Bookkeeping seems tiring, but nobody can’t deny its importance in a small business. Every business owner needs to know the basics of bookkeeping, even if they rely on outsourced professional bookkeeping services. This prevents the risk of fraud and discrepancies.
Hiring a Bookkeeper for a small business is essential as the owner might not be able to handle everything all by himself. This article will cover how to create a business account, set a tax budget, organize your records and avoid an audit trail.
BASIC BOOKKEEPING ASPECTS YOU MUST KNOW
Accounts payable include all the finances you are liable to pay to the third party, such as suppliers, companies, banks, governments, or other lenders. One of the general examples is a mortgage. You sign a contract with the bank, borrow money and pay it back in instalments.
This account is the flip of the account payable, i.e., you record the transactions where you are about to receive payments from a third party. It can be banks, clients or anyone who borrowed from your business.
All the things which your business owns and helps you with your business operations are called an asset. It can vary from cash to machinery.
A balance sheet depicts your business’s financial situation and records the aspects such as assets, cash, liabilities and so on. The sole purpose of a balance sheet is to present what are your business’s possessions.
Bookkeeping services refers to the process of recording your daily financial transactions in one book. Therefore it is responsible for keeping your financial records up to date.
Capital is a monetary asset that is entirely the owner’s possession which he further uses to establish a business.
Cost of Goods sold:
This aspect refers to the finances you spend on the goods and services which you plan to sell in future.
When your assets face a loss of value over time, caused by wear and tear, or in other words, the asset’s decreased value is what you call a depreciation.
Equity refers to all the finances you invest in your business and the profits you receive in return. As a small business owner, owner’s equity is recorded under the capital account.
Expenses refer to all the other costs you spend apart from your goods and services.
A general ledger stores and records all the transactions and features balance sheets and income statements.
Journals are a place where you keep your daily transactional records. You have to separate cash accounts, accounts payables and accounts receivables.
Payroll is the amount you spend on your employees. It is the most significant part of bookkeeping services and involves state reporting. It also includes the tax amount a business pays on behalf of its employees.
Revenue includes all the money you receive after selling your goods and services. Sometimes a business can receive revenue by selling the assets they no longer need.
Trial Balance assures the balance of your books before summing up all the financial reports and closing the books for the accounting period.
WHAT DOES A BOOKKEEPER DO?
Have you ever wondered what does a bookkeeper do? A Bookkeeper plays a vital role in maintaining the smooth functioning of your business. Some of his parts are mentioned below:
- Keeping track of your everyday financial transactions: one of the most apparent responsibilities of your bookkeeper is to keep track of your daily financial transactions. Using accounting software as an additional tool can be very effective. It makes the transaction recording process even easier when your software is already fed with the updated bank transactions; you save yourself an effort.
- Sending out invoices and taking care of the receivable ledger: a bookkeeper is liable to send invoices to the clients and manage the accounts receivable. They are also most likely to chase late payments as one of their responsibilities.
- Managing the accounts payable ledger: a bookkeeper usually makes payments on your business’s behalf upto a certain point, such as supplier invoices, expense and petty cash.
- Review your cash flow: a bookkeeper reviews your business’s everyday comprehensive cash flow, i.e., all the revenues and expenses and makes sure you do not go out of balance. They can also take suitable actions and offer their advice.
- Preparing the books for the accountant: bookkeepers are essential for accountants and are responsible for providing updated cash flow reports so the accountant could proceed further with his responsibilities.
BOOKKEEPERS AND ACCOUNTANTS WORK IN COLLABORATION
Accounting and bookkeeping work hand in hand, but they are not the same. An accountant needs bookkeeping as a foundation of its further decisions. A nicely operated business is most likely to collaborate with its accountants and bookkeepers. Financial operations become more accessible when they work hand in hand.
- Company formation: you can benefit from your accountant before forming a business. They can assist you in setting up a business by creating a full-fledged business plan and setting up a suitable company structure.
- Accounting software: a good bookkeeper and accountant can be very useful before picking an accounting software for your business. They are aware of suitable software currently available in the market.
- Bookkeeping: a bookkeeper keeps your business’s financial records up to date on a daily basis. They make sure that the business doesn’t run out of cash and the financial balance is restored. By providing their expert advice, they can prevent discrepancies or any other issues.
- Accounts Reconciliations: the accountants and the bookkeepers may work under the same roof or remotely share the same software access. Either way, the accountant can discuss the accounts with the bookkeeper once a month and ask if certain things are unclear.
- Reporting: the accountant is responsible for reporting to the business owner and the board members and elaborating on the business’s current financial health. A bookkeeper might also perform the same duty but in a more casual way regularly with the management account.
- Strategies: having updated financial reports, an accountant can recommend suitable options on planned expansions and investments to the business owner and the board. They can also advise if the business should expand to other market areas or not.
- Legal Compliance: an accountant prepares the company reports with the assistance of their bookkeeper’s financial statements. These reports possess data on expenses, net profit, assets, liabilities and tax.
- Accounting administrations for independent venture are fundamental since clerks are responsible for providing right and state-of-the-art monetary data about an organization. Try not to mistake accounting for bookkeeping services. They are continually taking the beat of an organization.More often than not, these reports are shipped off entrepreneurs and administrators to help them in deciding. Be that as it may, a few accountants are associated with methodology plan.
Through this article’s medium, we hope through this article’s medium we could elaborate on how to do bookkeeping basics as a small business owner. The article further elaborates on the essential bookkeeping services and it’s assets such as accounts payable, accounts receivable, assets, expenses, etc. Then we moved forward with what a bookkeeper does? How he keeps track of your everyday financial transactions, sends out invoices, manages accounts payable, etc. Lastly, we explained how accounting and bookkeeping work hand in hand; how they help company formation, choose suitable accounting software, bookkeeping, accounts reconciliations, reporting, etc.