Your bookkeeping should provide accurate, up-to-date reports that reflect your business’ activities at any given time in order to support and facilitate the decisions you need to make.
An efficient bookkeeping system and service will not only help you make solid decisions now but plans for your company down the road. Notably, it also prepares you for government audits and helps prevent fraud.
The following are basic systems and accounts for your business to maintain, monitor and scale:
- Cash. It doesn’t get more basic than this. All your business transactions go through a cash account, which is so vital that bookkeepers often use multiple journals, receipts, and cash disbursements, to track their activity.
- Accounts Receivable. If your company sells products or services and doesn’t collect payment immediately, you have “receivables,” or money due from customers. You must track Accounts Receivable and keep it up to date so that you send timely and accurate invoices and bills to maintain accurate accounting
- Inventory. If you sell products, you have to think of unsold products as basic money sitting on a shelf that must be carefully accounted for and tracked. The numbers in your books should be periodically tested by doing physical counts of inventory on hand.
- Accounts Payable. No one likes to send money out of the business, but a clear view of everything via your Accounts Payable makes it a little less painful. Concise bookkeeping helps assure timely payments and avoid paying someone twice! Paying bills early can also qualify your business for discounts.
- Loans Payable. If you’ve borrowed money to purchase any assets, equipment, vehicles, furniture, or other items for your business, this account tracks payments and due dates. To make your life easier, if you can automate this, it will further help you maintain accurate reporting and save time on paying bills every month.
- Sales. The Sales account tracks all incoming revenue from what you sell. Recording sales in a timely and accurate manner is essential to tracking revenue and performance.
- Purchases. The Purchases Account tracks and monitors any raw materials or finished goods that you buy for your business. It’s a key component of calculating the cost of goods sold, which you subtract from Sales to find your company’s gross profit.
- Payroll Expenses. For many businesses, payroll expenses can be the biggest cost of all. Maintaining accuracy and staying up-to-date is crucial for meeting tax and other government reporting requirements. This is one you absolutely cannot afford to miss or it will put you in serious hot water.
- Owners Equity. It sounds fancy but it basically tracks the amount an owner (or owners) puts into the business. It is also referred to as net assets, owners equity reflects the amount of money an owner has once liabilities are subtracted from assets.
- Retained Earnings. The retained earnings account tracks any company profits that are reinvested back into the business and are not paid out to the owners. Retained earnings are cumulative, which means they appear as a running total of money that has been retained since the company started. Managing this account doesn’t take a lot of time but it is important to investors and lenders who want to track how the company has performed over time.
While it may often seem like a dreaded chore, bookkeeping is your best tool to understand and effectively use the data your bookkeeper collects to grow your business.
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