If you’re a young entrepreneur with a growing business, you are probably aware of the need for basic bookkeeping to ensure all of your financial transactions are recorded and your cash flow remains steady.
Indeed, even simple bookkeeping practices can help you complete a whole host of tasks with relative ease including planning for growth, complying with government regulations, filing tax returns, and much more. Conscientious bookkeeping also gives business owners an advantage when it comes to qualifying for loans.
While many budding business professionals believe that basic bookkeeping skills are self-explanatory, this is simply not the case. Learning about the various kinds of accounts and systems you will need to use on a regular basis is fundamental if you want your venture to succeed.
Fortunately, we’ve put together a handy guide to bookkeeping for beginners to help you understand a little more about handling your finances and maintaining strong cash flow throughout the year.
The first step to learning bookkeeping basics: Understanding account types
Every good financial manager knows that you need to keep track of a number of different accounts whilst running a small business. These include:
If you sell goods or services that do not require immediate payment, you will need to keep track of the money you are owed by customers. This is tracked via your Accounts Receivable and will help you to accrue bills and invoices in a timely manner.
The most important takeaway of these bookkeeping basics 101 lessons should be that all of your company’s transactions should pass through your cash account. To track all of the activity that goes on in this account, you should keep two journals: one detailing your cash receipts and the other your cash disbursements.
You Accounts Payable system should track all of the money that leaves your business. Although it may not be fun to track the money flowing out of your hands, it is one of the fundamental basics of bookkeeping that will help ensure you keep partners and suppliers happy with timely payments and avoid mistakes such as paying someone twice.
Paying other parties early may also help to build up your reputation as an honest and reliable business.
It is important to track any unsold products that may be collecting dust somewhere. This will usually require physical counts of any inventory you have to hand. Although it may be a rather laborious task, it will help you to decide whether to reorder certain kinds of stock or whether to alter the price of items that are not selling well.
This account will track all of the income you make from sold products. Recording this information is very important for understanding how well your business is performing and for coming up with sustainable strategies for growth.
Most small businesses borrow money as they are starting out in order to purchase any technology, vehicles, or furniture required to run operations.
It is important to track any due dates and relevant payment information for your loans in a single place to ensure that they do not rack up significant amounts of interest. Indeed, loan debts could end up harming the financial health of your business in future if left unchecked.
Your Purchases Account should track any materials you buy for your business and is a vital part of working out the gross profit of your company at the end of the year.
This account should track the amount of money a business owner (or co-owners) puts into their company. It should reflect how much money the entrepreneur owns once liabilities are taken away from assets.
Payroll expenses often represent the most significant outgoings even for small businesses. Ensuring that this account is kept up-to-date is essential for fulfilling certain tax and government reporting rules, so it is important that you pay extra attention to its accuracy.
Finally, this account reflects any company profits that are reinvested in parts of the business rather than being paid out to owners. Retained earnings should be tracked cumulatively, appearing as a total sum of money that has been retained since the inception of the business.
This information will be very helpful for any potential lenders or investors who want to understand how well your business has performed over time.
Avoiding rookie bookkeeping mistakes
Another important lesson in bookkeeping 101 is to avoid certain mistakes. These include:
Mistake #1: Failing to create a separate business account
When setting up a new venture, it is vitally important that you create a business account separate from your personal account. Failure to do so will make it very difficult to track which of your expenses are personal and which were incurred by business operations. What’s more, you will not be able to apply for a business loan until you have a separate enterprise account.
Mistake #2: Failing to verify transaction in a timely way
You will need to compare your bank statement to your internal records to ensure that all of your transactions are legitimate and that your business has not been subject to any fraudulent activity.
To make this process efficient, you should try to verify transactions on a daily basis rather than leaving it until the end of the month. This will ensure that any potentially fraudulent activity is caught early and will save you from having to undertake a long and laborious task every four weeks or so.
Fortunately, daily verification should only take a manner of minutes thanks to online account technologies and contemporary bookkeeping software.
Mistake #3: Missing tax deadlines
Every Australian bookkeeper needs to stay on top of relevant tax deadlines to ensure that the business avoids penalisation from government bodies and does not lose any money unnecessarily. To help you out, here are some of the most important deadlines to keep a note of:
- Business Activity Statements (BAS): With monthly payments, you will need to submit your form 21 days after the end of each month. For quarterly payments, you will need to submit your BAS form 28 days after the end of each quarter (excluding the December quarter when the deadline is February 28)
- Annual Withholding Declaration: August 14
- Payment Summaries: July 14
- Superannuation: Depending on the type of fund, you will need to submit forms 28 days after the end of each month or after each quarter
- PAYG Withholding Tax: For monthly payments, you will need to submit forms after the end of the month. For quarterly payments, this extends to 28 days after the end of each quarter.
Mistake #4: Failing to pay via credit or debit card
Making payments via methods other than debit or credit card can make it very difficult to track payments, something which can be troublesome if you want to claim money back for business expenses.
For example, travel costs covered with physical cash are not traceable and will not show up on bank statements, making it very difficult to prove that a transaction took place. By using a credit or debit card, you can view all of your outgoings online.
Generating a bookkeeping system that works for you
Now that we’ve detailed some basic bookkeeping examples, it is time to start thinking about how your bookkeeping system will work. Everyone has their own preferred forms of keeping records, with some favouring digital technologies over hard copies, for example.
One of the first things to note when coming up with a bookkeeping system that works for you is that most small business owners opt for a double-entry system. This means that every entry is recorded twice as both debit and credit.
To make the recording process as simple as possible, most bookkeepers have switched to cloud-based accounting programmes to manage double entries. This cuts down the possibility of making errors and makes calculations quicker and more accurate.
Many contemporary accounting systems also include options to help you ensure bills are paid on time and automating invoices for clients. This will ensure that information about your incomings and outgoings remains balanced and accurate.
Finally, entrepreneurs may want to think about investing in payroll management software to ensure that their bookkeeping system is as efficient and intuitive as possible.
As a business owner, it is your responsibility to ensure that all employees are given access to the relevant benefits such as health and life insurance and, of course, are paid on time. With payroll technology, many of these processes are automated.
Reach out to Geekbooks today
Hopefully, this quick guide has helped you to learn some bookkeeping basics for beginners. Whilst the above information should help you to carve out a basic bookkeeping plan for the future, it is also important to understand that keeping track of your accounts is not always an easy job.
That’s where we come in. We offer a range of efficient bookkeeping services covering payroll, sales, purchase and invoice management, BAS preparation, debtor management and more. By investing in our services, you and your colleagues will have plenty of time to get on with other tasks and ultimately grow your business into something amazing.
Our rates are lower than many of our competitors, starting from as little as $25 an hour. Even better, we do not compromise on quality. We are so sure in our abilities as skilled bookkeepers that we offer a 30-day money-back guarantee for our services.
If you’re in need of some financial assistance from a group of friendly bookkeeping geeks, we are ready and waiting to take your call.