Managing Your Account In a Systematic Way

Definition of Bookkeeping

Bookkeeping is a process in which you keep a well-organized record of all your business financial matters. Bookkeeping is also a major part of the accounting system in a business. Bookkeeping is usually done by the “bookkeeper” who will oversee and record entries of your day to day transactions. There are transaction documents that are vital to complete a basic bookkeeping record. These would be sales, receipts, purchases and payments – just to name a few. You should keep a running list of all debits and credits that are made daily. This will only make it easier on you to have accurate monthly reports later down the line. If transactions that are made daily are not recorded when happening there is a large chance that they will be missed later. This will make your records inaccurate. Ideally, it would be the bookkeeper’s job to input and document each transaction as made. This list is what is called a general ledger.
Bookkeeping

Ledger

A general ledger is a record keeping system that is used as a central guide for accounting data transferred from all subcategories such as accounts payable, accounts receivable, cash management, purchasing, projects, assets, liabilities or other items owned by the business. In order to populate an accurate general ledger, the data entry clerk must create what is called a trial balance.

A trial balance is a list of all the general ledger accounts that are used in the ledger of the business. The general ledger is what the accountant would use to prepare the final income statement and balance sheet for the business. This list is made up of all the names for each account and the value of that account’s balance. Each ledger will result in either a debit or credit balance. Once the result of the account’s balance is calculated the final number would be transferred to the final statement. This final statement would also be known as your balance sheet.

Trial Balance

Trial Balance

A trial balance is a list of all the general ledger accounts that are used in the ledger of the business. The general ledger is what the accountant would use to prepare the final income statement and balance sheet for the business. This list is made up of all the names for each account and the value of that account’s balance. Each ledger will result in either a debit or credit balance. Once the result of the account’s balance is calculated the final number would be transferred to the final statement. This final statement would also be known as your balance sheet.

Balance Sheet

A balance sheet is the final file showing the summarized financial state of the business. This statement will always carry over in your records from month to month and even year after year. Almost all of the time, the bookkeeping and accounting functions of a business will run hand and hand with each other.

Why You Should Open a Business Banking Account

The first successful tip to having organized business records would be to open a bank account that is strictly for business use. Data needed to obtain a business account would be a state-issued ID, Employer Identification Number (EIN) or a Social Security Number (SSN), and business documents. Some of the business documents required could be your Articles of Incorporation (for Corporations), Articles of Organization (for LLC’s) or a valid business license. Providing these documents will confirm your type of business. Forming your business structure will help you define the best account for you to obtain.

Most banks will offer sign-on bonuses for opening a new business account. Once you have a special account chosen for business you will have the freedom of making purchases and depositing any funds that are business-related. Only business transactions should be made through this account. This will help you keep track on a day to day basis of all transactions made. It’s not good to only have a personal bank account and run all your business transactions through it. Come to the end of the month closeout, it would be harder to clarify which expenses are business-related. This is also a big negative factor for the IRS. They do not want to see both personal and business transactions going in the same account.

Bookkeeping

Types Of Accounting

There are two types of accounting that can be used with your bookkeeping.

One of the most common types of accounting would be the method of cash accounting. This method means that payment receipts are usually logged by the bookkeeper during the period they are actually received. This will also stand true for any expenses that are incurred, meaning they will be recorded as they are actually paid.

There is another common type of accounting called accrual accounting. This method means that income and expenses are logged when they are incurred, regardless of whether cash is being exchanged. This means that if the sale took in place in 2019 and the cash wasn’t received until 2020, this will still be income towards the 2019 tax year.

The major difference between cash and accrual accounting methods is simple. It is the timing of when the sales and expenses are logged in your business reports. Cash accounting will realize the income and expenses only when money is dealt between the parties. Accrual accounting recognizes income when it is earned and expenses when the checks are prepared.

Accounting Software & Tools

There are many products and services that can be used to complete bookkeeping and accounting. Although it is best for you to hire a trained expert, there is always the option of looking into managing your business records on your own. Accounting software is available from different providers. Some of the most popular companies are QuickBooks, FreshBooks or Quicken software. Each of these programs will provide the financial statements required of your business. It is important to be aware of the structure of your business to know what your requirements will be. Each software has different versions that can be purchased to comply with your business needs. Although these programs are very informative and useful, it is best to have a qualified bookkeeper who knows how to use the software. In order to complete proper accounting reports, it must start with proper and accurate bookkeeping.

Bookkeeping
Bookkeeping

Advantage of Paid Tools and Software

There are many bookkeeping software programs that can be purchased as well. Bookkeeping software can be purchased through QuickBooks, Quicken, and others as an add on to the accounting software. There is alsoother basic bookkeeping software that can be found in local office supply stores.Most of the accounting and bookkeeping software is accurate in handling the information that is entered. You must keep in mind; the software is not in control of knowing whether some transactions have been left out. The software is also unaware that a transaction has been entered twice or if the wrong account was used. The software is there to provide the financial statements needed but is relying on accurate record keeping being entered.
This is where a detail-oriented bookkeeper is needed to double check the information.