The bookkeeping process is vital for any business. With the right bookkeeping procedures, you can stay on top of your financial game and have a better idea of how your enterprise is really doing and where your money comes from – and where it is going. But bookkeeping can do more than this; it helps you make much better and more informed decisions for your enterprise, and it also helps you avoid paying hefty fines or penalties associated with incorrect financial records. Not many business owners are bookkeepers, however, and this is where a little knowledge goes a long way. Here, then, are the basics of proper bookkeeping: what you should know – and do – as a business owner.
- Gather your documents and data
The first step to proper and thorough bookkeeping is to gather all your documents and data. These documents should be your original financial records that contain the details of any financial transaction, such as invoices, receipts, sales orders, and so on. The paperwork should have an amount, date, and details of the service or product provided. You can also use your bank statements or credit card statements to see your financial transactions, but if you have transactions in cash, you would have to keep the actual receipt or remember the cash transaction’s purpose so you can record it or relay it to your bookkeeper. Here’s a tip: if you can, make use of debit or credit cards for making and receiving payments; it’s easier since it will all be in your bank statements, and you can then record it without shuffling through other paperwork.
- Make categories for your transactions
You also need to classify your transactions into different categories, as professional bookkeeping services will tell you. You should categorise your business transactions based on their purpose, and these categories can include assets, liabilities, equity, revenue, and expenses. Each category may need to be broken down into a sub-category as well; for instance, you can have an inventory sub-category which falls under your assets category.
Assets are the resources you have which may have a future financial benefit for your enterprise, such as cash. Liabilities would be your future business obligations, such as payroll or a loan. Equity is the interest of ownership, and it can increase with your revenue and contributions and decrease with your distributions and expenses. Revenue is simply what you receive from the sale of your services or products, while expenses are the business costs you incur to create revenue, such as the cost of supplies or goods. For all of these, you can make use of accounting software to make the recording easier.
- Reconcile your business transactions
If you want your bookkeeping process to be even more efficient and organised, make it a point to reconcile your business transactions as well. When you reconcile, you are matching your transactions found on your bank statements with your accounting software. Reconciling allows you to see errors in the process, and you can do this by going through the starting balance on your bank statements and checking it down the line to see that it matches with your accounting software data.
You can then easily prepare your financial statements, including your balance sheet, your cash flow statement, and your income statement.
