Bookkeeping basics: A guide for small businesses

Cassie is a deputy editor collaborating with teams around the world while living in the beautiful hills of Kentucky. Prior to joining the team at Forbes Advisor, Cassie was a content operations manager and copywriting manager. Portnov Computer School is a job market driven short-term career change facility, which measures its success in job placement of graduates.

Does a business need a specialist bookkeeper?

Whether you outsource the work to a professional bookkeeper or do it yourself, you’ll be able to reap a variety of benefits. If you enjoy organization and numbers and have experience with bookkeeping, starting your own business offering this service might be a smart career choice. Since bookkeeping is a more straightforward process than accounting, it is something that many people can (and do) opt to take care of themselves. As your business grows and you begin making higher profits, hiring staff and handling more transactions, however, it may make sense to outsource the details of bookkeeping to someone else. In this day and age, the providers you contract with don’t need to be in the same city, state or even time zone as you.

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That documentation may be a receipt, an invoice, a purchase order, or some similar type of financial record showing that the transaction took place. After a certain period, typically a month, each column in each journal is totalled to give a summary for that period. Using the rules of double-entry, these journal summaries are then transferred to their respective accounts in the ledger, or account book. This process of transferring summaries or individual transactions to the ledger is called posting. To set up a budget, gather your financial data, such as income statements, balance sheets, and cash flow statements. This will give you a clear picture of your business’s past financial performance and help you make realistic projections for the future.

• The double-entry system of bookkeeping is common in accounting software programs like QuickBooks.
• The bookkeeper brings the books to the trial balance stage, from which an accountant may prepare financial reports for the organisation, such as the income statement and balance sheet.
• The liability accounts on a balance sheet include both current and long-term liabilities.
• It encompasses a variety of day-to-day tasks, including basic data entry, categorizing transactions, managing accounts receivable and running payroll.
• Not only can this help you set goals, but it can also help you identify problems in your business.

Can I do my own bookkeeping for my business?

• But most businesses in the hobbyist stage can get by using either a simple spreadsheet (like our free Income Statement Template) or one of the many accounting or bookkeeping software solutions on the market.
• QuickBooks Live Bookkeepers can help you streamline your workflow, generate reports, and answer questions related to your business along the way.
• After a certain period, typically a month, each column in each journal is totalled to give a summary for that period.
• Although bookkeeping is an investment, it’s generally much more affordable than attempting to correct costly mistakes down the road.
• It’s like driving a car without a fuel gauge or a map—sooner or later you’re going to get lost or run out of gas.
• The goal of both reports is to be easy to comprehend so that all readers can grasp how well the business is doing.

Tasks, such as establishing a budget, planning for the next fiscal year and preparing for tax time, are easier when financial records are accurate. Accounting software eliminates a good deal of manual data entry, making it entirely possible to do your own bookkeeping. However, it can be difficult to catch up if you fall behind on reconciling transactions or tracking unpaid invoices. Regardless of your small business’s complexity, bookkeeping will still take time out of your week, so be sure you have the resources before committing to handling it yourself.

Bookkeeper vs. accountant: What’s the difference?

Accounting software can streamline your bookkeeping process and make your financial management more efficient. It’s useful for business owners looking to save time and avoid common accounting errors. A bookkeeping checklist outlines the tasks and responsibilities you need to do regularly to keep the books up-to-date and accurate. It serves as a road map to ensure you correctly record and report  all necessary financial transactions are recorded and reported correctly. After you have a bookkeeping system in mind, the next step is to pick an accounting software.

Most small businesses will either do their books themselves or outsource the work to a professional. If you’re months or years behind, you might want to get a bookkeeper to do some catch-up bookkeeping for you (Bench can help with that). But for the sake of explaining the basics of bookkeeping, here are the first seven steps you’ll need to walk through to get your bookkeeping machine humming.

Outsourcing to a professional

• You’ll also explore how to become one and find suggested cost-effective courses that can help you gain job-relevant skills today.
• Next, set aside a dedicated time either weekly or biweekly to review your bookkeeping, reconcile transactions and complete necessary data entry.
• Without bookkeeping, accountants would be unable to successfully provide business owners with the insight they need to make informed financial decisions.
• Without it, it’s nearly impossible to produce an accurate record of financial activities that affect everything, from profit to equity to payroll, and more.
• If you’re ready to take bookkeeping off your plate and delegate this task to someone else, it can be hard to know where to look.
• One of the best things you can do to ensure your books balance properly is to follow the three golden bookkeeping rules.
• If you are going to offer your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system.

Effective bookkeeping requires an understanding of the firm’s basic accounts. These accounts and their sub-accounts make up the company’s chart of accounts. Assets, liabilities, and equity make up the accounts that compose the company’s balance sheet. Bookkeeping in a business firm is an important, but preliminary, function to the actual accounting function.

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If you’re a busy small business owner with a million things to do, it’s easy to let bookkeeping fall by the wayside. Since the IRS accepts digital records, it’s smart to use a cloud-based system like Dropbox, Evernote, or Google Drive so you never have to deal with smudged receipts. You can also use apps like Shoeboxed, which are specifically made for receipt tracking.

The first seven steps of a bookkeeping process

Let us walk you through everything you need to know about the basics of bookkeeping. With this type of service, you can communicate completely by email or phone without having to set aside time to meet in person. The responsibilities handled by a service will depend on the provider, so be sure to discuss the scope of work and compare options to find the right fit. I was really impressed with the videos and information that was presented in this course. When it comes to budgeting for bookkeeping, the difference hinges on whether you hire or manage using software tools.

Whether you’re trying to determine the best accounting system for your business, learn how to read a cash flow statement, or create a chart of accounts, QuickBooks can guide you down the right path. Because bookkeeping involves the creation of financial reports, you will have access to information that provides accurate indicators of measurable success. By having access to this data, businesses of all sizes and ages can make strategic plans and develop realistic objectives. By logging and keeping track of all financial transactions, you will have easy access to any financial information you might need. To make it even easier, bookkeepers often group transactions into categories. Without bookkeeping, accountants would be unable to successfully provide business owners with the insight they need to make informed financial decisions.