Why does book keeping have a significant role in small businesses? Well, building businesses naturally, money is the foundation to establish an empire. On the other hand, book keeping is an essential accounting process to keep track of financial transactions of business flow. As a result, accurate financial results ensure the flow of business performance. Thus, cash flows under any expenses or revenue are under bookkeeping.
Furthermore, to organize the business records, a business must follow income revenue, costs, expenses, etc. Make time reading our guide on how to do bookkeeping to understand deeply. Lastly, we also provided basic bookkeeping terms.
Your guide on how to do book keeping
These are the guides to your small business tracking records.
1. Separate personal and business expense
Divide your personal and business expenses do not mix up to ensure and help you identify that your business is earning. Corporations have different bank accounts to separate their costs from business expenses, so they minimize trouble on both versions and for legal purposes. Also, one of the significant reasons is tax; keeping accurate records is vital in running a business. It saves time and is stress-free.
2. Single entry or double entry
Choose between these two methods. What makes them different? The single entry records the transaction only once and probably only going to work in small businesses and simple, with no inventory and no employees. While Double entry is a method that tracks your money flow from where it comes from and where it is going. For this reason, it follows your records twice, taking assets somewhere or in credit and putting it somewhere called a debit. Thus, ensure that your debit and credit are equal and that your books are balanced.
3. Cash vs. Accrual
Cash basis recorded only the income and expenses when you received them. Moreover records only the cost you made when your money leaves your account to pay suppliers, vendors, and other third parties. , For example, when you deposit an amount to your account. Mostly, small businesses or sole proprietors use this method. Besides, the benefit of this method is a shorter learning curve, fewer items to record, and easy tracking f expenses and revenue. But if your business manages an enormous asset, choose the accrual for bookkeeping. On the other hand, an accrual basis helps you recognize income when earned or when those transactions occur before any money is received or paid out.
4. Choose a book keeping system
There are two ways to choose, manually by using excel and on a piece of paper. You can also use the best cloud accounting software by paying monthly premiums but ask an accountant to adequately used the software. Time management is important in running a business to have good results so it’s your choice if you choose to do all things by yourselves.
5. Categorize transactions
The importance of how to do bookkeeping is vital to keep your transaction categorized to save you from frustration. It is under the law to keep specific books and records. Moreover, it is essential also to classify the transaction in your business to help you understand the expenses you’ve made. Categorizing your transactions enables you to understand what belongs to deducting tax because not all transactions are deductible. Identify products spent on business and keep all the necessary records. Also, it could help you track the total expense and deduct that cost from your taxes.
6. Organize and store documents
There are different methods to store accounting documents to save you from burnout, and they are easier to find when you search the record invoices, bank statements, bills, expense receipts, and tax documents. These are the methods to store accounting information; you can keep them through physical document storage, computer file storage, cloud-based storage, and flash Drives.
The file folder storage method uses bookkeeping for filing invoice payments, contact information about individual employees, payroll-related forms, and data.
Three-ring binder storage method If you use a computerized accounting system, keep a hard copy in case the computer might have trouble. Keep your records of chart of accounts, general ledger, and journals here.
The expandable files storage method is used to store documents by storing them in alphabetical expandable files for managing pending invoices and purchase orders. These are the records that have files for managing outstanding bills.
For storing backup computer data, make sure at least one backup copy of all your data daily and keep it safe so that all data won’t be destroyed in a fire.
What are the bookkeeping terms?
Consider also the terms and their meaning to help you understand their importance to business transactions.
A total amount of money you owned to a third party, such as supplier companies, services purchased in credit, or anyone you borrowed money. When balancing it is shown under current liability.
- Subscription or installment payment.
The opposite meaning of accounts payable. So, Accounts receivable, an individual or company that owed you for goods or services your company provides to generate revenue, might also serve people who must pay you a certain amount of money they owed.
- Customers purchase products on credit, and the records account under receivable for unpaid invoices until they pay their bills.
It is classified as current, fixed, financial, and intangible. These are also called the economic resources belonging to a business such as property, fixtures and furniture, equipment, motor vehicles, and stock or goods for reselling.
A financial statement provides a record of a company’s transactions. Provided also in the balance sheet the companies assets, liabilities, the basis for computing rates of return for investors and evaluating a company’s capital structure.
It is your money or asset that belongs to you as the owner. Also, the funds of your business to initiate the operation, meet daily expenses, and outgrow in a period.
Costs of Goods Sold
Refers to the cost of goods you spend on a product or services you plan to sell to customers. It is the cost of the materials and labor used in producing goods. On the balance sheet, costs of goods sold refer to the “cost of sales.”
It is used to allocate the cost of a tangible or physical asset over its useful life or a deductible business expense.
The total net worth value of a business has allocated to the owners of a business and equity can be a capital account
The sum of all the costs you spend in a particular business to operate
It helps you provide a complete record of your business’s financial transactions, changes to asset and liability accounts, equity, revenues, and expenses.
The core financial statements show the profit and loss of business in a certain period.
It has your detailed account that records all the financial transactions of your business in order by date.
These are the products or services that represent something that your business owes.
It is simply the sum of wages and salaries of your employees.
The total money earned by your business also measured over a set amount of time.
With the lists of your ending balance in each general ledger, an accountant may check your debit and credit statement account match, which helps spot any accounting errors on bookkeeping records.
The ways how to do book keeping is essential to support a small business or more significant businesses. The foundation and industry’s future reflect the management on how they run through all years. So, it should carefully understand the mathematical strategy to maintain the business. Every business is risky and crucial; thus, most owners have keen details on transactions to minimize problems in the future. May the article we provided on how to do bookkeeping give you brief ideas.