Bookkeeping Basics Every Bookkeeper Needs

As a business owner, it is important to understand your company’s financial health. Bookkeeping puts all the information in so that you can extract the necessary information to make decisions about How to Meet Your Bookkeeping Needs hiring, marketing and growth. Look at the item in question and determine what account it belongs to. For example, when money comes from a sale, it will credit the sales revenue account.

  • Understanding what is bookkeeping is understanding that every transaction needs to be classified into a specific category.
  • The important decision to make is which type of bookkeeper your business needs.
  • Simply because you now have accurate financial data to make smarter decisions with.
  • However, there are plenty of reasons to make quarterly, or monthly financial statements as well.
  • This article will help you sail through the bookkeeping basics.
  • This means that the total amount must match — the outgoing amount must equal the incoming assets or profits.

They can manage their cash flow better by keeping track of things like accounts receivable (money owed to them) and accounts payable (money they owe). Plus, it helps make important financial reports like balance sheets, which show a snapshot of a business’s finances at a specific time. There’s good news for business owners who want to simplify doing their books.

Remember Your Tax Deadlines

For example, if you prepare and post an invoice in the amount of $150 to John Brown for consulting, you’ll need to record that information in a journal entry. However, for the novice, the introduction of bookkeeping-specific vocabulary and the rules that govern proper bookkeeping processes can be overwhelming. It’s important to keep payroll expenses accurate and updated to ensure the business meets legal requirements. There are a few different ways to jumpstart a career in bookkeeping, from completing certifications and higher education to taking advantage of online tools and resources.

Bookkeeping Basics Every Bookkeeper Needs

FIFO accounting, or first-in, first-out, is a method of valuing inventory. It’s basically an assumption for cost-flow purposes that states the first goods you purchased are the first goods you sold. This assumption most closely resembles an actual flow of products earning it the distinction as the most correct valuing method in theory. Consider your local supermarket — the first gallons of milk the store purchased to sell to customers are the first gallons sold usually. Otherwise, a lot of milk (product) would spoil, thus creating a loss for the store. If you manufacture goods, your inventory accounting entries will reflect several stages of completion.

Step 3: Reconcile Transactions

The Chartered Professional Accountant firm directories on the American Institute of CPAs website is another great place to find a bookkeeper. It helps you estimate whether a given project or investment would result in more money coming in, or if you’d lose money on the venture. Understanding how to calculate Net Present Value is beneficial for your long-term financial planning.

A ProAdvisor can assist you with small-business bookkeeping and installing or learning how to use cloud accounting software. By recording cash transactions when the money actually changes hands, you can simply cross-reference your bank statements with your bookkeeping records to ensure accuracy. It’s also possible to link your cloud accounting software to other financial programs that your business uses, like your online banking or mobile payment apps. With all your software linked through the cloud, payments that you make and receive can be automatically recorded to a digital ledger.

Bookkeeping 101: Bookkeeping Basics for Small Businesses

Start with the beginning balance on your statements (which should match what’s in your accounting program) and check line by line that every transaction is accounted for. Understanding what is bookkeeping is understanding that every transaction needs to be classified into a specific category. In most cases, bank or credit card statements have all of the information needed to substantiate a business transaction. Source documents are original records containing details of a transaction.

Kimberlee Leonard has 22 years of experience as a freelance writer. Her work has been featured on US News and World Report, and Fit Small Business. She brings practical experience as a business owner and insurance agent to her role as a small business writer. Expand your bookkeeping knowledge by brushing up on the most common bookkeeping errors (and how to avoid them). Let us dive right in and find out what bookkeeping is and how it can help your business. Jesus Morales is an Enrolled Agent and has 7 years of bookkeeping and tax experience.