Bookkeeping is not something that many business owners look forward to; many business entrepreneurs dread it. But it needs to be done, and if there’s no one else who can tackle it aside from you or if you want to make sure that it is done right, there’s no other way around it. The good thing is that as long as you have core practices in place and know what you need to take care of, it becomes less of a headache (although you would still have to dedicate time for it). If you’re concerned about your bookkeeping practices as a small business and want to make sure that the process works, here’s how to do it right.
Make a Record of Every Transaction
You may already know that you need to record every single transaction you make finance-wise with proper bookkeeping. You can start doing this only when you have already picked out an appropriate system of bookkeeping, however, so if you are just a beginner, you can opt for single-entry bookkeeping. You also have to make sure that you record each transaction as accurately as possible and make sure you do it in the proper account.
For instance, if you have separated your accounts into categories such as assets, liabilities, revenue, expenses, and equity, ensure that the records go into the account where they are supposed to be. Otherwise, you wouldn’t be able to balance your accounts. To record your transactions correctly, you need to figure out the accounts you will debit and credit.
Don’t Forget to Prepare and Create your Financial Reports
A good bookkeeping process will involve the creation of financial reports so you can have a better idea of how your business is doing, as stated by the most reliable central London accountants from Griffin, Stone, Moscrop & Co. Collating your financial data is crucial in bookkeeping because it gives you a good perspective on your business. Once you have a better sense of your business’ health financially, you can use the information you have gathered to make more sound business decisions.
Some of the most common reports include a balance sheet, a profit and loss statement, and a cash flow statement. The balance sheet is a summary of your assets and liabilities along with your equity at a certain point in time. Your business’ assets have to be equal to the sum of your equity and liability accounts. Your profit and loss statement (you may also know it as your income statement) will break down your costs, expenses, and revenues over some time (per quarter, for example). It will allow you to compare your costs versus your sales and make better forecasts. Your cash flow statement is similar to your profit and loss statement, but it does not include items that are not cash-based. This can help you understand how and where you get your earnings and how you spend your money, and, more importantly, it tells you how able you are when it comes to paying your bills.
In bookkeeping, it’s also best to establish a schedule when you can record your transactions – and make it a point to close your business’ books regularly as well.