The Ultimate Business
Bookkeeping Guide
Bookkeeping for businesses is mandatory to manage the company’s everyday finances. In its simplest form, bookkeeping entails recording any money that goes in and out of the business.
This record of the business’s daily financial activity also pieces together data required to perform larger accounting tasks such as reports and forecasts of a company’s financial health.
However, before moving on to accounting tasks, it’s essential to create an accurate and organized financial record for the business. To assist, here is the ultimate bookkeeping guide for your business.
Choose Accounting Software
It’s advisable to use accounting software to keep an organized and accessible record of transactions. A lot of small and large companies today use software over updating ledger books manually.
The perks of using software include:
- Cloud accounting software enables managers to update and view their financials from anywhere
- Password-protected accounts prevent intruders from accessing the companies critical financial documents
- Embedded mathematical functions allow its users to calculate essential figures, such as the profit gained over 12 months
Record All Transactions
To create an accurate record of the company’s financials, record every transaction on your chosen accounting software system.
Business transactions include making a purchase for the business, paying staff, and receiving payment for goods.
For each transaction, add the total spent or received and a description of the product or service. Moreover, keep receipts for proof of purchase or payment.
While business owners are legally obligated to record all transactions, it will also help you monitor the business’s income, calculate expenses, and keep organized ahead of calculating and paying taxes.
Lastly, it’s essential, by law, for business owners to keep their records for at least six years.
Monitor Payment Deadlines
One of the main reasons businesses struggle to survive is late payments; as such, keeping on top of this step as part of your bookkeeping process is paramount.
Common late payment problems include:
- Customers withholding payment before checking the work completed
- Customers asking for a discount not agreed from the outset
- The client only makes payments on a specific day per month
- Suppliers withdrawing credit without notice
Identify and contact late payers to request a reason respectfully and calmly for late payment and reiterate the terms set from the start of the sale.
If, for example, a customer regularly unfairly withholds payment, consider adding them to a company blacklist to avoid the problems incurred again in the future.
Bank Reconciliation
Another significant component needed to balance the books effectively is reconciling transactions.
Each month, business owners need to review their business bank statements against their financial records to ensure everything matches.
Here, businesspeople can spot and query issues such as unexplained charges and underpayments.
Reconciliation is easiest to review with bookkeeping software that can scan and check the bank statements transactions against those recorded during the month for bookkeeping.
Tax Calculation
One of the most dreaded tasks among business owners is calculating and paying the correct amount of tax.
After all, overpaying tax results in giving too much money away, whereas underpaying tax can get you in trouble.
Here are three sets of taxes to prepare for when bookkeeping:
- Sales tax returns: Bookkeeping all sales made throughout the year will help you file this report accurately.
- Business income tax: This is determined by the business’s profits.
- Payroll taxes: For every employee payday, company owners must file the amount paid to each staff member and the tax they will send to the IRS.
These tasks are much more straightforward to complete with accounting programs because they can run the maths on your recorded finances and calculate the taxes for you.
Keeping on top of bookkeeping the right way takes time and energy out of your day from doing the business tasks you’re most skilled at and like!
As such, sourcing accounting software or hiring a bookkeeper is often a wise choice. This is particularly true for growing businesses because it can save companies costly mistakes, money lost due to false transactions, and late payments from clients going undetected.
