Running a small business is exciting and anxiety-provoking. Although you’re eager to earn a profit, you must lay the crucial groundwork. One of the most important aspects to master is the art of bookkeeping. Even if you’re nervous about tackling accounting chores, here are four bookkeeping tasks small business owners cannot ignore.
#1 Understand your business
The majority of business transactions are broadly categorised into five key accounts. To understand where your money is being spent, you should understand these account types:
Assets – This is all your business’ equipment, capital, shares and more
Liabilities – These are all debts, loans and accounts payable
Equity – Equity is found by subtracting liabilities from assets, and symbolises your interest in the business.
Expenditure – This represents the total amount you spend on equipment, inventory, rent, employee wages and more.
Income – Income is the money your business earns through sales of products or services.
#2 Choose cash or accrual accounting
If your small business mainly deals with cash-based transactions, you’ll likely use a cash accounting system. This covers cash and virtual transactions. As you expand, you’ll probably move to accrual accounting (it includes credit card purchases). This is a good choice if you make a lot of purchases or sales on credit.
#3 Keep records
When bookkeeping, the first step is gathering all financial data relating to transactions (cash and online), and organising and filing away the information. You are required to keep records of receipts, invoices, bills, bank statements, tax returns and payroll information. Put simply, all incoming and outgoing finances must be documented to determine your company’s cashflow.
#4 Balance the books
This is the most crucial aspect of bookkeeping. The reason being, for precise results, all accounts should be accurately recorded and categorised appropriately. To ensure your books are balanced, remember this key bookkeeping formula: assets = equity + liabilities. If these figures do not add up, you’ll know there’s an error that must be rectified.
Understanding the fundamentals of bookkeeping is the secret to your small business’ success. Whether you want to try it yourself or let the professionals handle it, call or email our talented team today.