Basic Accounting for a Small Business: Bookkeeping and Accounting Basics

This happens when you sell products and services, but don’t collect money straight away. In order to stay up to date on who owes you what, you’ll need to track accounts receivable. If you find yourself nodding in ‘yes’ to either of the above statements, you are in the right place. This article will help you sail through the bookkeeping basics. The best part is that you will not require any prior knowledge or an accounting degree to get started. By recording your expenses accurately, you can identify areas where you can reduce expenses.

• Most small businesses use accounting software such as QuickBooks Online or Wave.
• However, once you get the hang of the bookkeeping basics, you’ll be able to effectively use the data from these accounts to make informed business decisions.
• We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice.
• Most of these folks do not need a deep understanding of bookkeeping or accounting; they just need to learn what it is and how they should be using it.
• Most accounting software does this for you, so you don’t need to worry about an extra step.

But if you use software on your own to manage your books, you don’t have an experienced set of eyes reviewing your work. Without a pro taking a look at your work, there’s a big chance your mistake will go unnoticed. Whichever method you choose for your small business accounting, it’s essential to record all your business transactions and correctly categorize them into corresponding accounts. This way, you’ll have a clear view of your finances coming and going and be able to analyze your overall performance.

Quarterly bookkeeping tasks

If you want to outsource your small-business bookkeeping, there are several ways to find experienced bookkeepers. Our partners cannot pay us to guarantee favorable reviews of their products or services. Most small businesses will either do their books themselves or outsource the work to a professional. These days, you’ve got three options when it comes to bookkeeping tools. 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.

If they don’t match, you’ll have to go through your bookkeeping record to find the error or missing entries. Let us dive right in and find out what bookkeeping is and how it can help your business. You might have an unexpected downturn in sales due to uncontrollable external circumstances, or maybe you need a financial boost during slow periods in a seasonal business. Brands with big growth goals often need to secure funding to make investments in new product developments, inventory, retail stores, hiring, and more. Selling to international customers can be easier than domestic sales. Canadian store owners don’t need to charge GST/HST to customers who are outside of Canada.

A Beginner’s Guide to Bookkeeping Basics

No one should be in the dark about their overall financial picture. This accounting audiobook could be the answer you’re looking for…. What many do not realize is that accounting is in our day-to-day lives.

We also offer a number of integrations with accounting, merchant services, and peer-to-peer payment platforms to help you seamlessly manage your business finances. If you run a very small business, you might be able to manage your bookkeeping with accounting software, saving yourself time and money by using free options. Some businesses process payroll within their accounting software; others bookkeeping 101 will have a separate payroll software. How you set up and manage payroll will depend on which software you choose. Generally speaking, accrual accounting is better for larger, more established businesses. It gives you a more realistic idea of your business’ income and expenses during a period of time and provides a long-term view of the business that cash accounting can’t provide.

must-know bookkeeping skills for small businesses

Learn how to automate your small business, and stop devoting your time to boring tasks. If Bench does your bookkeeping, you can also upload and store as many digital receipts and documents as you’d like in the Bench app. Double-entry is more complex, but also more robust, and more suitable for established businesses that are past the hobby stage. The more information (and supporting documents) you can give your CPA at tax time, the more deductions you’ll be able to legitimately claim, and the bigger your tax return will be. Kelly is an SMB Editor specializing in starting and marketing new ventures. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content.

Accounting software can facilitate the process of generating those financial statements. They can vary in cost and functionality, as well as work online (cloud accounting) or require installing on your computer. The most popular solutions for small businesses are QuickBooks Online, Xero, Wave, and FreshBooks. But there’s also much more specialized software like Synder that lets you synchronize your transactions from various payment platforms or sales channels into one place. In accounting, the word “account” doesn’t mean your bank account but stands for certain types of financial transactions that include sales, payroll, and many more. For small businesses aiming at more accurate accounting, a double-entry method is a better choice.

Do you need help with your bookkeeping?

Take a look at the following four steps to manage your bookkeeping. Bookkeeping software helps you prepare these financial reports, many in real-time. This can be a lifeline for small-business owners who need to make quick financial decisions based on the immediate health of their business. If two sides of the equations don’t match, you’ll need to go back through the ledger and journal entries to find errors. Post corrected entries in the journal and ledger, then follow the process again until the accounts are balanced. Then you’re ready to close the books and prepare financial reports.

It is the basic accounting process, and growing your business without bookkeeping may be a huge struggle. And as simple as it may seem, implementing the wrong system for your business can cause challenges. Many modern accounting programs also allow users to run payroll. Popular options include Patriot, Wave, QuickBooks Online, QuickBooks Pro, and Xero. One thing to note is that in most cases, an additional fee is required for payroll services in addition to the fees you pay for your accounting software. QuickBooks Online is the best small business accounting software overall.

If you’re running a handmade craft business, managing inventory and tracking expenses can be time-consuming and overwhelming. By signing up for our newsletter, you’ll receive updates on the latest features. Try Inventora for free to see if it’s the right fit for your handmade inventory management and bookkeeping needs. With Inventora, you can spend less time on bookkeeping and more time on creating beautiful handmade products.

Expenses are all the money that is spent to run the company that is not specifically related to a product or service sold. An example of an expense account is Salaries and Wages or Selling and Administrative expenses. The chart of accounts may change over time as the business grows and changes. If you are going to offer https://www.bookstime.com/articles/prepaid-expenses your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system. If you opt to not link your software with your bank, you will need to reconcile you accounts manually. Whichever way you do it, it’s important to complete the process on a regular basis.