How to do Basic Bookkeeping

Bookkeeping in a business firm is the basis of the firm's accounting system. Bookkeepers are responsible for recording and classifying the accounting transactions of the business firm and techniques involving recording those transactions.

Bookkeeping in a firm is the basis of the firm's accounting. Bookkeepers are liable for recording and classifying the accounting transactions of the firm and techniques involving recording those transactions.

If you're a little business owner, you either need to find out your own accounting otherwise you need to hire someone to line it up for you. If you're self-employed and it's a one-person business, you'll roll in the hay yourself. If you're hiring staff and anticipate tons of growth, you'll hire a controller to handle your financial management and accounting. If your business goes to grow but you anticipate slow growth, you'll simply hire an accountant or bookkeeper to handle the accounting.

Types of bookkeeping

Single-Entry bookkeeping is far like keeping your register. You record transactions as you pay bills and make deposits into your company account. It only works if yours may be a small company with a coffee volume of transactions.

If your company is of any size and complexity, you'll want to line up a double-entry system. A debit is formed to at least one account, and credit is formed to a different accounting. That’s the key to double-entry accounting.

Accountant vs. bookkeeper

While the work of bookkeeper may appear similar as an accountant, they're only similar on the surface. A bookkeeper records all of the financial transactions for a business, while an accountant’s job is to interpret and analyze the info recorded by the bookkeeper.

Bookkeeping basic accounts

There are 5 bookkeeping basic accounts that ought to be considered:

  • Assets:

Anything useful in your business is taken into account an asset. This includes taking advantage of your bank accounts, your assets (A/R), balance (since that's money owed to you by customers), also as inventory, computers, and furniture.

  • Liabilities:

Any debts owed by your business are considered liabilities, like your accounts payable (A/P) balance, (since that's what’s owed to vendors), also as any loans the business owes.

  • Revenue/income:

 Revenue, also called income, is just any money earned by your business either through products sold or services rendered.

  • Expenses:

We’re all conversant in expenses. Your bill, your employees’ salaries, and your working lunch with a possible client are all considered expenses.

  • Equity:

When you subtract your business liabilities from your business assets, you've got equity, which reflects your financial interest within the business.

Setting up a business account

Knowing the accounts you would like to trace for your business is one thing; setting them up is another. Back within the day, charts of accounts were recorded during a physical book called the overall ledger (GL). Most businesses use computer software nowadays to record accounts. It’d be a virtual record instead of a tough copy, but the overall file remains called the general ledger.

There are three main methods for creating a GL:

  1. Spreadsheet software (e.g., Excel)
  2. Desktop accounting bookkeeping software (e.g., QuickBooks Desktop)
  3. Cloud-based bookkeeping software (e.g., QuickBooks Online, Wave)

Spreadsheet software is that the cheapest option; Google Sheets doesn’t cost a monthly fee, but trying to craft your own ledger during a spreadsheet program can spiral quickly into disaster.

Desktop bookkeeping software usually requires a high up-front fee, but the software is then yours to stay. With online, cloud-based bookkeeping software, you've got to pay a monthly fee to stay your online subscription, but it’s a way lower cost than that of desktop software.

Alternatively, you'll pay an accountant, bookkeeper, or outsourced accounting company to manage your accounts and ledger for you.

Balancing the Books

To balance your books, you've got to stay careful track of those items and make certain the transactions that affect assets, liabilities, and equity are recorded correctly and within the right place. There’s a key formula you'll use to form sure your books always balance. That formula is named the accounting equation:

Assets = Liabilities + Equity

The accounting equation means everything the business owns (assets) is balanced against claims against the business (liabilities and equity). Liabilities are claims supported what you owe vendors and lenders.

Conclusion

A bookkeeper is liable for identifying the accounts during which transactions should be recorded. For instance, if the business makes a cash sale to a customer and your business uses double-entry, you'd record the cash received within the asset account called Cash and therefore the sale would be recorded within the revenue account called Sales.