to income statements, there’s no denying that there are new terms and phrases you’ll come across. In practice, they’re quite easy to understand once the terms are broken down into much simpler definitions. The chart of accounts may change over time as the business grows and changes. Several business owners told us that they used Wave in their business’s early stages but pivoted to another program (usually QuickBooks) when their needs increased. If you’re running a one-person show, though — i.e., a wide variety of customizable reports is not a priority — this is likely the pick for you.

Bookkeeping Methods

This means that the total amount must match — the outgoing amount must equal the incoming assets or profits. By this stage, you’ll have set up all your financial accounts and chosen a bookkeeping method. As a business owner, you’ll most likely have to create a complete financial report at least once a year, for tax purposes.

Loans payable account

He received his undergraduate degree at the Ivey Business School in Canada and MBA from Oxford University. If you’re afraid you might procrastinate, or get caught up in other aspects of running your business, it can help to have a dedicated person do this for you. If they don’t match, you’ll have to go through your bookkeeping record to find the error or missing entries. Let us dive right in and find out what bookkeeping is and how it can help your bookkeeping for beginners business.

Business Data Management and Communication

• It provides an understanding of accounting processes, like analyzing financial statements, preparing budgets, and applying laws and regulations to business and accounting scenarios.
• Bookkeeping mistakes can lead to significant financial issues for your small business.
• Though you may not work regularly with a tax specialist year-round, you’ll want to connect with one sooner rather than later so you’re not rushed come tax time.
• Businesses might not want to keep all cash in the bank, as having an excessive amount of cash in the bank could mean missed opportunities in investment income.
• In this process, you tally up all accounts to ensure that no money or assets are missing.
• This is money that you’re due to receive, hence its placement in your general ledger under Accounts Receivable.

At the end of the appropriate period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm. The year-end reports prepared by the accountant have to adhere to the standards established by the Financial Accounting Standards Board (FASB).

must-know bookkeeping skills for small businesses

A well-structured system enables you to easily access and manage your financial records. Securely stored and well-maintained bookkeeping records will help you track previous QuickBooks invoices without burying yourself in an unorganized mess. Getting a handle on your bookkeeping can also prevent your sensitive financial data from falling into the wrong hands. Following the bookkeeping basics above will make the process easier and help you to stay compliant with industry standards. However, once you get the hang of the bookkeeping basics, you’ll be able to effectively use the data from these accounts to make informed business decisions. This happens when you sell products and services, but don’t collect money straight away.