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Bookkeeping Basics for SMEs

bookkeeping basics

You have been recording journal entries to accounts as debits and credits. At the end of the period, you’ll “post” these entries to the accounts themselves in the general ledger and adjust the account balances accordingly. Alternatively, you can pay an accountant, bookkeeper, or outsourced accounting company to manage your accounts and ledger for you.

  • Any transaction posted in your ledger or your accounting software will be a debit or a credit.
  • Small-business bookkeeping involves setting up a framework, choosing your method and keeping track of details.
  • An audit trail is a set of documents that back up the transactions you record in your books.
  • It’s VERY basic and not intended to be a replacement for a trained accountant or CPA.
  • Now that you know about the ten types of basic bookkeeping accounts, they will help you track all financial aspects of your organization.

This helps you prepare for the financial year ahead and allows you to think about what your next moves are – whether that’s growing your business or setting up a limited company. In this article, we will walk you through bookkeeping the basics of what bookkeeping is, why is it important, and the seven habits that all entrepreneurs should follow. This means that you should always seek professional advice for your specific circumstances.

A Story for Relating to Accounting Basics

A general ledger account is an account you use to store, sort and summarise all of your transactions. These accounts are arranged in the general ledger which also features the balance sheet and the income statement. You must always ensure secure storage of your bookkeeping records.

It’s also a good idea to become familiar with the accounts included in your chart of accounts, which will make it much easier when you begin to enter financial transactions. Many business owners think bookkeeping is a dreaded chore, but if you understand and effectively use the data your bookkeeper collects, bookkeeping can be your best ally.

Use an online bookkeeping service

That documentation may be a receipt, an invoice, a purchase order, or some similar type of financial record showing that the transaction took place. While accounting software can feel intimidating to those with no bookkeeping or accounting experience, many products are designed specifically for the financial novice. Keep in mind that in most cases, you can edit the chart of accounts to better suit your business.

On some regular basis — like every day, once a week, or at least once a month — you should transfer the amounts from your receipts for sales and purchases into your ledger. How often you do this depends on how many sales and expenditures your business makes, and how detailed you want your books to be. Depending on the size of your business and amount of sales, you can create your own ledgers and reports, or rely on accounting software. Learn the basics of accounting and bookkeeping for your small business.

Bookkeeping Basics Topics

Using accounting software simplifies many bookkeeping processes, but you’ll still need the tech-based skills to run and streamline your business’s software. Journals are the place bookkeepers store their records of daily transactions. For every active account you use, such as cash, accounts payable and accounts receivable, you’ll have separate journals for each one. Using the accrual accounting method, you record income when you bill your customers, in the form of accounts receivable (even if they don’t pay you for a few months). Same goes for expenses, which you record when you’re billed in the form of accounts payable. Under single-entry, journal entries are recorded once, as either an expense or income. If you’re just starting out, are doing your books on your own and are still in the hobby stage, single-entry is probably right for you.

bookkeeping basics

Now, everything can be handled via a computer-based system. There are many different software packages to discover, unlimited storage options, and convenient apps so you can fulfil bookkeeping tasks on the go from your mobile phone. Whatever system or methods you decide to use, proper bookkeeping is crucial to ensure your business runs smoothly. Canadian and US business owners need to determine whether they’ll use the cash or accrual accounting methods. From the start, establish an accounting system for organizing receipts and other important records. This process can be simple and old school , or you can use a service like Shoeboxed.

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