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small business bookkeeping

And when you consider the monetary value of the hours you’d spend doing bookkeeping on paper or using generic tools like spreadsheets, software is often incredibly cost effective. No matter what type of business you run, you need to pay tax on whatever money it earns. There are a few different types of tax, each with their own criteria, rules, and processes. Though many tasks fall under bookkeeping, there are five essentials that you need to do to keep things rolling smoothly and legally.

  • Bookkeeping is the backbone of your accounting and financial systems, and can impact the growth and success of your small business.
  • Regardless, work with your bookkeeper and accountant to ensure the amount of cash left in the bank is sufficient for unexpected costs.
  • Good preparation and documentation are critical for paying taxes (including payroll taxes) on time.
  • That means, each time you make a purchase or receive a payment, the information needs to be stored, along with the amount.
  • This can be challenging with the other commitments of operating a small business.
  • QuickBooks cloud accounting software also has options for payroll, expense tracking, and inventory.

Whichever accounting method you choose, the best way to make sure you’re dotting your i’s and crossing your t’s is to maintain order in the way you manage your bookkeeping. The accrual method is a bit more difficult, in that your bank statements might not reflect the amounts on your income sheet. However, the accrual method is the required method for large corporations in the U.S., and besides that, it tends to provide you with a more accurate picture of your overall finances. Accurate bookkeeping helps you trace your firm’s financial records and evaluate its performance levels. You can look back, see patterns, and even draw comparisons with previous business years. Bookkeeping allows you to have a greater understanding of the areas within your business where you can trim costs.

Take control of your financial records

If you’re a busy small business owner with a million things to do, it’s easy to let bookkeeping fall by the wayside. Under double-entry bookkeeping, all transactions are entered into a journal, and then each item is entered into the general ledger twice, as both a debit and a credit. Keeping an accurate, up-to-date set of books is the best way to keep track of tax deductions (expenses that you can deduct from your taxable income).

  • Take a look at the difference between cash and accrual accounting and the restrictions.
  • With this type of service, you can communicate completely by email or phone without having to set aside time to meet in person.
  • Automatic reconciliation – Software that integrates directly with banks can automatically reconcile transactions against the digital records stored in the system.
  • Get in touch with one of our specialists today to get your quote or click here to get started.
  • Learn the fundamentals of bookkeeping to help manage your business financials and make informed business decisions.

In the accrual method, on the other hand, you would record the expense in January, on the date that you received the invoice — regardless of when you ended up paying for the parts. When it comes to budgeting for bookkeeping, the difference hinges on whether you hire or manage using software tools. To uncover errors, check whether you forgot to record an entry in either column of your accounting ledger. Balancing your books allows you to catch any errors or mistakes in your bookkeeping. Whether you do the bookkeeping yourself or hire someone to do it, certain elements are fundamental to properly maintaining the books.

FAQs on Small Business Bookkeeping

However, general ledgers can get complicated if you’re trying to juggle multiple accounts. 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. Just because you do most of your work from your dining room table doesn’t mean that you can deduct your entire monthly rent. Luckily, the IRS has put together a comprehensive guide on business deductions that you can consult if you’re ever unsure about a deduction.

Once you have this information in place, find a good payroll service provider, and get ready to hire your first employee. Remember, any time you record a journal entry, there always needs to be a debit and a credit entry. A good place to start is by reading The Ascent’s accounting tools reviews to get an idea of what’s available. Be sure to download some demos and try out an application for yourself before you buy it. Every transaction you make needs to be categorized and entered into your books. To understand the difference between these two methods, take this example.

Financial Services & Investing Overview

Never leave the practice of bookkeeping (or your business assets) to chance. No matter what system you implement, incorporate a practice of reconciliations, by comparing the numbers in your system to the source records, like bank statements, receipts, and invoices. This habit improves communication, boosts transparency with your bookkeeping team, and promotes longevity and compliance. Bookkeepers use a chart of accounts to see all of the accounts in a company’s general ledger. In many instances, an accountant prepares the initial chart, and the bookkeeper references it while recording transactions. Professional bookkeepers and accounting professionals are available to manage, track, and report on financial activities.

Once you’ve got a handle on how to begin bookkeeping for your small business, it’s time to set yourself up for success with an ongoing bookkeeping system. A lot goes into it—from managing payables and receivables to balancing books. But what might seem like an overwhelming task isn’t so bad when you break it down to the bookkeeping basics.

Outsourcing to a professional

Remember, it’s crucial that each debit and credit transaction is recorded correctly and in the right account. Otherwise, your account balances won’t match—which means you don’t have an accurate understanding of where your business actually stands financially. Along with reading this page to get a quick bookkeeping overview, we always recommend meeting with a CPA (certified public accountant) or bookkeeper before you open your doors. A financial expert can give advice specific to your unique business and give you a more in-depth look at basic bookkeeping principles.