The Basics of Bookkeeping Every Small Business Owner Needs to Know

The Basics of Bookkeeping Every Small Business Owner Needs to Know

Written by Sophie Robertson, In Business, Published On
May 21, 2024
, 201 Views

In Short

  1. Chart of Accounts: Establish a structured chart of accounts categorizing finances into assets, liabilities, equity, revenues, and expenses, ensuring clarity and organization in bookkeeping.
  2. Double-Entry Method: Embrace double-entry bookkeeping, recording transactions in at least two accounts to maintain balance and accuracy, a fundamental practice recommended by Bristol accountancy firms.
  3. Utilize Technology: Employ cloud-based bookkeeping software like Quickbooks Online to streamline invoicing, expense tracking, and bank account integration, reducing errors and saving time, as advised by Bristol Accountants

Bookkeeping is an essential part of running a successful small business. Proper bookkeeping provides business owners with the financial information they need to make intelligent decisions and grow their company. Here are some of the bookkeeping basics every small business owner needs to know.

Bookkeeping Tips Every Small Business Owner Needs to Know

Bookkeeping

Set Up Your Chart of Accounts

The chart of accounts is the backbone of your bookkeeping system. It’s a listing of all the accounts you use to record transactions in your books. Some essential accounts include cash, accounts receivable, accounts payable, sales, cost of goods sold, expenses like rent and utilities, and equity accounts.

Choose a numbering system that organises your accounts into categories like assets, liabilities, equity, revenues and expenses.

Understand Double-Entry Bookkeeping

Bristol accountancy firms advise that small businesses should use the double-entry method for recording transactions. This means each transaction is entered into at least two accounts – a debit to one account and a credit to another. For example, when you make a sale for £100, you debit your cash account for £100 and credit your revenue account for £100. Having a double record helps ensure your book balance.

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Make Transactions Easy to Document

Whenever you receive money or pay bills, make sure the transactions are clearly documented with invoices, bills, receipts and other evidence. This creates a paper trail for all of your bookkeeping entries and helps prevent errors—store financial records both digitally and with paper copies for security.

Use Bookkeeping Software

Cloud-based bookkeeping software like Quickbooks Online is ideal for small businesses, and many accountants in Bristol, like Accountable Accountants, recommend packages like this. Features like invoicing, expense tracking, reporting and integration with bank accounts make managing finances more manageable. Choose software that will scale with your business. Using technology minimises errors and saves time on bookkeeping, making it easier for your Bristol accountant.

Track Your Accounts Receivable

The accounts receivable ledger tracks all customer invoices and unpaid credit sales. Make sure you have an orderly system for preparing sales invoices, tracking due dates on outstanding invoices, sending out reminders when payments are late, and flagging seriously past-due accounts. Slow-paying customers can impact business cash flow.

Stay on Top of Accounts Payable

Having an accounts payable system will ensure you’re paying vendor and supplier bills on time, taking advantage of early payment discounts when available. Late payments also negatively impact credit scores and relationships with vendors. Develop a routine for reviewing open invoices, scheduling payments and taking advantage of payment terms.

Perform Regular Bank Reconciliations

One of the foundational bookkeeping routines small businesses should follow is reconciling bank accounts each month. This involves comparing your book balances to the balances on the monthly bank statement. It helps identify any discrepancies or errors between the two. Bank reconciliations verify that all transactions are accounted for.

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Bookkeeping may seem complicated, but mastering the basics is entirely doable for small business owners without an accounting background. Following standard procedures and using the right tools prevents headaches caused by financial disorganisation. With routine bookkeeping tasks in place, small businesses gain insights into their money that spur growth.

Conclusion:

Mastering bookkeeping basics is essential for small business success, enabling informed decision-making and facilitating growth. By implementing structured systems, embracing double-entry methods, and leveraging technology, entrepreneurs can efficiently manage finances, ensuring accuracy and fostering financial stability.

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