Business Bookkeeping Basics

Asset accounts start with the cash account since cash is perfectly liquid. After the cash account, there is the inventory, receivables, and fixed assets accounts. If your company is larger and more complex, you need to set up a double-entry bookkeeping system.

Our expert bookkeepers here at Bench have built an Income Statement template in Excel that you can use to turn your business transactions into an Income Statement. Most small businesses will either do their books themselves or outsource the work to a professional. Diamonds may be forever, but the ink on your expense receipts is not. 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. When you’re stuck in the minutiae of reconciling your transactions, this won’t feel like “seven easy steps”.

Bookkeeping Basics: A Beginner’s Guide for Businesses

1) Single Entry – This system of bookkeeping involves making an entry for every single financial transaction your business conducts. Under double-entry bookkeeping, all transactions are entered into a journal, and then each item is entered into the general ledger twice, as both a debit and a credit. Mixing together personal and business expenses in the same account can also result in unnecessary stress when you need to file taxes or do your bookkeeping. It could mean a business expense gets lost in your personal account and you miss out on an important deduction.

But there may come a time where your business outgrows your skills. Or when you reach the point where handling your own bookkeeping isn’t the best use of your time. The Income Statement is used internally and externally to evaluate profitability https://www.bookstime.com/ and help assess the level of risk for an investor or creditor. In order to have a viable and valuable company, revenues must exceed expenses. Account or your account balances won’t match and you won’t be able to close your books.

Why is Bookkeeping important?

That way, you’ll always know what’s happening in your business and make the best financial decisions. The examples we’ve looked at in this tutorial have been very simple. In practice, keeping accurate accounts can be a complex process, especially as your business grows.

This can be claimed as a business expense and can reduce your income tax. When your small business is just starting out, you might do your own bookkeeping.

What is the difference between bookkeeping and accounting?

If you’re just starting out, are doing your books on your own and are still in the hobby stage, single-entry is probably right for you. It’s simple, fast and good for really basic bookkeeping.

With good bookkeeping services or software, you can streamline data entry, create detailed financial reports, consolidate data, and automate record keeping. It’s also an easy way to improve accuracy across your business and eliminate time spent doing repetitive tasks. Try setting aside and scheduling a ‘bookkeeping day’ once a month to stay on top of your financials. Use that day to enter any missing transactions, reconcile bank statements, review your financial statements from the last month and make any major changes to your accounting or bookkeeping. Under single-entry, journal entries are recorded once, as either an expense or income.

How Much Does a Bookkeeper Cost? | Monthly Bookkeeping Cost

And the only way to know that for sure is to have accurate, up-to-date books. Bookkeeping is essential to the vitality and long-term success of any small business. Primarily, you need to have an accurate picture of all the financial ins and outs of your business. From the cash you have on hand to the debts you owe, understanding the state of your business’s finances means you can make better decisions and plan for the future. The statement of cash flow is similar to the P&L, but it doesn’t include any non-cash items such as depreciation. Cash flow statements help show where your business is earning and spending money and its immediate viability and ability to pay its bills.

• Let’s face it, most entrepreneurs and business owners don’t know the first thing about double-entry bookkeeping, and they don’t want to know.
• In everyday life, we’re used to thinking of debits as decreases and credits as increases.
• There is an accounting equation used to make sure that books always balance.
• For example, you could split that “Inventory” account into sub-accounts tracking coffee beans, food and other items.
• Use bookkeeping services or software to track trends you’re seeing from month to month, and think about how you’ll handle the upcoming month from a financial perspective.
• It’s a basic beginner type book with simple wording and samples of forms.

Or it could mean your CPA spends more time doing your taxes. Kylie McQuarrie has been writing for and about small businesses since 2014. Currently, Bookkeeping 101 she’s Business.org’s accounting and payroll staff writer. Her work has been featured on SCORE.org, G2, and Fairygodboss, among others.