If you run a small business, then you will have to become familiar with bookkeeping. This will allow you to stay organized and understand and review your business’s transactions, profits, and liabilities. Also, bookkeeping will make it easy for others to understand how your business is operating. If you are in need of a bookkeeping team or professional, make sure to contact MBA Financial & Accounting Solutions at 800-576-5746 for a FREE bookkeeping appointment. Here’s a look at how you can get started with bookkeeping for your small business.
What is Bookkeeping?
First, it is a good idea to have an understanding of what bookkeeping is about. Quite simply, bookkeeping is the act of recording and organizing every financial transaction. This includes recording all sales as well as payments to employees and vendors. Other information that will be included in your small business bookkeeping will include business expenses, tax payments, and cash distributions.
Understand Business Accounts
When you are bookkeeping, you will be using a term called business accounts. This is not like a bank account. Instead, a business account is a recording of every financial transaction. In bookkeeping, there are five specific business accounts that you will have to become familiar with:
- Assets – These are the cash and resources owned by the business.
- Liabilities – These are the obligations and debts that are owed by the business.
- Revenues or income, – This is the money that is earned through the business.
- Expenses or expenditures – This is the money that flows out of the business to pay for operations.
- Equity – This is the value of the company after subtracting assets and removing the owner’s interest.
Deciding on a Bookkeeping Method
Now you will have to decide on a bookkeeping method. There are two general types of small business bookkeeping:
- Single-entry bookkeeping – This method of bookkeeping allows you to only enter a transaction once. This method is ideal for simple business models.
- Double-entry bookkeeping – With double-entry accounting, you will record both a debit and a credit for each entry. The debit is recorded on the left side of the ledger while the credit is recorded on the right side of the ledger.
Recording Every Financial Transaction
It is critical that every financial transaction is recorded. This will help keep the books balanced and help your business avoid trouble when it comes to dealing with taxes or audits. When you record one of the five types of business accounts, it is important to understand how it affects debits and credits:
- Asset – Debit increases, credit decreases
- Liability – Debit decreases, credit increases
- Revenue – Debit decreases, credit increases
- Expense – Debit increases, credit decreases
- Equity – Debit decreases, credit increases
Balance the Books
Finally, you will want to make sure that your books are balanced at the end of each recording period. For example, if your business account has $10,000 in debits (increases) in one month and your $6,000 in credits (debits), then your cash account balance, should be $4,000.
If the two sides of your books do not match, then you have to go back and see what was left out in order to properly balance the books.
Prepare Financial Reports
After you have balanced your books, you will want to prepare financial reports. Your financial reports will consist of three specific sheets and statements that will create a financial snapshot of your business:
- Balance Sheet – This sheet summarizes your business assets, liabilities, and equity over a single period of time.
- Profit and Loss (P&L) Statement – Also known as an income statement, this statement breaks down revenue, costs, and expenses over a period of time.
- Cash Flow Statement – This is the same as your business’s profit and loss statement. However, it does not take into account non-cash items such as depreciation.
Maintain a Regular Bookkeeping Schedule
Since you need to make sure that you record all transactions, it is important to set aside regular time to work on your books. This will help you avoid any future headaches that can come from misbalanced books.
Secure Business Records
It’s important to secure your business records in order to stay legally compliant. If you want further guidance on that, then you can visit SBA.gov on the current laws regarding financial recordkeeping.
Get Professional Bookkeeping Assistance
Since bookkeeping can grow more complex as your business grows, you should consider a professional bookkeeping service like MBA Financial & Accounting Solutions. At MBAFAS, you receive an exclusive offer upon scheduling your appointment with us. For the past 10 years, we have been catering to some of the top businesses in Southern California with our highly-rated bookkeeping services. Make sure to call 800-576-5746 for more information on scheduling your appointment and receiving your exclusive offer.