Small Business Bookkeeping

Tax ID RetailTax Insurance Taxes Bookeeping

General Bookkeeping

Bookkeeping is an important part of running your business. If you do not keep accurate records of your business expenses, you will not be able to prove them and therefore claim deductions. An auditor may disallow the deductions, burdening you with back taxes and penalties.

If you do not keeping accurate records, you cannot be sure exactly what your business expenses were for any given year and you can end up paying excessive

taxes on your return. If you implement your bookkeeping system accurately, it will help you track your sales, expenses, and purchases.

A good record-keeping system allows you to track your day-to-day business operations, helping you identify high and low cycles. It will also help you identify changes in your customers' preferences and behavior, in turn enabling you to change your marketing strategy.

Cash and Accrual Based Accounting

If you are using a cash-based accounting method, you record a sale when you receive payment. In this case, you only need to keep two journals (disbursements and receipts) and a ledger at the end of the month. There are two terms you will learn soon enough as a business owner: accounts receivable and accounts payable.

Accounts receivable means that you have sold a product or service and have not collected the payment yet. Accounts payable is when your business has purchased a product and service and you owe money to the supplier.

Accrual-based accounting is more useful when affording credit to a client or maintaining a large inventory. In this case, you would enter the expense of the item when it is incurred, regardless of when you make the actual payment. When you make sales on credit, you would enter them into your books as sales and record them on your accounts receivable log.

Bookeeping Fundamentals

Your business records should be kept simple. If you keep your records in a format you can easily understand, you can use them for analyzing trends in your business and be able explain the figures if you are ever audited. Your books should be accurate and error free.

The records should be error free, since they are used to calculate your taxes. Any mistake you make might have tax ramifications in the future.

The accounting books should only keep records that are relevant. Do not complicate the process by entering information that is not necessary to your operations.

The information you are recording should be consistent so that you can analyze it for trends and so your accountant can easily use the information. To keep accurate records, you should set guidelines and abide by them.

Your accounting books must be timely and up-to-date; it becomes very time consuming, and sometimes impossible, to attempt to update your accounting books at a later time.

Your bookkeeping efforts should be coordinated with your accountant. The records you create while bookkeeping, you will give to your accountant who will use then to prepare your tax statements. Bookkeeping can be done by the business owner, a bookkeeper, or by your accountant.

For more information about bookkeeping proceed to the next section. Journal Entries