Bookkeeping is one of the most tiresome tasks in business operations. No matter how much you try to avoid it, you will need to address it on time. Otherwise, ignoring accounting and bookkeeping could lead you into legal and financial trouble.
Are you a new business owner and have no idea what bookkeeping is? Don’t worry; here we give you a 6-step bookkeeping guide that will tell you all you need to know about it and how to take care of your books in the best way possible.
What is bookkeeping?
Bookkeeping means keeping records of all your business transactions, such as accounts payable/receivable, bank transactions, account ledgers, balance sheets, etc. Bookkeeping ultimately tells you how your business is performing in terms of profit/loss.
Many new business owners make the mistake of taking their bookkeeping for granted. They think that there are very few business transactions to look after. Hence they can do it themselves or let their back office admin handle the job.
However, accounting and bookkeeping is very complex. In the wrong hands, it could lead to a business backlash. Hence, it must only be done by professionals. Doing it yourself or letting your back office admin do it may cost you more in the form of your time and resources.
Having the right sets of hands taking care of your books would ensure accurate records of your business and give you insights on how to grow your business to its maximum potential.
However, there are still some things that you should know about bookkeeping as a business owner. Here we give you a 6-step bookkeeping guide to get you started:
The 5-Step Bookkeeping Guide
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The beginning
Bookkeeping is relatively straightforward in the beginning. You need to keep accurate records of all your business transactions. Keep these types of transactions in mind if you don’t know what you’re supposed to do; sales records, purchase records, accounts payable, accounts receivable, bank records, cash transaction records, payroll, etc.
To make processes easier, you can utilize the following:
- Accounting Book: The accounting book is precisely what it sounds like. Writing down your business transactions in accounting books is something that we rarely see nowadays. But even though it’s not a great choice, you could utilize it if your business has very few transactions.
- Spreadsheets: Spreadsheets are a great way to organize your business transactions with conditional formatting. Some of its filters can help you a great deal with calculations, etc.
- Accounting Software: Automation tools like bookkeeping software can simplify your bookkeeping process a great deal. It can make processes like sales invoices, purchase invoices, and receipts much simpler and easier.
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Bookkeeping vs. Accounting
Bookkeeping and accounting are different. As a beginner, it is essential to understand the difference between them. Otherwise, you may get confused between accounting and bookkeeping tasks.
- Bookkeeping: Bookkeeping simply means to keep records of all your business transactions in an organized manner, for example, your business’s financial data like bank transactions, cash transactions, etc.
- Accounting: Accounting, in general, is to take care of your business’s accounts and make sure your business complies with the law. Accounting also includes taking care of taxes.
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Branches of Bookkeeping
Now that we’ve understood what bookkeeping is, it’s time to understand what it consists of. As we mentioned, bookkeeping means to keep records of all your business transactions. Now, let’s dive deeper and talk about what types of financial records it includes:
- Cash transactions: One of the basics of running your business is to keep track of how much money you’re making and how much you’re spending. Bookkeeping includes maintaining records of all your cash transactions.
- Accounts payable/receivable: Speaking of cash transactions, businesses need to maintain cash flow, which will only be possible if they keep their accounts payable and receivable up-to-date and accurate.
- Stock inventory: In the case of product-based businesses, keeping your stock records aligned with the physical stock present is also a part of bookkeeping.
- Loans payable: Businesses aren’t just about profits and assets; you also need to keep records of your liabilities, such as loans payable, when they’re due, etc.
- Sales records: Keeping sales records, such as invoices, product specifications, etc., is one of the fundamentals of bookkeeping. It’s a highly crucial part of bookkeeping.
- Purchase records: Along with keeping accurate sales records, it’s also essential to keep up-to-date purchase records, which helps with stock inventory and accounts payable.
- Payroll: Paying your employees their salaries/wages is also a part of bookkeeping. Things like making sure you’re not under – or – overpaying them and timely payroll are very crucial.
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Invaluable bookkeeping tips
Bookkeeping, in the beginning, seems like a fairly simple process. But, as you go further inside it, it starts to seem like chaos. Hence, we’re giving you some pointers that’ll help you keep your head on your shoulders:
- Avoid last-minute woes: Yes, the tax season is still months away, but don’t leave everything to the last minute! Last-minute hurries can lead to inaccuracies, which are extremely bad.
- Keep ’em organized: Keeping records of your business transactions is only one part of bookkeeping. You also need to keep them organized so that they’re available in the hour of need.
- Say yes to receipts: ALWAYS keep receipts for your business expenses. Receipts make it a lot simpler to claim tax deductions.
Don’t let business and personal finances mingle: Don’t make the rookie mistake of not keeping your business and personal finances separate, even if your business is new and has fewer transactions. Keep them separate.
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Try outsourced accounting
If you think that hiring an accountant is expensive, think again. What if we told you you could get a virtual bookkeeper for as cheap as $9/hour?
It’s worth a try. You can use outsourced accounting services for your tiniest tasks and pay only for those little tasks.
Tell you what; let us give you a free 5-hour trial! Key Carrier Accounting has one of the most experienced staff in accounting & bookkeeping services. Get in touch with us if that interests you.