What are your goals for your bookkeeping?
There are two basic goals in bookkeeping. Keeping track of your income and expenses so that you improve your chances of making a profit. Collecting the financial information so that you can file all the necessary tax returns to the federal, state and local taxing authorities.
These sound simple, don’t they? They are if you remind yourself of these goals whenever you feel overwhelmed by your financial situation. There is no requirement that your financial information be kept in any particular order. You can keep your data in a high end accounting program, a less expensive program like QuickBooks, or even on paper ledger books. It doesn’t matter, as long as you keep records of your transactions. There is no “right way” as long as your books accurately reflect your business’ income and expenses.
The three steps outlined below explain how easy it is to keep your books:
- Keep every receipt or other record of payment and every record of expense for your business. This is the heart of your accounting business. They must be backed by the date, amount, and other relevant information about the sale. This is true whether you record the transaction on a computerized accounting program or a paper ledger. Choose your system wisely. If you are a retail store you may need a cash register with a POS system that will integrate with the accounting program. But, no matter what type of sales you have, choose one to adapt to your needs.
- Setting Up and Posting Ledgers. When setting up your ledger you will need to set up a chart of accounts. Some accounting programs have sample chart of accounts for a variety of industries. If your’s doesn’t or you are using a paper ledger, then you can create your own chart of accounts. Decide how often you will enter (or post) transactions into your ledger. A larger company may have to enter transactions daily, a smaller company less frequently. Do it frequently enough so that you do not get behind.
- Creating Basic Financial Reports. Once everything has been posted for the month there are several reports that you can run to see what your financial position is. A profit and loss statement will show your total income and expenses. The difference will be the net income (loss). A balance sheet will show your total assets, liabilities, and total equity. The balance sheet will also show other things. It will show the balance in your asset account for short and long term. If you are on the accrual basis it shows what your accounts receivable balance is. If you carry inventory, it shows the value of your inventory, if you are a builder it will show your WIP balance. On the liabilities side of the balance sheet it will show the accounts payable if you are on the accrual basis. It also shows the loan balance for all the loans you may have. The equity section will show retained earnings, if there are partners it will show the partners equity, it will show draws the partners or owners may have taken. You can also compare one period to another period to evaluate your performance.
If you have any questions about anything in the article you can contact Top Notch Bookkeeping. We provide online bookkeeping and payroll solutions for small business. We are also Certified Quickbooks ProAdvisors.
Read more from Joe Ellen Peters with Top Notch Bookkeeping here: http://ow.ly/Ooa7Q