Bookkeeping is essential when it comes to running and managing a business as it involves the process of recording and managing all financial transactions. The collected data in bookkeeping is used to analyze, evaluate, and report financial data.
It is helpful to stay on top of your finances as a business to ensure that nothing is overlooked when it comes to business operations. However, the process does not need to be daunting for small business owners, especially with the following tips to consider.
Understand and Set Up Your Business Accounts
In bookkeeping, an account is a record of debit and credit entries covering a specific type of transaction. An account has five classifications:
- Assets
- Liabilities
- Revenues
- Expenses
- Equity
Determine the Type of Bookkeeping System to Use
Small business owners can use either a cash system or an accrual system as a bookkeeping system for managing finances.
A cash accounting system is used depending on cash flow, wherein transactions are recorded when cash changes hands. On the other hand, an accrual accounting system is based on when the transaction transpires, wherein sales are recorded immediately, but the cash is yet to change hands later
Decide on a Bookkeeping Method
For bookkeeping, there are options for either single-entry or double-entry bookkeeping. Single-entry bookkeeping records each transaction once, which is either an expense or revenue. This method is similar to keeping a check register, and it is used for smaller businesses.
Meanwhile, the double-entry method records all transactions in one with a corresponding and opposite entry, ensuring that your books are balanced.
Keep Your Financial Records Organized
It is essential to make sure that each financial transaction is recorded correctly, as it is helpful in auditing. Organized business records also help in determining which expenses qualify for deductions.
Complete Bookkeeping Tasks Diligently
There may be disadvantageous consequences if bookkeeping is put off for later. It can be challenging to balance financial statements, especially if many tasks are piling up. It is helpful to set a good bookkeeping habit by scheduling time for it and following it through in the long run.
Use a Reliable Bookkeeping Software to Simplify and Expedite Tasks
Several small businesses are utilizing modern technology to streamline their business operations, including bookkeeping. Using software such as business accounting software and invoice maker software can help lessen or minimize risks and hassles related to manual processes.
For more information about bookkeeping tips for small businesses, here is an infographic by Kippin.
