Bookkeeping 101: Everything You Need to Know – NerdWallet

Bookkeeping is a core part of occupation finances and can impact the growth and success of your small commercial enterprise. It can encompass a diverseness of tasks — from basic data entry in a software platform to working with certified public accountants — and is the backbone of your accounting and fiscal systems.

Bookkeeping basics for small businesses

With the growth of bookkeeping and account engineering, bookkeeping tasks have become more automatize. however, this doesn ’ thyroxine make it any less significant to ensure you set everything up by rights from the beginning.

Setting up accounting software

Setting up bookkeeping or accounting software includes connecting business savings bank accounts, doing any necessary data submission and reconciling transactions. It besides involves checking for errors, learning about your specific software and looking for ways to streamline different parts of your account processes .

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Choosing an entry system

Small-business bookkeeping requires you to choose between single- or double-entry report. Single-entry accounting records all of your transactions once, either as an expense or an income. This method is square and suitable for smaller businesses that wear ’ t have significant inventory or equipment involved in their finances. Double-entry report enters every transaction doubly, as both a debit and a citation, to “ proportion the books ” between accounts. Although more complicate, it can prevent errors in recording transactions. The submission system you choose impacts how you manage your finances and how your bookkeeping processes will work.

Choosing an accounting method

You ’ ll besides choose between cash- or accrual-based account. Cash-based account records transactions when money changes hands. This method acting does n’t record invoices or your company ‘s great bills until they ‘ve actually been paid. Accrual-based account records those invoices and bills tied if the funds seaport ’ t been exchanged. broadly, accrual-based is the recommend account method, but the decision is ultimately up to you.

Managing transactions

Managing transactions is a daily function of bookkeeping. This includes spell and categorizing transactions by rights, reconciling these transactions and making sure they ’ rhenium recorded according to your entrance system and account method acting.

Handling accounts receivable and payable

little businesses besides handle aspects of accounts receivable, which ensures your occupation is paid for its goods or services. This can include estimating the eventual value of a finished undertaking, preparing and sending invoices and providing statements. Small-business bookkeeping besides includes ensuring your clientele pays bills and invoices on clock, which is known as accounts collectible.

Setting up payroll

Some businesses work payroll within their accounting software ; others will have a separate payroll software. How you set up and manage payroll will depend on which software you choose.

Coordinating with a tax specialist

A little business needs to identify potential deductions and make tax procedures equally seamless as possible. Some account software options can connect you with tax specialists. If you do n’t connect with one through a military service or software, you ‘ll likely want to work with one when it comes to filing business taxes.

Managing financial statements and documents

Bookkeeping for small businesses besides includes wield significant accountancy documents and maintaining the information — transactions, assets, income, expenses, etc. — that are used for fiscal statements. many software options allow you to store documents and streamline the software documentation serve as you go.

Bookkeeping vs. accounting: What’s the difference?

accounting and bookkeeping work hand in hand, and although many people refer to bookkeeping and account interchangeably, these two operations are n’t technically synonymous .

benefit Bookkeeper accountant
experience on-the-job prepare or certifications . account degrees and might be a CPA .
Services specific business-level solutions . Solutions for tax plan and accounting software .
fiscal statements Maintains general ledger and accounts . Creates more complex fiscal statements .
occupation insight

daily business details . Higher-level business for broader fiscal aspects .
Filing taxes Processes payroll taxes . Files business and personal tax returns .

Why bookkeeping for small businesses is important

even though report software can make bookkeeping processes dim-witted, it ’ randomness all-important that your small-business bookkeeping is handled properly. here are a few reasons why bookkeeping is so authoritative :

  • Separating commercial enterprise and personal finances ensures that you ’ re not personally held liable for any debts or issues related to your business .
  • Identifying mistakes early by managing transactions and reconciliation avoids fiscal issues later on .
  • Simplifying occupation finances by streamlining tax processes and working with tax professionals can save money .
  • Keeping an eye on business fiscal health identifies ways to improve or change processes .
  • Organizing documents and records simplifies processes such as applying for a business loanword or buying new equipment .

How to manage bookkeeping for small businesses

There are three ways to perform bookkeeping for your small business :

1. Manage your own small-business bookkeeping

If you run a very humble business, you might be able to manage your bookkeeping with account software, saving yourself meter and money by using loose options. however, managing your own bookkeeping means you ‘re in tear of keeping your finances in order, storing records and creating necessary statements. Using accounting software simplifies many bookkeeping processes, but you ’ ll still need the tech-based skills to run and streamline your business ’ sulfur software.

2. Use an online bookkeeping service

Outsourcing your bookkeeping is another choice, and this guide on how to find the best virtual bookkeeping service can help you get the action started. With this character of military service, you can communicate wholly by electronic mail or telephone without having to worry about meet in person. The responsibilities handled by a service will depend on the provider.

3. Hire an in-house bookkeeper

You can besides hire a bookkeeper to work directly for your occupation. Bringing a part-time or full-time professional into your occupation gives you access to their expertness and allows them to become more familiar with your occupation ’ randomness finances, processes and accounting tools and software. however, it ’ s significant to note that your bookkeeper wo n’t be the only person working on your business finances. so you ‘ll want to understand which tasks your bookkeeper is and is n’t responsible for handling.

How to find bookkeeping help for small businesses

If you want to outsource your small-business bookkeeping, there are respective ways to find know bookkeepers.

Referrals

Consider asking for a referral from person you trust. If you work with a certifiable public accountant, business lawyer or tax adviser, ask if they have recommendations for a bookkeeper or bookkeeping service. similarly, you can reach out to other small-business owners to ask about bookkeeping services they recommend. More than probably, person within your small-business community will be able to point you in the right direction for getting the best bookkeeping aid for your business.

Searching online

You can besides search for professionals or bookkeeping services on-line. To find authentic options, look through your accounting software ’ s directory of license bookkeeping professionals. You can besides consult master bookkeeping communities, accounting blogs or diligence forums for available professionals.

Nerdy tip:

Research potential professionals or services before hiring them. Check out their reviews and talk to them directly before making any final decisions.

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on Bench ‘s web site

NerdWallet writer Whitney Vandiver contributed to this article. This article in the first place appeared on JustBusiness, a subordinate of NerdWallet .

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Category : Finance

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