How to Do Bookkeeping: Basics Every Small Business Owner Needs to Know

Rebecca Freedman, owner of Conscious Accounting, is a Certified Public Accountant and business consultant who has a passion for making accounting fun and approachable for business owners. Starting a business can be an overwhelming process, but if you follow this list, you’ll have your new store’s finances in order from the beginning. From opening the right type of bank account to determining how much you’ll bring in per product, these tasks will all contribute to your business’ success, now and as it grows. While there are no shortage of accounting and tax tools to choose from, ultimately you want to use a tool you feel comfortable using and intend to use for a long time. You can always switch tools of course, but that can be a timely process you want to avoid where possible.

This software has a clean interface and also fully integrates with a third-party payroll service. Businesses can collect payment online from customers through Xero’s integration with Stripe and GoCardless. Intuit’s QuickBooks Online has been one of the most common accounting softwares used by small businesses and their bookkeeping and tax professionals.

What features should I look for in accounting software?

But for the sake of explaining the basics of bookkeeping, here are the first seven steps you’ll need to walk through to get your bookkeeping machine humming. The more information you can give your CPA at tax time, the more deductions you’ll be able to legitimately claim, and the bigger your tax return will be. You can’t run a healthy, successful business without having your books in order.

If you choose to used double-entry bookkeeping—and we strongly suggest you do! We’ll show you examples of how to record a transaction as both a credit and debit later on.

Next Up in Business

You may do this every month, but at the very least, balance and close your books every quarter. You’ve created your set of financial accounts and picked a bookkeeping system—now it’s time to record what’s actually happening with your money. Apart from having the data for your transaction on hand, you’ll need to decide which accounts that will be debited and credited. Sage 50cloud -While it’s a more expensive platform, starting at just over $50/month, you’ll save time on administrative tasks through automation. Sage sends invoices, tracks payments and expenses, and can even calculate your tax payments.

With its affordable monthly subscription fees, Patriot is a solid choice in accounting and payroll software that doesn’t break the bank. We recommend FreshBooks especially for sole proprietors and companies with only a handful of employees, though it’s capable of handling more. Very small businesses could use it for basic money management, like sending invoices, monitoring financial accounts, accepting payments, and tracking income and expenses. More complex companies can add advanced tools that include projects and proposals, mileage and time tracking, and reports.

Merritt Bookkeeping: Best for budget users

From the start, establish an accounting system for organizing receipts and other important records. This process can be simple and old school , or you can use a service like Shoeboxed. For US store owners, the IRS doesn’t require you to keep receipts for expenses under $75, but it’s a good habit nonetheless. The foundation of solid business bookkeeping is effective and accurate expense tracking. It’s a crucial step that lets you monitor the growth bookkeeping of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and legitimize your filings. From payroll taxes to managing invoices, efficient bookkeeping smooths out the process of all your business’s financial tasks and keeps you from wasting time tracking down every dollar. At least once a week, record all financial transactions, including incoming invoices, bill payments, sales, and purchases.

If revenue is higher than expenses, the business gains net profit. If revenue is lower than expenses, the business experiences a net loss.

PCMag Stories You’ll Like

Most small businesses use accounting software such as QuickBooks Online or Wave. Accounting software allows business owners to track income and expenses, run sales reports, create budgets, and analyze cash flow. Intuit has an option called QuickBooks Live that adds bookkeeping support to QuickBooks Online Plus. You communicate with a dedicated bookkeeper through one-way video chat (they can’t see you) or email.

• The makers of small business accounting software have worked hard to present this discipline as simply and pleasantly as possible.
• QuickBooks Self-Employed will total up all business transactions automatically.
• Even if you’re planning to use a bookkeeping service for your small business, you’ll still need to take steps to manage your business finances.
• Gas mileage costs are 100% deductible, just be sure to hold on to all records and keep a log of your business miles (where you’re going and the purpose of the trip).
• Once you approve of the categories, transactions automatically settle in your financial statements.

If you have connected your financial accounts to your accounting site, then this is easy to accomplish. You can also view each account’s online register, which contains transactions that have cleared your bank and been imported into your accounting solution . The accounting method your business uses will have rules about when and how to document revenue and expenses in your own records and in reports to the IRS.