Your Complete Guide to Bookkeeping for Your Business

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Accounting is the foundation for all small business knowledge. If you have a small business, you need to make it regular. All too often, small business owners put accounting aside to tackle the most pressing issue of the moment. If it’s not that, it’s procrastination or number phobia (fear of being wrong).

Trust me, don’t put it off. Many small business owners often allow a backlog of transactions and expenses to accumulate before they get organized, which can hurt your business in at least two important ways.

First, it creates confusion. Up-to-date accounting tells you the critical things you need to know. Without it, you’ll only have a rough idea of ​​how much money you have, what outstanding bills you have to pay, and whether you’ve been paid for the goods or services you provide.

Second, ignoring accounting makes paying taxes more complicated. There are few things worse than being on a deadline and having to sort through a paper bag full of receipts for items you can deduct, all while trying to meet a deadline for a client. Using an accountant or tax preparer isn’t cheap either.

Here’s the good news: You don’t need a finance degree to understand and benefit from accounting. The double-entry bookkeeping method, as accounting is done today, dates back to the 15th century. If you’ve ever made a checklist of the items needed to complete a task and then checked off the items as they were gathered or performed, you’ve got the gist of accounting.

Related: Finding the right solution for your accounting needs

Accounting 101

When you’re ready to do your own accounting, here’s your non-degree course syllabus:

  • accounts. Accounts group together similar business activities for ease of analysis (ie, a sales account). The complete list of your accounts is called your chart of accounts. Items on this list include sales, cost of goods sold, salaries, all business activities you do.
  • Accounting period: This is the specific time period for which you are looking at your business. For example, you might want to know how you did in February. Or the third trimester. Or the year Or since you started advertising.
  • Accounts Payable: This is money you currently owe vendors or suppliers but haven’t yet paid. If you bought a computer that you haven’t paid for yet, this is an account payable.
  • Accounts receivable: You’ve done the work and sent the invoice, but the client’s check is in the mail. This is an account receivable.
  • Periodizations: expenses or income that you have incurred but not yet paid (this means that accounts payable and accounts receivable are accruals). If you use accrual accounting, record accruals (positive and negative) at the time of sale. In cash-based accounting, you would have recorded when you paid or received the money. The benefit of accrual accounting is that it lets you know that while you may have cash on hand, you shouldn’t be spending it freely. You may owe for that shipment of raw materials you just received. Conversely, you may have worked all month for a client but still haven’t been paid for that work.
  • assets: Things you own, physical or intangible. These can be items such as goods, vehicles, cash, a computer or the right to use a particular parking space.
  • balance sheet: This document summarizes all of your assets (what you own) and compares them to all of your net worth and all of your liabilities (what you owe). With it, you can assess the overall financial health of your organization.
  • cash flow: A comparison of the money you usually receive with the money you have to pay.
  • Cost of Goods Sold (COGS): If you make a product, the sum of the costs is directly related to the manufacture of that product. So if you’re a bakery, it’s about materials like flour, sugar and eggs, as well as the cost of using the kitchen you’re baking in. After subtracting the cost of goods sold from your net sales (that is, your total revenue from sales, less discounts, rebates, or sales returns), you get your gross profit.
  • Double entry accounting: By recording each entry as a credit and debit, you’ll see the source of your money and where you’re spending it. This makes it easier to spot errors. Cash credit when you buy an asset; debit an asset account (for example, “IT expense”) when you spend money for that asset. When you check everything, it’s called creating a trial balance, which is just a way of telling you if your debits and credits are accurate. If your debits and credits don’t match, someone needs to review each item until you find the source of the error. Although laborious, detecting these discrepancies is the real benefit of double-entry bookkeeping.
  • fairness: The value of your business after you’ve paid your liabilities and who owns it (this equity can be all yours or shared with a partner or investors).
  • Expenses: What you spend to keep your business running. Your expenses may be items you need to make a product you sell. These can include the cost of your building rent, your office supplies, your payroll and the like.
  • ledger: Traditionally lists all the individual accounts needed to delineate the assets, liabilities, equity, income, expenses, profit and loss transactions of your business. Instead of comprehensively listing all transactions (for example, the cable you bought each week since January), it is summarized from chronological journal listings, such as a raw inventory journal or sales receipts journal.
  • Income statement (profit and loss account): This document compares your income to your expenses to reveal whether your business made or lost money in a given accounting period.
  • liabilities: Money you owe but haven’t paid, such as outstanding bills, credit card balances, and any business loans you’ve taken out. If your company’s liabilities add up to more than its assets, your company is in trouble.
  • payroll: The full list of your employees and how much each pays, as well as how much they pay in taxes and retirement contributions.

Related: Five Accounting Tips for Business Owners

Accounting 102

The next non-MBA skill you need to learn is diligent and accurate record keeping. Spoiler alert: A box full of unorganized receipts and related financial documents that you don’t look at until minutes before tax time is not efficient or record-keeping.

Watch out for other systems that look like they should work, but are faulty. For example, keeping your journals in notebooks or file folders, no matter how easily accessible, can be tedious and prone to errors. Similarly, spreadsheets look compact, are flexible, and most people have a basic understanding of them. However, they are easily prone to error and can quickly become complex.

This is what really works to master your accounting: an online platform where your data can be quickly scanned and systematically linked to your bank and credit card accounts.

This platform is easy to set up and can automatically perform most of the tasks that help you best. There are several platforms like this (like Neat and QuickBooks) that offer the ability to categorize your expenses and income into standard accounts to help you quickly understand your business finances and where there are opportunities for improvement.

So go ahead and throw your cap in the air. In these few minutes of reading this article, you have mastered the essence of accounting without having an accounting degree. Now go ahead and be profitable.

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