One of the great things about using a software is that the debits and credits involved in creating an invoice are all handled behind the scenes.įor example, if you prepare and post an invoice in the amount of $150 to John Brown for consulting, you’ll need to record that information in a journal entry. This process can be as simple as preparing an invoice for a customer to setting up your electric bill to be paid. Step 2: Begin recording financial transactionsĪny and every transaction you make needs to be recorded, either in your ledger book or in your accounting software application. It’s also a good idea to become familiar with the accounts included in your chart of accounts, which will make it much easier when you begin to enter financial transactions. Keep in mind that in most cases, you can edit the chart of accounts to better suit your business. Most software that’s designed for sole proprietors and small businesses will include a default chart of accounts, so you won’t have to create one from scratch. Wave's chart of accounts shows various asset accounts that can be added as needed. While you can certainly buy a ledger book at an office supply store, keep in mind that it’s much easier to set up your chart of accounts if you’re using an accounting software, such as Wave. Your chart of accounts is the backbone of your business and is a necessity in order to properly record transactions. Step 1: Become familiar with and set up your chart of accounts There are a few things you need to do in order to get started bookkeeping for your business. How to handle bookkeeping for your small business It will be helpful for you to understand this principle before posting any transactions. If you’re using double-entry accounting, which is recommended, you will have a corresponding credit entry for any debit entry you make, and vice versa.ĭebits are recorded on the left side of an accounting ledger, while credits are recorded on the right side of the ledger.Ī debit entry can increase the balance of some accounts, while a credit entry can increase the balance of other accounts. Any transaction posted in your ledger or your accounting software will be a debit or a credit. You also need to understand what debits and credits are before you can start to enter any transactions. Equity: When you subtract your business liabilities from your business assets, you have equity, which reflects your financial interest in the business.Your electric bill, your employees’ salaries, and your working lunch with a potential client are all considered expenses. Expenses: We’re all familiar with expenses.Revenue/income: Revenue, also called income, is simply any monies earned by your business either through products sold or services rendered.Liabilities: Any debts owed by your business are considered liabilities, such as your accounts payable (A/P) balance, (since that is what’s owed to vendors), as well as any loans the business owes.This includes cash in your bank accounts, your accounts receivable (A/R), balance (since that is money owed to you by customers), as well as inventory, computers, and furniture. Assets: Anything of value in your business is considered an asset.There are five bookkeeping accounts you should know and understand: Bookkeeping basics: The accounts you should know A bookkeeper records all of the financial transactions for a business, while an accountant’s job is to interpret and analyze the data recorded by the bookkeeper. While the job of bookkeeper may appear similar (or the same) as an accountant, they are only similar on the surface. However, for the novice, the introduction of bookkeeping-specific vocabulary and the rules that govern proper bookkeeping processes can be overwhelming. Any transaction with financial implications needs to be recorded by a bookkeeper. Simply put, bookkeeping is the recording of a business’s financial transactions. Close the month and run financial statements.Begin to record all of your financial transactions.Become familiar with and set up your chart of accounts.Here are the bookkeeping basics you should know: This guide is designed to simplify the bookkeeping process for you, providing you with the basics from proper setup of all of your accounts to why it’s important to record transactions promptly. In this guide, The Ascent breaks down the basics to help you get a firm grip on those terms. It can often be difficult to keep the different terms involved in small business bookkeeping straight.
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