Bookkeeping basics for business owners
In order to know how much money you have to spend on your business and where the financial problems are, you need an accurate and ongoing record of your daily transactions. Being organised around your finances is good practice and it helps you make important decisions about your business growth and direction, allocating resources for your products and projects and determining the best practices for services and delivery.
What is bookkeeping?
Bookkeeping is all about categorising and recording the daily monetary transactions for your business. When organised and documented you get reliable financial data you can easily understand and analyse for budgets, reporting and investments.
Bookkeeping vs Accounting
A bookkeeper actively seeks out receipts and transaction records and stores them in an organised and reliable way. Accounting is a much more sophisticated look at your overall financial position. Accounting uses your bookkeeping records as well as other financial details to lodge tax returns and provide a big-picture interpretation of your business’s financial health.
Types of bookkeeping
There are a number of different systems you can choose for your bookkeeping including apps, spreadsheets, and automatic programs. No matter which you choose you need to enter everything under the same system. Determine which is best for your business before you get started.
Single-entry bookkeeping
A simple list of all your income and all your business expenses.
Double-entry bookkeeping
A more complex and accurate account that lists all items twice, as both income and expenses so they can be reconciled.
Accrual-based vs cash-based
You can choose to record transactions at the time of billing or purchase with the accrual-based system even if credits have not been received or debts paid. The other option is to record the transaction only once the money changes hands with the cash-based system.
Financial statements
There are various financial statements that you can draw up when your bookkeeping records are complete and accurate. These are the usual statements generated from bookkeeping records:
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Statement of cash flows
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Profit and loss statement
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Income statement
Bank reconciliation
You can use your bookkeeping records to check against your bank reports for accuracy. This helps keep your systems in line and makes sure everything is working well financially for your business.
Bookkeeping best practices
You need to start recording your business's financial activities for the entire life of your business, which includes every money movement along with proof that it happened. Even if you have automated bookkeeping systems you need to do your part to stick with best practices:
Keep to deadlines
Accurate reports can only be created when transactions are recorded in the month they happen.
Maintain proper records
You’ll need to choose a reporting method and stick to it consistently. All transactions need to be recorded with the date they occurred along with proof.
Store receipts
Hard-copy receipts can deteriorate and are hard to keep track of. Storing receipts online helps with organising and maintaining your records.
Keep personal and business accounts separate
Even though the same accountant may handle both your personal and business tax returns, they need to be recorded and stored separately.
Bookkeeping is important but often overlooked by small business owners. Make sure to engage a fully qualified bookkeeper to understand your bookkeeping options and set the financial record straight.
