Summary Bookkeeping Basics

If you run a very small business, you might be able to manage your bookkeeping with accounting software, saving yourself time and money by using free options. Some businesses process payroll within their accounting software; others will have a separate payroll software. How you set up and manage payroll will depend on which software you choose. Small-business bookkeeping also includes ensuring your business pays bills and invoices on time, which is known as accounts payable. Accrual-based accounting records those invoices and bills even if the funds haven’t been exchanged.

Using a spreadsheet is the cheapest option, especially if you use Google Sheets rather than Microsoft Excel, which costs a monthly fee. However, general ledgers can get complicated if you’re trying to juggle multiple accounts. If you’re months or years behind, you might want to get a bookkeeper to do some catch-up bookkeeping for you (Bench can help with that).

Set up your general ledger

Under single-entry, journal entries are recorded once, as either an expense or income. Assets and liabilities (like inventory, equipment and loans) are tracked separately. 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. Cash-basis accounting is the simpler method of accounting and is usually used by small businesses. With cash-basis accounting, the bookkeeper (whether this be you or someone you’ve hired to do your bookkeeping) records the expenses when the cash has been received.

• It sounds obvious, but you should always make sure your financial records are current.
• Equity is the investment a business owner, and any other investors, have in the firm.
• An accounts payable account gives you a clear and simplified view of when your payments are due and helps you avoid duplicate payments.
• Post corrected entries in the journal and ledger, then follow the process again until the accounts are balanced.

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. But even if an expense is ordinary and necessary, you may still not be able to deduct all of it on your taxes.

Record every financial transaction

Double-entry bookkeeping requires more effort and time to maintain but is more accurate than single-entry bookkeeping. Double-entry bookkeeping involves recording financial transactions in two ledgers, called the “debit” and https://marketresearchtelecast.com/financial-planning-for-startups-how-accounting-services-can-help-new-ventures/292538/ “credit” sides. Each transaction must be recorded on both ledgers so that any changes made to one ledger will be reflected in the other. This helps maintain accuracy and ensure that all transactions are balanced correctly.

However, understanding bookkeeping basics doesn’t have to be complicated or intimidating. Here at Protea Financial, we will discuss what bookkeeping is, how it works, why it’s essential, and how you can start your bookkeeping today. On some regular basis — like every day, once a week, or at least once a month — you should transfer the amounts from your receipts for sales and purchases into your ledger. How often you do this depends on how many sales and expenditures your business makes, and how detailed you want your books to be. Depending on the size of your business and amount of sales, you can create your own ledgers and reports, or rely on accounting software. It is the basic accounting process, and growing your business without bookkeeping may be a huge struggle.