Bookkeeping basics: Small business guide for 2023

However, general ledgers can get complicated if you’re trying to juggle multiple accounts. If you’re searching for accounting software that’s user-friendly, full of smart features, and scales with your business, Quickbooks is a great option. Accounting information exposes your company’s financial performance; it tells whether you’re making a profit or just running into losses at the end of the day.

• Invoice your clients and accept payments automatically to speed up the cash collection process.
• Accountants oversee the financial records for a business and make sure the data is correct.
• This site does not include all companies or products available within the market.
• When a worker makes a sale, they post the transaction and customer number.
• The frequency in which you review and evaluate your methods is bound to be unique to your specific business.

The first three basics of bookkeeping discussed above are what you’ll find in the Balance Sheet. To balance the books, you need to carefully monitor basic business bookkeeping the assets, liabilities, and equity. Bookkeepers apply the accrual basis of accounting when tracking the accounts receivable and accounts payable.

Choose an entry system

Remember that the basic goals of bookkeeping are to track your expenses and profits, and to ensure you collect all necessary information for tax filing. Professional bookkeepers and accounting professionals are available to manage, track, and report on financial activities. Accounting software eliminates a good deal of manual data entry, making it entirely possible to do your own bookkeeping.

Before we dive into how to do your bookkeeping, let’s cover the two main bookkeeping methods. If only bookkeeping meant hoarding the paperbacks I overbuy from my local bookstore — I’d be really good at that. Your business can decide which transactions are “material” and which are not. Enterprise companies will approach what is and is not “material” differently than a small business would. If something isn’t “material” it’s something the business feels is too small to mention. By law, accountants representing all publicly traded companies must comply with GAAP.

The FIFO Accounting Method

Say you’re comparing two departments, but they record the same transactions in different ways. Not to be confused with your personal debit and credit cards, debits and credits are foundational accounting terms to know. These help accountants gather information from stakeholders and communicate their findings.

This concept is important because each accounting transaction impacts at least two accounts. Using the double-entry method, you can get a clearer picture of your business activity. And when it’s time to post a journal entry to your accounting system, the double-entry method accounts for debit entries, credit entries, and totals. Bookkeepers record and classify financial transactions, such as sales and expenses. They maintain accurate records of daily financial activities and manage accounts payable and accounts receivable. Double-entry bookkeeping is a system where each transaction is recorded in two accounts—a debit account and a credit account.

Bookkeeping Basics: How to Balance the Books

This works for sole proprietors and small business owners who deal with minimal and uncomplicated transactions. The best way to do so is to educate yourself on your business’s tax obligations, keep accurate records, and set aside revenue (or pay ahead in quarterly taxes). Not only will this help offset some upfront expenses, but it will also contribute to your business’s overall credit. Also, Corporations and LLCs are required to have a separate line of credit outside their personal accounts. For your first order of business, decide where to keep your money.

• If the data is incomplete or contains errors, you’ll have to amend the returns, which may result in interest and penalties.
• A bookkeeping checklist outlines the tasks and responsibilities you need to do regularly to keep the books up-to-date and accurate.
• It encompasses a variety of day-to-day tasks, including basic data entry, categorizing transactions, managing accounts receivable and running payroll.
• Double-entry bookkeeping is a system where each transaction is recorded in two accounts—a debit account and a credit account.
• Discover the different options available to you, and why it’s so important to keep detailed financial records.

If you’ve accurately kept track of and reported your employees’ salaries and wages, you can claim them with the Employee Retention Credit. With this credit, you can get up to $26,000 back per employee during COVID-19. A business plan may be required if you plan to apply for business financing from banks or investors. Unlike the requirements to become an accountant, the training required to become a bookkeeper is less strenuous.

Step 3: Reconcile your bank accounts

Your chart of accounts is the backbone of your business and is a necessity in order to properly record transactions. While you can certainly buy a ledger book at an office supply store, keep in mind that it’s much easier to set up your chart of accounts if you’re using an accounting software, such as Wave. To set up a budget, you’ll need to 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 first step you’ll need is a business bank account, which allows you to keep your personal and business expenses separate. Bank accounts are a crucial part of any bookkeeping system—allowing businesses to safely store their money and make transactions easily.

Look for a bank that has a local branch as well as robust online banking. Also, be sure the bank can integrate with your point-of-sale (POS) system and other technological needs. Business bank accounts typically charge more than personal accounts and often have a higher minimum balance. Check these numbers before committing to a bank and a business account. It says to base your accounting on how the business runs now, not how you hope it will run in the future.

The accrual accounting method records financial transactions when they occur rather than when cash exchanges hands. You should also browse the chart of accounts and make sure it’s organized in a way that makes sense for your business. From payroll taxes to managing invoices, efficient bookkeeping smooths out the process of all your business’s financial tasks and keeps you from wasting time tracking down every dollar. You’ve created your set of financial accounts and picked a bookkeeping system—now it’s time to record what’s actually happening with your money. Apart from having the data for your transaction on hand, you’ll need to decide which accounts that will be debited and credited.