Bookkeeping is an essential part of running a business. It is the process of recording and managing all financial transactions made throughout business operations. The collated data is then used in the accounting procedure, which involves analyzing, evaluating, interpreting, and reporting financial data.
Staying on top of your finances keeps your business healthy and ensures that nothing is overlooked among activities. However, setting up and managing their own books can be challenging for entrepreneurs. Almost 75% feel they do not have sufficient knowledge of bookkeeping and accounting.
Still, the process does not have to be daunting for small business owners. You can learn the basics and gain a general understanding of how small business bookkeeping works. To help you set up and manage your own books, provided below are some tips to consider.
Understand and Set Up Your Business Accounts
In bookkeeping, an account is defined as a record of debit and credit entries covering a particular type of transaction (e.g., accounts payable or payroll). It is classified into five basic types:
Each account is stored in a general ledger to record and sort business transactions into appropriate categories. Accounts might vary per business but have commonalities.
Determine the Type of Bookkeeping System to Use
There are two bookkeeping systems small business owners can use: a cash system or an accrual system.
A cash accounting system depends on cash flow, meaning the transaction is recorded when cash changes hands. Smaller, simpler firms often utilize this system.
Conversely, an accrual accounting system is based on when the transaction transpires. Purchases or sales are recorded immediately, although the cash is yet to change hands later. It is typically used by more complex businesses.
Decide on a Bookkeeping Method
Another decision to make is whether to use single-entry or double-entry bookkeeping.
In single-entry bookkeeping, each transaction is recorded only once, either as an expense or revenue. This method is similar to when you keep a check register. It is applicable mainly to smaller businesses with low volume transactions.
Meanwhile, in the double-entry bookkeeping method, all transactions recorded in one account requires a corresponding and opposite entry in another. Meaning, two entries are made for each transaction – one for debit and another for credit. This method ensures that your books are balanced.
Keep Your Financial Records Organized
Ensuring that each financial transaction is recorded correctly and in the right account keeps your books balanced and your business running efficiently and smoothly.
Furthermore, keeping your business records organized is also crucial if your business is audited. It also helps you determine which expenses qualify for deductions.
When storing your records, it is ideal to have at least two copies – one hard copy and a cloud backup.
Complete Bookkeeping Tasks Diligently
Putting off bookkeeping until a later time can entail numerous consequences. With many tasks piling up, balancing your financial statements becomes more challenging and stressful. You might also end up overlooking certain details, leading to inaccuracies and mistakes.
To have a good bookkeeping habit, you can create a schedule and follow it through. For example, you can record all financial transactions on a weekly basis and then balance and close your books monthly or quarterly. You should also keep deadlines in mind, such as during tax season.
Doing the job sooner rather than later ensures that your bookkeeping is right on track.
Use a Reliable Bookkeeping Software to Simplify and Expedite Tasks
Many small businesses are already harnessing modern technology to streamline their operations, including bookkeeping. Using bookkeeping software also eliminates the risks and hassles that are often associated with manual processes.
Some small businesses use spreadsheet apps like Excel or Google Sheets to manage their books, but these tools often have limited functions.
Fortunately, there are many reliable and inexpensive accounting and bookkeeping software already available on the market. These digital tools are equipped with useful features specially made for accounting and bookkeeping tasks.
Where to get Reliable and Easy-to-Use Bookkeeping & Accounting Services?
KIPPIN – from the phrase “Keeping it simple” – aims to make people’s lives easier by providing simple solutions to everyday tasks. We provide accounting, bookkeeping, payroll, and tax services – all on the cloud. We also align our clients to top financial experts on our platform to handle your financial management needs.