Bookkeeping is a key part of running a small business. It involves monitoring all financial transactions and making sure everything is recorded correctly. For small business owners, understanding the basics of bookkeeping is essential for managing money well. Here's a simple guide to the basic bookkeeping skills you need.
Key bookkeeping terms
Before you start with bookkeeping, it helps to know these important terms:
- Assets: Things the business owns that have value, like cash, inventory, and equipment.
- Liabilities: Debts or money the business owes to others, like loans or unpaid bills.
- Equity: The owner's share of the business, which is the difference between assets & liabilities.
- Revenue: This is about money earned from selling products or services.
- Expenses: Costs involved in running the business, such as rent, utilities, and wages.
Recording transactions
Recording transactions correctly is the core of bookkeeping. Here's how to do it:
- Keep receipts: Save all your receipts and invoices to track your spending and income.
- Use a ledger: Write down each transaction in a ledger or accounting software, including the date, amount, and description.
- Categorise transactions: Sort transactions into categories like sales, utilities, and salaries to make tracking easier.
Managing accounts
Managing your accounts means keeping track of different financial records:
- Bank accounts: Regularly check your bank statements against your records to make sure they match.
- Accounts receivable: Keep track of money that customers owe you and follow up on any unpaid invoices.
- Accounts payable: Keep an eye on bills and payments you owe to suppliers or vendors.
Using accounting software
Accounting software can make bookkeeping easier:
- Choose the right software: Pick software that fits your business needs, such as QuickBooks, Xero, or Sage.
- Input data regularly: Enter your transactions and financial data into the software frequently.
- Generate reports: Use the software to develop financial reports, like balance sheets or profit and loss statements.
Preparing financial statements
Financial statements give an overview of your business's financial health:
- Balance sheet: It shows what the business owns and owes at a certain time.
- Income statement: Shows how much money the business earned and spent over a period.
- Cash flow statement: Tracks how cash moves in and out of the business.
Understanding tax obligations
Good bookkeeping helps with taxes:
- Track deductible expenses: Record expenses that might reduce your tax bill, like office supplies or travel.
- File tax returns: Make sure your financial records are accurate for tax reporting. It might help to work with a tax professional.
Staying organised
Being organised is important for effective bookkeeping:
- File documents: Keep all financial documents, like receipts and invoices, organised and easy to find.
- Schedule regular reviews: Regularly check and update your financial records to keep your bookkeeping on track.
Conclusion
Knowing the basics of bookkeeping is crucial for managing your small business's finances. Understanding key terms, recording transactions accurately, managing accounts, using accounting software, preparing financial statements, and staying organised are all important skills. With these basics, you'll be better prepared to handle your business finances and make smart financial decisions.
