Bookkeeping Basics for Small Business Owners: Everything You Need to Start Doing Your Own Bookkeeping

It gives you a more realistic idea of your business’ income and expenses during a period of time and provides a long-term view of the business that cash accounting can’t provide. The financial transactions are all recorded, but they have to be summarized at the end of specific time periods. Other smaller firms may require reports only at the end of the year in preparation for doing taxes.

Bookkeeping is important because of the powerful data analytics it enables. Your software of choice should offer robust reporting that makes it easy to see where your business stands. The best way to handle your small business bookkeeping is to use software designed specifically for this purpose. Trying to keep your books manually, or use a general-purpose tool like a spreadsheet, is almost always more trouble than it’s worth. Of course, this can be a difficult and time-consuming process for a busy business owner—that’s where software comes in.

Handle accounts receivable and payable

Asset accounts start with the cash account since cash is perfectly liquid. After the cash account, there is the inventory, receivables, and fixed assets accounts. Firms also have intangible assets such as customer goodwill that may be listed on the balance sheet. Effective bookkeeping requires an understanding of the firm’s basic accounts.

If you’re considering a business credit card, you might want to look for one that offers a generous rewards program and/or charges no annual fee. Having a business plan to start a bookkeeping business isn’t a requirement, but creating one can help you get some clarity on what your goals are and how you plan to proceed with growing the business. Even if you’re just planning to offer bookkeeping services remotely as a sole proprietor, it can still be helpful to flesh out the exact steps you’ll need to take to succeed.

Accounts Receivable & Accounts Payable

Finally, if you want someone else to do your bookkeeping for you, you could sign up for a cloud-based bookkeeping service like Bench. We’ll do your bookkeeping for you, prepare monthly financial statements, give you expense reports with actionable financial insights, and we’ll even file your taxes for you when the time comes. The income statement is developed by using revenue from sales and other sources, expenses, small business bookkeeping and costs. In bookkeeping, you have to record each financial transaction in the accounting journal that falls into one of these three categories. Very small businesses may choose a simple bookkeeping system that records each financial transaction in much the same manner as a checkbook. Businesses that have more complex financial transactions usually choose to use the double-entry accounting process.

• It’s no surprise why business owners love this one, as the sales account is where you record all incoming revenue from what you sell.
• Before starting a bookkeeping business, you’ll first need to know the basics of operating legally.
• By keeping accurate records, you can make sure your returns are sent off by the deadline and HMRC won’t be chasing you up because of any errors either.
• This method records both invoices and bills even if they haven’t been paid yet.
• This method offers a true snapshot of your assets and debts at any given time.
• Our bookkeepers here at Bench can do your books for you entirely online.

In all honesty, managing this account doesn’t take much time, so make sure you track it to see how much your business has grown. It’s important you keep this up to date so that you can send timely and accurate bills and invoices. A digital app lets you keep your incomings, outgoings and everything in between properly organised which makes it simpler to manage your financial records. If you’re doing your books manually, then it’s vital that you leave an audit trail.

Accounts receivable

In single-entry bookkeeping, each transaction is recorded as a single entry in a ledger, while in double-entry bookkeeping, a transaction is recorded twice. For example, if you make a $30 sale, in the double-entry system that transaction could be recorded as a gain in your income ledger, and as a deduction to the total value of your inventory. As a business owner, you’ll most likely have to create a complete financial report at least once a year, for tax purposes. However, there are plenty of reasons to make quarterly, or monthly financial statements as well.