Bookkeeping: Where do I start?

Bookkeeping is a vital business activity. Below is my recommendation for where to begin.

1    Separate business bank account from personal.

When starting a business, commonly the first few transactions are paid by the owners Tips personally, but every transaction after operations are up and running should be made by the business and distinguished as such. It is imperative to keep personal and business financial activity separated. This enables better tracking of income and expenses, as well as provides a layer of professionalism. If that isn’t convincing enough, for all you LLCs consider this: the comingling of business and personal funds has been used in court cases to pierce the corporate veil and has allowed plaintiffs to sue business owners directly because the business is no longer seen as independent of the owner. Walk the talk team project management tools.

2    Establish a method of tracking financial transactions.

Keeping receipts is great, recording them systematically is Hat even better. Whether you use old fashioned green-lined general ledger paper, a spreadsheet, or Pro accounting software, anything is better than letting financial documents collect dust in a shoebox. I highly recommend an accounting software. This format gives you the best understanding of how your business is doing and can easily be automated by most modern programs.

3    Determine classification of transactions.

Cash in isn’t always income; cash out isn’t always an expense. Take some time to learn the basic principles of accounting and common account cheap jerseys and transaction classifications. I frequently see books turned in to me for tax preparation with 100% of loan payments classified as an expense. When the client last looked at his financials there was $50,000 net income; after I reclassify the loan principal is portion (the interest on the loan is deductible) of those payments the net income will increase. This increase will be drastic if there is a significant amount of loans or a loan was paid off. When that client comes in the sign his return there can be quite a shock with what he thought was $50K in taxable income is now $70K. If you’re not committed to learning the basics, I recommend outsourcing bookkeeping services.

4    Record transactions as they happen.

You’re reviewing your bank statements from 5 months ago and there’s a significant purchase from a superstore. Was that your bulk purchase of toilet paper and coffee filters? Or was that the new set of lamps purchased for the waiting area? Where Sermon, on Earth did that receipt go?!?!? Doing you bookkeeping in real-time, or at least within a week, can alleviate guessing games and provide accurate up to date data.

5    Reconcile accounts.

Did what you think happen actually happen? Did anything happen that till you not know about? Once you post your activity it is essential to go back and verify everything that your records indicate happened with what the bank says happened. Sometimes a check from a customer bounces so there’s less money in your account than you think. Or maybe there is an extra bank service charge you weren’t expecting. It is important to reconcile your credit card accounts, accounts receivables (what customers owe you) and accounts payables (what you owe others) as well.

Steps 4 and 5 need to be practiced regularly to maintain accurate, current accounting records that can be used to assess your business’ progress and growth on a perpetual basis. Step 3 should be revisited as your business grows and takes on new activities. These steps are the foundation; expand and customize them to fit your individual business needs.