After you have a bookkeeping system in mind, the next step is to pick an accounting software. Spreadsheets, such as Microsoft Excel, can be used for simple bookkeeping. More commonly, entrepreneurs use comprehensive accounting software like QuickBooks that can handle a larger volume of transactions and provide a deeper analysis. QuickBooks Live Expert Assisted can help you streamline your workflow, generate reports, and answer questions related to your business along the way.
Monitor accounts receivable
A program like QuickBooks cloud accounting software, for example, can help you track income and expenses much faster than you could with a traditional ledger. Fortunately, small business owners don’t need to be experts in mathematics to find success when doing their own bookkeeping. There are many ways to divide bookkeeping responsibilities and leverage powerful technology and small business accounting software for more accurate expense tracking. 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. Accounting software can streamline your bookkeeping process and make your financial management more efficient.
Preparing financial reports
With this type of service, you can communicate completely by email or phone without having to set aside time to meet in person. The responsibilities handled by a service will depend on the provider, so be sure to discuss the scope of work and compare options to find the right fit. Outsourcing your bookkeeping is another option, and this guide on how to find the best virtual bookkeeping service can help you get the process started.
Reconciling the books is another challenge for small business owners. Miscalculations can result in large penalties if miscalculations are sent to the IRS or state tax department. If your business requires the collection of sales tax, you may be required to submit accurate quarterly payments, depending on your state’s requirements. Diamonds may be forever, but the ink on your expense receipts is not. Since the IRS accepts digital records, it’s smart to use a cloud-based system like Dropbox, Evernote, or Google Drive so you never have to deal with smudged receipts.
Determining the historical cost of something you’ve purchased or acquired is merely accounting for the purchase or acquisition at the then-rate you paid. Whichever accounting method you choose, the best way to make sure you’re dotting your i’s and crossing your t’s is to maintain order in the way you manage your bookkeeping. When creating the company’s balance sheet, the FIFO method of valuation offers costs that most closely resemble the costs most recently incurred. Both the single-entry and double-entry methods can work in tandem with cash or accrual bookkeeping.
- So, even though you received an invoice in January, you’d record the expense as a cash transaction in February, on the date that it was paid.
- The responsibilities handled by a service will depend on the provider, so be sure to discuss the scope of work and compare options to find the right fit.
- Paying bills and invoicing happen daily, so they can be complicated to outsource.
- After all, you’re in business because of your proficiency in your field, not because you enjoy bookkeeping (unless, of course, you offer financial services).
- Any company that must highlight cash flow retained earnings, or any other changes in a position financially must use a double-entry accounting system.
Be Prepared for Large Expenses
For full-time bookkeepers, the average annual salary sits around $77,000, according to Glassdoor. Bookkeeping is one of the most important tasks that a business owner will delegate over the life of a business. Without it, it’s nearly impossible to produce an accurate record of financial activities that affect everything, operation and maintenance expenses definition from profit to equity to payroll, and more. Efficient bookkeeping involves foresight, meaning that a business should always plan for upcoming financial events, including tax time. Good preparation and documentation are critical for paying taxes (including payroll taxes) on time. Bookkeepers use a chart of accounts to see all of the accounts in a company’s general ledger.
The two primary methods of small business accounting are cash-based and accrual. While the cash-based method is the simplest to use, it’s not suitable for every small business. Take a look at the difference between cash and accrual accounting and the restrictions. With the right tools, you can feel confident managing financial transactions and helping your business grow. Continue reading to discover why small business accounting is important, as well as how to streamline your business’s finances. You could go with one of dozens of popular cloud accounting solutions, like QuickBooks, Xero or Wave.
Having a solid overview of your bookkeeping and accounting reports gives you a good enough start for cash flow projections for the following months. Make sure you open a business bank account for your business expenses and do private bank account transactions on personal accounts. The same goes for using dedicated business credit cards instead of your personal cards, so you leave a clear spending trail. If the IRS audits you and your bank statements have personal and business transactions, the IRS may disallow everything.
This process will identify any discrepancies, like missing checks or deposits, and maintain a clear picture of your actual cash balance. Bookkeepers record and classify financial transactions, such as sales and expenses. They maintain accurate records of daily financial activities and manage accounts payable and accounts receivable. The first step you’ll need is a business bank account, which allows you to keep your personal and business expenses separate. Bank accounts allow businesses to safely store their money and make transactions easily.
