Accounting & Bookkeeping Basics: Overview

If your business is a side project with a limited budget, you can probably get by going the DIY route. You might still consider consulting with a CPA or bookkeeper at the beginning, just to make sure you’re doing everything right. But most businesses in the hobbyist stage can get by using either a simple spreadsheet or one of the many accounting or bookkeeping software solutions on the market. The way you categorize transactions will depend on your business and industry. Generally speaking, your transactions fall into five account types—assets, liabilities, equity, revenue, and expenses. Individual line items are then broken down into subcategories called accounts.

In order to make your business better and more profitable, you’ll first have to understand what’s working and what isn’t. You can’t make adjustments and improvements to increase profit margins and productivity without having a clear idea of what’s going on with your money. Below is a list of the key things you need to understand to have a good grasp on your business finances and ensure your business is moving in the right direction. Yes, you still need a bookkeeper if you use QuickBooks or any QuickBooks alternatives. QuickBooks is one of the leading accounting software in the industry and performs many of the bookkeeping roles that a small business needs. FreshBooks is the best small business accounting software for service-based businesses including the self-employed and freelancers.

Bookkeeping vs. accounting: What’s the difference?

With all your finance tools working together there will be a lot less work for you to do so you can focus on the fun parts of running your business. You won’t have to spend hours manually matching transactions and your books will always be neat and tidy. After you have set up your business accounts and picked a bookkeeping system, the next step is to record your financial transactions.

• Recording a financial transaction in your general ledger is referred to as making a journal entry.
• It gives you a more realistic idea of your business’ income and expenses during a period of time and provides a long-term view of the business that cash accounting can’t provide.
• Revenue is all of the money you collect in the process of selling your services and goods.
• Perfect for small business owners who aren’t ready for full-fledged accounting software.
• Come tax time, you’ll be grateful you invested in accounting and bookkeeping software that lets you streamline the whole process and will save you an abundant amount of time and money.

I made it all the way through, but didn’t find anything I would consider changing, although there were lots of things we don’t do. I don’t think the authors understand the realities of a really small, volunteer-driven non-profit. This book was super helpful in understanding the basics of bookkeeping. As a small nonprofit, we need to be able to do everything we can in house to save money. 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 money in.

Bookkeeping basics: The accounts you should know

Instead, an account is a record of all financial transactions of a certain type. Alternatively, in-house or outsourced bookkeepers can update your books for you, typically for a monthly fee. But whether you plan to do bookkeeping yourself or outsource it to an accountant, it pays to understand the basics of bookkeeping.

I have no bookkeeping experience and frankly I am not that great at math but the book was easy to follow. I would feel comfortable doing some basic bookkeeping after reading https://www.scoopearth.com/the-importance-of-retail-accounting-in-improving-inventory-management/ this book. This book was very informative as to how to keep track of finances of an organization without necessarily having a book-keeping background or training.

The Beginner’s Guide to Bookkeeping

However, understanding bookkeeping basics doesn’t have to be complicated or intimidating. Here at Protea Financial, we will discuss what bookkeeping is, how it works, why it’s essential, and how you can start your bookkeeping today. If you’re acting as a bookkeeper for your business, you’ll review source documents and record basic accounting information. Accounting MethodAccounting methods define the set of rules and procedure that an organization must adhere to while recording the business revenue and expenditure.

• In this report, you’ll find aspects such as assets, liabilities and the capital of your business.
• There are three main cost-effective bookkeeping solutions you can employ as a small business owner.
• The downside of cash-basis accounting is that the expenses and revenue aren’t matched on a monthly basis.
• Likewise, if you pay for supplies from your supplier, you enter the sum paid in your liability column only.
• Throughout the year there are several different taxes a small business needs to pay, and bookkeeping means you can correctly calculate how much is due.

Double-entry bookkeeping is harder to learn and do than single-entry bookkeeping. However, the difficulty should not make you abandon construction bookkeeping learning it. You cannot claim to know anything about bookkeeping without understanding the double-entry bookkeeping system.

If you’re managing your business with the single-entry method, a CPA can help you move to the double-entry method. Bookkeeping includes gathering financial data into a recordkeeping system and posting transactions to an accounting system. The definition often includes additional tasks to keep your business running smoothly.

Companies also have to set up their computerized accounting systems when they set up bookkeeping for their businesses. Most companies use computer software to keep track of their accounting journal with their bookkeeping entries. Very small firms may use a basic spreadsheet, like Microsoft Excel. Larger businesses adopt more sophisticated software to keep track of their accounting journals.

Your chart of accounts is the backbone of your business and is a necessity in order to properly record transactions. This is a good but very basic book on bookkeeping in nonprofits. For “accidental bookkeepers” in small nonprofits it would serve as a solid introduction to the concepts, paving the way for implementing a great number of accounting practices.

Double-entry bookkeeping requires more effort and time to maintain but is more accurate than single-entry bookkeeping. Double-entry bookkeeping involves recording financial transactions in two ledgers, called the “debit” and “credit” sides. Each transaction must be recorded on both ledgers so that any changes made to one ledger will be reflected in the other. This helps maintain accuracy and ensure that all transactions are balanced correctly.