Bookkeeping 101: Everything You Need to Know

how to do bookkeeping for a small business

It is a simple and straightforward way to record cash payments, withdrawals, and deposits. This post was originally published January 13, 2016, and extensively updated on Nov 1, 2022.Are you looking for an accounting and bookkeeping solution for your small business? It is often hard for business owners to find software that meets their business requirements as well as their budget. We have put together a list of 10 software products that can help your small business succeed. Are you one of those small business owners who just love poring over spreadsheets? Yes, your business’s books are a scorecard of how well you’re doing—but if you’re not a “numbers person,” doing your bookkeeping may sound as appealing as a root canal.

How do I start bookkeeping for beginners?

  1. Become familiar with and set up your chart of accounts.
  2. Begin to record all of your financial transactions.
  3. Reconcile bank accounts.
  4. Close the month and run financial statements.

If you check regularly (and compare to prior months’ numbers), it’s easier to make adjustments so you are neither short nor overloaded. Just as you reconcile your personal checking account, you need to know that your cash business transaction entries are accurate and that you are working with the correct cash position. Reconciling your cash makes it easier to discover and correct any errors or omissions—either by you or by the bank—in time to correct them. Most invoices are due within 30 days, noted as “Net 30” at the bottom of your invoice. Without a due date, you will have more trouble forecasting monthly revenue. Read more about getting paid faster in our guide to getting invoices paid on time.

Who Can Benefit from Using Accounting and Bookkeeping Software?

Shopify Payments, you’ll need a merchant account or you can use a third-party payment processor, like PayPal, Stripe, or Square. A merchant account is a type of bank account that allows your business to accept credit card payments from customers. From the start, establish an accounting system for organizing receipts and other important records.

  • Cash-basis accounting is the simpler method of accounting and is usually used by small businesses.
  • It only works if your company is relatively small with a low volume of transactions.
  • It requires the application of accounting principles which can be overwhelming.
  • To ensure you are keeping best practices, view our What Is Payroll guide, created by accounting experts.
  • Having all of your business and personal expenses saved in one place, along with your bank account balance sheet, allows you to easily monitor expenses and profits.
  • For product-based small businesses, Plus will have more options for inventory and customizations.
  • Let’s review some tasks involved in bookkeeping, especially as they relate to your business’s day-to-day operations.

Many bookkeeping software options automate the tracking process to eliminate errors. Bookkeeping is the regular practice of updating a company’s financial records to reflect all financial transactions, credits, and debits. This means that you don’t record an invoice until it is actually paid. Similarly, you don’t notate outstanding bills until you actually pay them. This method offers a true snapshot of your assets and debts at any given time. While accounting may not be what motivates you to go to work every day, it’s a part of the job.

Understanding Assets, Liabilities, and Equity When Balancing the Books

Kelly is an SMB Editor specializing in starting and marketing new ventures. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content. She is a former Google Tech Entrepreneur and she holds an MSc in International Marketing from Edinburgh Napier University. Return to your list of prioritized needs and evaluate only the software that meets the majority of those needs.

The company updates the software regularly, with new features being added all the time. A cash flow statement is arguably the most important part of your bookkeeping. This will show you where you are spending your money and what is bringing Small Business Bookkeeping Basics money in. If you want a more in depth introduction to cash flow, we recommend checking out our article, What is Cash Flow. At NorthOne, we know our customers didn’t get into business because they are passionate about accounting.

Download the guide about bookkeeping

Depending on the type of business transactions you’ll be making, different business credit cards have different perks. If you plan on spending a lot on travel, for example, a business credit card that offers miles may be ideal. For businesses with specific or unique accounting needs, it may be helpful to use open-source software, which lets users change and customize a software’s underlying code. To help small businesses navigate between the different software options, Shopify has compiled a list of the eight best accounting software programs for small businesses. For every new small business, it might not make sense to hire a bookkeeper straight away. But as soon as you see growth in your company, it will soon be essential to have a highly detailed, consistent bookkeeping approach.

how to do bookkeeping for a small business

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