Beginners Guide to Bookkeeping Basics with Reliable Tools

Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. He is the sole author of all the materials on AccountingCoach.com. Our expert bookkeepers here at Bench have built an Income Statement template in Excel that you can use to turn your business transactions into A Beginners Tutorial To Bookkeeping an Income Statement. Double-entry is more complex, but also more robust, and more suitable for established businesses that are past the hobby stage. The IRS also has pretty stringent recordkeeping requirements for any deductions you claim, so having your books in order can remove a huge layer of stress if you ever get audited.

It will be helpful for you to understand this principle before posting any transactions. Diamonds may be forever, but the ink on your expense receipts is not. Since the IRS accepts digital records, it’s smart to use a cloud-based system like Dropbox, Evernote, or Google Drive so you never have to deal with smudged receipts. You can also use apps like Shoeboxed, which are specifically made for receipt tracking.

Useful Tips on Learning Bookkeeping at Home

These will help you understand the ins and outs of it much easier. Below are some of the most important terms that you will find often. Whether you have a small business with a couple of employees or a billion-dollar company with thousands of transactions every day, bookkeeping is an essential part of the business. If you’re expanding your business and you require more complex statements, or you’re looking to delegate so you can free up time for more projects, hire a bookkeeper and accountant.

• That’s why we’ve created a handy checklist so you can do bookkeeping like a pro.
• One of the easiest methods to manage bookkeeping is through spreadsheets.
• Below are some of the most important terms that you will find often.
• A bookkeeper is responsible for identifying the accounts in which transactions should be recorded.
• An audit trail means you’ll have your invoices in order and you can retrace your steps easily if there’s one tiny error.

Every transaction you make needs to be categorized when it’s entered in your books. This helps your bookkeeper catch more deductions, and will make your life easier if you get audited. Another way to do bookkeeping is not managing it internally.

Separate your business and personal expenses

Banks tend to look at your income statement, cash flow history, and income tax returns when reviewing your application. Liabilities are what the company owes like what they owe to their suppliers, bank and business loans, mortgages, and any other debt on the books. The liability accounts on a balance sheet include both current and long-term liabilities. Current liabilities are usually accounts payable and accruals. Accounts payable are usually what the business owes to its suppliers, credit cards, and bank loans. Accruals will consist of taxes owed including sales tax owed and federal, state, social security, and Medicare tax on the employees which are generally paid quarterly.

Assets and liabilities (like inventory, equipment and loans) are tracked separately. If you’re just starting out, are doing your books on your own and are still in the hobby stage, single-entry is probably right for you. If you wait until the end of the year to reconcile or get your financial transactions in order, you won’t know if you or your bank made a mistake until you’re buried in paperwork at tax time. Regularly organizing and updating your books can help you catch that erroneous overdraft fee today, rather than six months from now, when it’s too late to bring up. Lenders and investors want a clear idea of your business’ financial state before giving you money. They can’t do that without looking into things like revenue, cash flow, assets and liabilities, which they’ll search for on your balance sheet, income statement and statement of cash flows.

Why bookkeeping matters

As your business grows, you will come to realize that spreadsheets aren’t the best option when it comes to maintaining your financials. Just picturing the number of tabs I’ll accumulate in three years fills me with dread. This is best for bigger agencies with complex accounts, employees, and multiple inventories. As a freelancer, I’d take cold-calling prospects over managing my books any day.

Firms also have intangible assets such as customer goodwill that may be listed on the balance sheet. If you use cash accounting, you record your transaction when cash changes hands. Enter your transactions into this Excel template, and voila! Perfect for small business owners who aren’t ready for full-fledged accounting software.

Keep Personal Finances Separately

Moreover, it can be done with spreadsheet software or designated accounting software for more convenience. You can also do bookkeeping manually, which is albeit more time consuming and appropriate for a company with a very little financial transaction. Think of bookkeeping as an accountability buddy — it tracks your daily income and expenses and holds you accountable https://kelleysbookkeeping.com/how-car-insurance-companies-determine-salvage/ at managing your money. That way, you’ll always know what’s happening in your business and make the best financial decisions. From balance sheets to income statements, there’s no denying that there are new terms and phrases you’ll come across. In practice, they’re quite easy to understand once the terms are broken down into much simpler definitions.

In this course, you will learn how to manage accounts and financial transactions to operate a successful business. This tutorial includes tons of interactive exercises to help you create financial accounts. Assets are what the company owns such as its inventory and accounts receivables. Assets also include fixed assets which are generally the plant, equipment, and land.