One of the most important aspects of running a small business is keeping up with its bookkeeping. For small business owners, bookkeeping is one of those time-consuming jobs that are outside of their area of expertise. This is why it is important to hire a bookkeeper to stay on top of these daily bookkeeping duties.
At MBA Financial & Accounting Solutions we specialize in bookkeeping and have done so for many years. Our executives are highly educated and capable to handle all types of bookkeeping. After this article, call 800-576-5746 for more information on our bookkeeping services. Here are the eight principles that make up small business bookkeeping.
1). Choose your bookkeeping method
The first thing that you need to do is choose the bookkeeping method that will be used for your business. There are two types of bookkeeping methods: single-entry bookkeeping and double-entry bookkeeping. Here is the difference between the two:
- Single-entry bookkeeping – Record each financial transaction once. This is the easier but less accurate bookkeeping method.
- Double-entry bookkeeping – You record each transaction as credit and debit. This is more accurate and highly recommended for a small business.
2). Set up your ledger
Now, you will need to put all of your business’s transactions on a ledger. This is known as a general ledger. In the past, a general ledger was a physical book. Today a general ledger exists online. On a general ledger, you will record all financial transactions including sales, payments, expenses, investments invoices, etc.
3). Create business accounts
Now you will want to create business accounts that will help you track your different transactions. Typically, there are five different types of accounts:
- Asset accounts – Everything your business owns.
- Liability accounts – What your business owes.
- Revenue or income accounts – The money your business earns.
- Expense accounts – The cash that flows out of your business.
- Equity accounts – What interest the business owner holds (Business shares).
4). Record financial transactions
It is important that all financial transactions are recorded in order to properly balance the books. This includes every sale, every expense, and every investment into the company. Additionally, all transactions are listed on the right account (Specified in point #3).
5). Balance the books
When the transactions are recorded and the books need to be closed to end a certain reporting period, it is important that the books are balanced. That means that you or the bookkeeper looks at all of the accounts and everything is accounted for. If you find any missing funds or discrepancies, then you will have to hire a forensic accountant to properly balance the books or find the source of the discrepancy.
6). Create financial reports
Financial reports are a summary of all the information in the books during a certain period of time. Financial reports are created for shareholders, business partners, and other interested parties in the business. There are three main types of business reports:
- Balance sheet – This is a summary of the company’s assets, liabilities, and equity during a certain period of time.
- Profit and Loss statement – Also known as an income statement, this financial report breaks down expenses, revenue, and costs over a certain period of time.
- Cash flow statement – This report is much like the profit & loss statement. However, this report leaves out non-cash items.
7). Create your bookkeeping schedule
It is important that you keep a bookkeeping schedule that will allow you to review your books and make sure that everything is as it should be. Even if you have a professional bookkeeper working for you, it is important that you review your books every once in a while.
8). Store your records
You will have to properly store your business records in order to be compliant with the law. If you want to know how to stay legally compliant with record storage laws, then be sure to visit this link.
Understanding Bookkeeping Basics for Small Businesses
Keeping proper books can help you stay on top of business. Be sure to understand the basics of bookkeeping and consider hiring a professional bookkeeper to handle your business’s financial transaction recording and reporting. It’s the first step that’s important for any small business. If you do have further bookkeeping questions, the executives at MBAFAS can help answer any question and offer you a FREE offer most other bookkeeping companies give. Call 800-576-5746 for more information on our bookkeeping services and your exclusive offer.