If you own a small business, accurate bookkeeping is vital for your finances. It can impact the success and growth of your business. Bookkeeping is not just one function, but it encompasses a variety of tasks, from data entry to managing accounts. Make bookkeeping a priority for your business. Here are a few things you need to know about bookkeeping basics for small businesses.
What Is Bookkeeping (and Why Is It Important)?
In basic terms, bookkeeping is keeping track of all your financial records and transactions. For small businesses, bookkeeping is part of their accounting system. A well-managed bookkeeping system should include records for operational costs, business transactions, and other expenses. All of these entries must be accurate and up-to-date.
Without these records, you will not know whether your business is making a profit or taking on losses. You also need the proper records so that there are no issues when it comes time to pay taxes or payroll. You can quickly fix any discrepancies by catching them early. However, you will not know about those issues unless you have maintained your financial records.
Choosing a Bookkeeping Method
When it comes time to choose a bookkeeping method, you have two choices: single-entry or double-entry. Before you can start keeping your financial records, select one of these methods. These bookkeeping systems determine how and where you record every financial transaction.
If you want a simple bookkeeping option, consider the single-entry method. You will need to record every financial transaction only one time. These transactions will be listed either as income or an expense. The single-entry process is excellent for smaller businesses that don’t have equipment or inventory included in their finances. However, single-entry recording is often less accurate than double-entry.
With the double-entry method, all transactions are entered twice in the record. They are recorded as either debit or credit. When you think of “balancing the books,” this is the method used. While double-entry procedures are more complicated, they prevent costly errors in recording transactions. You will be able to catch any mistakes before they lead to significant financial problems.
The entry system method that you choose will impact how your bookkeeping processes will work in the future.
Don’t forget about choosing an accounting method. Like bookkeeping, there are two options: accrual-based or cash-based accounting. Accrual-based accounting records, bills, and invoices even when money has not been exchanged. For the most part, accrual-based accounting is the primary method for most businesses. Cash-based accounting records all transactions where the funds have changed hands. With this method, invoices or outstanding bills are not recorded until paid.
General Ledgers, Payrolls, and Taxes
Years ago, many small businesses would record all financial transactions in a physical book called a general ledger. Today, these ledgers are digital, allowing business owners to enter and organize all transactions with accounting or bookkeeping software.
When you send an invoice, pay a bill, or make a sale, these financial transactions should be recorded in the general ledger. There are several ways to set up a ledger. You can use a spreadsheet or ask for help from a small business accounting services company. In any case, you need to keep track of these transactions, or you could find yourself in financial trouble.
After setting up a general ledger, think about your payroll system. If your business has hired anyone as an employee, you need a system for payroll. Your bookkeeper can help to establish a payroll schedule. With that, you can ensure that your business is withholding the right amount of taxes.
Don’t forget about those independent contractors. While they might not be an official employee of the company, you still need to track your payments to them. At the end of the year, you could be required to file 1099s for each contractor.
A well-managed bookkeeping system is needed to help with taxes at the end of the year. If you neglect to record transactions, you could be scrambling to file taxes on time, causing you to miss deductions or pay penalties. Bookkeeping can help keep all of your financial records up-to-date. Some states require you to track any taxes you may have charged to clients. If you don’t have these records, it can lead to fines and other financial headaches for your small business.
Is Bookkeeping the Same as Accounting?
Many people refer to accounting and bookkeeping interchangeably. While they both work hand in hand, they are two different operations. Accounting usually carries more responsibilities than bookkeeping. Accounting professionals are highly trained and will have a CPA license. Bookkeepers focus on record-keeping duties, such as maintaining a general ledger.
On the other hand, an accountant focuses on a broader range of activities and can create more complex financial reports. A bookkeeper can help file payroll taxes during tax time, while an accountant will assist with business and personal tax filings.
Find High-Quality Professionals
As a business owner, you could tackle record-keeping duties by yourself. However, think about outsourcing these responsibilities to a group of professionals. With a little extra help, you can focus on your business and leave the recording to others. First, you may want to hire a bookkeeper who can help manage all day-to-day records, categorize expenses, track accounts payable, and account records, and reconcile all books.
If you want more in-depth help, consider an accountant for those financial duties. These professionals will be able to advise you at different stages of your business, help file taxes, manage payroll, and create financial statements. Bookkeeping is not hard work, but it can get away from many people. When that happens, you could struggle to manage your financial records.
Let Us Help With Your Bookkeeping and Accounting
At TMD Accounting, we have over 40 years of experience. We are an affordable, reliable, and flexible option when you need bookkeeping and accounting services in Gloucester County. Many small business owners struggle to manage those financial records. Our team is ready to help you. If you need an accountant for your small business, schedule an appointment by calling 1-856-228-2205.