Content Outline
What Is Bookkeeping?
Bookkeeping includes recording and categorizing all the financial transactions of your business. It is a record of what your business pays out and what your business gets in return.
The term “bookkeeping” refers to the practice of managing these responsibilities with books and ledgers. Before being moved to a ledger, the transactions would first be entered into daybooks, cashbooks, or journals.
Bookkeeping has now almost been done through software and replacing the use of physical books.
Reasons Why Bookkeeping Is Important To Small Businesses
Having a proper record of the accurate and well-kept set of books is the first step to a great business. Here’s why:
- You can see that you are earning more than what you are spending.
- Your financial planning and budgeting decisions will be made from reliable financial information.
- By looking at the cycle when you are going to be paying your suppliers and when customers are going to be paying you, you can identify that you are heading for a cash crunch and try to avoid it
- You are likely to discover fraud or improper payments that could cost you money.
- You can file precise tax returns
- Having your financial information well arranged helps you and other third parties like lenders, investors, and accountants to work easier.
How To Do Bookkeeping
Out of all the accounting procedures that need to be implemented for accurate small business bookkeeping, the two most critical tasks are recording and reconciliation. We will break them down for you in the next section.
Recording every transaction
Record your sales. Traditionally, this was done by writing them into a cashbook or punching them into spreadsheets. Modern business owners are now in a position to transfer the sales data from the point of sale or invoicing software directly to the books.
Record your transactions. Any purchase that relates to business has to be recorded. You should especially save the receipts if you will be claiming that particular expense at tax deduction. You could record such details in a book a program and or a spreadsheet. The procedure can be automated in a way that all the debits from your business bank account are directly imported to your bookkeeping software.
Whether you use accrual or cash accounting will determine when you can record income and costs.
Read From Chaos to Clarity: How Xero Transformed My Small Business
Reconciling every transaction
In order to ensure that the transactions and balances match and to determine the cause of any errors, reconciliation entails routinely comparing your bank accounts and business books. It is frequently necessary to account for bank fees, interest payments, deposits, and payments that haven’t yet reached your bank accounts.
It is done daily, weekly, monthly, or in various other frequencies of your choice based on the amount of transactions going through your business. At the very least, you will likely be expected to balance your books before submitting taxes.
It is ideal to perform a reconciliation as early as possible because this makes it easier to detect discrepancies. It is best to do it frequently – perhaps daily – so the amount of work that accumulates is minimal.
Additional bookkeeping responsibilities of small businesses
If you are taking up the role of bookkeeper in a small business, you will be responsible for the following duties :
- accounts receivable (sending out bills/invoices and ensuring that they have been paid)
- accounts payable (making bill payments on time)
- payroll (paying employees)
Other services that professional bookkeepers provide preparing the financial statements (profit and loss, balance sheet, and cash flow report) and evaluating business performance.
Read 5 Ways Xero can Supercharge Your Small Business Finances
How Software Can Help
Most small businesses rely on online bookkeeping to streamline tasks and decrease opportunities for human data-entry mistakes. This software can :
- take transaction data directly from the point-of-sale (POS), invoicing software, and banks
- dramatically accelerate the speed of reconciliations for the bank.
- automatically pay bills
- and send reminders to people with unpaid bills to make payments through automated invoice reminders.
- alert you on when payment has been made on the sales invoices
- can enable you to monitor your cash flow right from your mobile.
Outsourcing Small Business Bookkeeping
If you do not have time to do the bookkeeping for your small business, there is always someone who could do it for you. Some bookkeepers let you select the type of service which varies in terms of price. This means that you can begin with simple records at a low price and ascend to more advanced services in line with the growth of your business. Some of the bookkeepers are listed in the Xero advisor directory. Visit FastLane for more information.
Read Leveraging Xero Beyond Accounting: Fastlane Group’s Advisory Services