Whenever you operate a small business, you need to know little something about the basics of bookkeeping. A little understanding of bookkeeping can ramp up your business operations. Bookkeeping is the recording and organizing of a company's financial transactions and with the right bookkeeping tools, you'll be better able to plan for your company's own profits. Don't worry though, you don't have to be a calculus wizard to understand bookkeeping.
With proper bookkeeping, you being able to see whether or not your business is actually making a profit. You'll also be able to identify areas where there may be some financial challenges. This is very helpful because it may allow you to fix a problem before it mushrooms into something that cannot be fixed and can be detrimental to the company.
Bookkeeping is the process of recording transactions, making payments, managing accounts, preparing financial statements, and sending invoices. It lays the foundation for the company's accounting. Bookkeeping is a process that collects financial data where accounting is the process that analyzes the financial data.
In bookkeeping, there are 5 different types of accounts. These are assets, liabilities, revenue, expenses, and equity. Assets are all the resources and cash owned by the company, such as inventory. Liabilities are the debts and obligations owed by the company. Revenue is the money the business takes in. Expenses are cash from the company to pay for items, such as salaries and utilities. Equity is the remaining value after liabilities.
Bookkeeping starts with setting up an account for each of the 5 categories. Each transaction must be recorded into the proper category.
Typically, a ledger is used to set up each specific account and today, most businesses use software to do this. You can use a number of things to create a general ledger, such as accounting bookkeeping software, spreadsheet software, QuickBooks, or Google sheets. You can also hire a bookkeeper, hire an accountant or outsource a financial company to do your bookkeeping.
Before you start your bookkeeping, you have a decision to make. Do you want to do single-entry bookkeeping? Or, do you want to do double-entry bookkeeping? In single-entry bookkeeping, each transaction is only entered once. This method works well if your business is pretty basic. If you don't work out of your home or if you don't carry much inventory, single-entry bookkeeping is the way to go. However, most businesses today use the double-entry bookkeeping method. This means that any transaction requires an equal and opposite entry into another individual account. Two entries are made for each transaction.
Bookkeeping is an essential part of running a small business. It helps the small business owner prepare financial records, keep track of cash flow and help prepare for the future.
If you operate a small business and are unsure of your bookkeeping skills, you may want to consider hiring a bookkeeper to do this for you. And if you don't want to take on the cost of having to hire another employee, you could outsource your bookkeeping needs to an accounting, bookkeeping, and advisory service - like AccountingDepartment.com. Many bookkeeping service companies offer a variety of service packages. You can choose which package is good for your company and find one that will fit within your budget. Contact one today to find out what packages they offer.