Small Business Bookkeeping 2024 Guide

business bookkeeping basics

Accounts receivable (AR) is the money your customers owe you for products or services they bought but have not yet paid for. It’s important to track your AR to ensure you receive payment from your customers on time. While any competent employee can handle bookkeeping, accounting is typically handled by a licensed professional.

business bookkeeping basics

Regardless of your small business’s complexity, bookkeeping will still take time out of your week, so be sure you have the resources before committing to handling it yourself. You should also browse the chart of accounts and make sure it’s organized in a way that makes sense for your business. If you find that you have a talent for and enjoy the process, you may consider starting your own bookkeeping business providing this service to others.

What Is Bookkeeping? Everything You Need To Know

When hiring external team members, keep in mind that some of the responsibility still falls to you as the proprietor. Bookkeeping is different from accounting in that it is the critical first step in tracking all business activities. While bookkeeping provides oversight into each individual transaction (in https://www.bookstime.com/ order to catch discrepancies and correct mistakes), accounting provides a thorough analysis of these numbers. Accounting software makes it possible to do much of this on your own, though you may decide to outsource some basic bookkeeping tasks to an online bookkeeping service as your small business grows.

business bookkeeping basics

You use this to calculate the COGS, and you subtract it from sales to determine the company’s gross profit. You also need to ensure that all transactions concerning these three are correctly recorded in the right journal or document. Every transaction you make needs to be categorized and entered into your books.

Step 1: Separate your business and personal expenses

Accountants rely on bookkeeping records to analyze and advise on the financial activity, health, and growth potential of a business. Bookkeeping is how businesses, entrepreneurs, and decision-makers monitor a company’s overall financial health and activity. Without basic bookkeeping practices, it’s easy for financial transactions and spending business bookkeeping activities to get out of control, which can lead to confusion, disorganization, and loss of profit. Accounting software eliminates a good deal of manual data entry, making it entirely possible to do your own bookkeeping. However, it can be difficult to catch up if you fall behind on reconciling transactions or tracking unpaid invoices.

business bookkeeping basics

You can use bookkeeping software to prepare these financial reports (balance sheet, profit and loss statement, and cash flow statement) in real-time. Wave and FreshBooks handle the same basic bookkeeping tasks, from invoicing and billing to expense tracking and beyond. 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. Fortunately, small business owners don’t need to be experts in mathematics to find success when doing their own bookkeeping. There are many ways to divide bookkeeping responsibilities and leverage powerful technology and small business accounting software for more accurate expense tracking.

You’re All Set

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. If not done at the time of the transaction, the bookkeeper will create and send invoices for funds that need to be collected by the company. The bookkeeper enters relevant data such as date, price, quantity and sales tax (if applicable). When this is done in the accounting software, the invoice is created, and a journal entry is made, debiting the cash or accounts receivable account while crediting the sales account. The two key accounting systems are cash accounting and accrual accounting.

  • They maintain accurate records of daily financial activities and manage accounts payable and accounts receivable.
  • For example, if your clients pay for one of your products, you enter the sum paid in your asset column only.
  • This refers to the money spent to purchase or manufacture the products or services the business sells.
  • Start by deciding on the system you want to use, whether it’s an online program, paid software or a spreadsheet.
  • The software has an advanced transaction tool that classifies all your transactions according to category, date, description, and amount.
  • Before you take on any small-business bookkeeping tasks, you must decide whether a single- or double-entry accounting system is a better fit.
  • Traditionally bookkeeping was all about the physical recording of a business transaction in a journal.

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