It can be difficult for small business owners to understand even the basic bookkeeping term if they do not have any accounting background education.
Most business owners prefer hiring in-house employee teams or outsourcing business bookkeeping services to meet the requirements.
However, whether you are a small business owner, large business owner, or a student for that matter, you must know some basics of bookkeeping done in the business organization.
Understanding the basics of business bookkeeping will help you to know the financial aspects and other aspects related to it better.
This guide here will simplify the process of understanding bookkeeping properly.
What is bookkeeping?
Bookkeeping is simply recording all the financial transactions in the business organization in proper places in the accounting books. It further helps to understand and get insight into several financial aspects of the business.
Basics of business bookkeeping:
Here are some basics of business bookkeeping:
1. Chart of Accounts
Create a chart of accounts, which is a list of all the different types of accounts you will use to categorize your financial transactions. Some of the common accounts are accounts payable, accounts receivable, inventory, cash, and expenses.
2. Double-Entry System
Use the double-entry system, which means that every transaction should have at least two entries—a debit and a credit. Debits and credits must balance, ensuring that your books are always in equilibrium.
3. General Ledger
Maintain a general ledger, which is a record of all your accounts and their balances. Each account in the chart of accounts has a separate ledger, where you record all related transactions.
4. Recording Transactions
Record financial transactions in a journal or a general journal. Each entry should include the date, a description of the transaction, the accounts involved, and the amounts debited or credited.
5. Sales and Revenue
Track your sales and revenue by recording all incoming funds from sales of products or services. Use separate accounts to differentiate between different revenue sources, such as product sales, service fees, or interest income.
6. Expenses
Record all business expenses, including rent, utilities, salaries, and office supplies. Categorize expenses based on their nature, such as rent expenses, utility expenses, and so on.
7. Cash Flow
Keep track of your cash flow by recording all cash inflows and outflows. This includes cash sales, payments received from customers, purchases made, bills paid, and other cash transactions.
8. Bank Reconciliation
Regularly reconcile your bank statements with your accounting records to ensure they match. This process helps identify any discrepancies and ensures that all transactions are accounted for accurately.
9. Financial Statements
Prepare financial statements, such as the income statement (also known as the profit and loss statement), balance sheet, and cash flow statement. These statements provide a snapshot of your business’s financial performance and position.
10. Periodic Reviews:
Review your financial records regularly to identify any errors, omissions, or inconsistencies. This practice helps maintain the accuracy of your bookkeeping and allows you to make informed business decisions.
These are some of the important basics of business bookkeeping. It is important to note that bookkeeping is a part of accounting, while there are broader sets of activities involved in accounting.
If you do not want to hire an in-house team for bookkeeping activities then you can outsource this task to experts.
Meru Accounting provides outsourced business bookkeeping services to businesses in different countries. They have a bookkeeping experts team who can optimize bookkeeping activities efficiently. Meru Accounting is a popular accounting service-providing company around the world.
FAQs
- What is business bookkeeping in simple terms?
It means recording all money-related transactions in the correct accounts. It helps track income, costs, and cash. - What is the use of a chart of accounts in bookkeeping?
It lists all account types used to group transactions. It keeps the financial records clear and sorted. - What is the rule of the double entry system in bookkeeping?
Every entry has one debit and one credit. Both sides must match to keep the books balanced. - What is recorded in the general ledger?
It stores all entries grouped by account type. Each account shows its full transaction list and balance. - How should sales and income be recorded in bookkeeping?
Record each sale based on what was sold. Use separate accounts for products, services, or other income. - Why is cash flow tracking important for a business?
It shows how much cash is coming in or going out. It helps plan payments and avoid shortfalls. - What is the role of bank reconciliation in bookkeeping?
It checks that bank records match your books. It helps find missing entries or wrong amounts. - Why should bookkeeping records be reviewed often?
It helps catch errors early. It keeps your records correct and supports clear business decisions.
