If you own a business, hiring a bookkeeper is going to make your life a lot easier. Your bookkeeper does more than keep track of your business’ financials, they also weigh your successes and failures, and help you reach your goals by determining time vs effort and cost. Your bookkeeper creates a clear (and panoramic) portrait of your business and how it’ll make money in the long term.
It is important to be comprehensive when it comes to your business’s finances, not just what you have in the bank. Joshua Adamson-Pickett is a small business writer and says, “Not only does [a bookkeeper] help you make firm choices now and plan for your organization later on down the road, but a structured bookkeeping system also saves your company time”. It also ensures you are prepared for any government audits as well as helps prevent fraud.
The following are the bookkeeping basics that are used for (and among most) small business owners:
Cash – This is the most basic type of account. All your companies transactions go through a Cash account. Bookkeepers use two separate journals to keep up with activity, one for Cash Receipts and one for Cash Disbursements.
Accounts Receivable – Companies that sell products or services but they do not collect payments instantly, have receivables. Receivables are when money is due from customers. Tracking Accounts Receivable must be kept up to date and timely and accurate bills and invoices should be sent to customers.
Inventory – If you deal in products, any that aren’t sold right away are viewed as money laying around unspent. Unsold products must be carefully noted and tracked. The numbers should be tested every so often by doing a physical count of inventory.
Accounts Payable – Accounts Payable occurs anytime money is sent out of the business. Incisive bookkeeping ensures payments are on time and helps avoid paying twice. Businesses can also qualify for discounts by paying bills early.
Loans Payable – This type of account tracks payment and due dates if your company borrows money to purchase business equipment, company vehicles, furniture, and other business items.
Sales – The Sales account keeps track of all revenue that comes into the business from what sells. Recording sales on time and in a precise way is a vital way to be in the know of where your company stands.
Purchases – The Purchases account keeps track of raw materials or goods that you purchase for your business. Purchases accounting plays a huge factor when calculating the Cost of Goods Sold (COGS), in which cases you deduct from Sales to come up with your business’s gross profit.
Payroll Expenses – One of the biggest cost of all is Payroll Expenses. This account should be kept up to date and correct. This is very important for any tax and other government reporting specifications. Avoiding these duties can cause serious problems.
Owners Equity – Owners Equity tracks how much an owner puts into their business. It is also known as net assets. The owner’s equity shows the amount of money the business owner has once their liabilities are deducted from their assets.
Retained Earnings – Retained Earnings accounts provide tracking for any business profits that are invested back into the company but are not paid to the owners. Retained earnings are increasing, which seems like there is a running total of money that has been retained since the business started. Managing this account is not very time consuming and is important to investors or lenders who are wanting to track the performance of the company over a period of time.