Bookkeeping 101 for your small business
Bookkeeping is the process of recording data relating to financial transactions in the accounting books of a business. A good bookkeeping system can help you keep accurate records for a range of purposes including analyzing business activities, attracting investors, lodging and paying taxes. Under tax laws, a business is required to keep records relating to income tax, payments to employees, supper annulations and business payments.
Bookkeeping helps in budgeting which creates a financial roadmap for your business. This limits the risk of coming across any unforeseen financial pitfalls. It also is necessary in preparation to file yearly business tax returns.
“Bookkeeping is a cycle which starts with a transaction which should have some type of source documentation such as a receipt or invoice. The monthly bank statement for a business can be an easier alternative to keep track of business transactions.”
The next step of bookkeeping is determining the financial effects of your transactions. It involves going through financial reports to determine certain information. In many cases you can apply ratios to pieces of you financial statement to determine for example; if the business is profitable of not.
To get started on bookkeeping, you must open a bank account for your business. It is not a legal requirement, but it helps ease the process. Having a separate bank account for the business is a however a requirement for LLCs and corps.
The next step is to set up a bookkeeping system. This is a process which should be completed at least on a monthly basis. One way to establish this system is to invest in accounting software such as QuickBooks or Xero.
Reconciling your transactions is the process of determining any deference between the bank balance and that on the bookkeeping system. It’s important to make sure none of the business transactions are missing or double counted. The next step is to prepare financial statement including the balance sheet, income statement and cash flow statement. The final step is applying the financial reports from bookkeeping to implement business decisions.
