Bookkeeping serves two main purposes, to allow the IRS to evaluate your business’ operations and to help you manage and understand your business. Whether you keep your books on paper, software or hire a professional, as a business owner you must understand the importance of proper bookkeeping for the survival and success of your business.
Here are some basic accounts that every small business should keep in their books:
Petty Cash, Bank Accounts, and Investments
It is vital for a company to keep track of funds going in and out of its petty cash, bank accounts, and investment accounts. By recording revenue coming in and expenses leaving the petty cash and bank accounts your company will know exactly what it has on hand, which will help ensure you do not incur unnecessary overdraft fees. In addition, understanding and knowing what the company has in investment accounts will help it plan for future expansion or upcoming major expenses.
Accounts Receivable
If you sell a product or service and don’t collect payment immediately you then have a payment that you will receive in the future. This is the money your customers owe you and it is important to keep it up to date in order to send accurate bills or invoices. It is important to record as much information as possible, including terms of payment, invoice dates, balance due and client information. In addition, knowing the money you expect to have come in will help you budget your expenditures and plan future initiatives.
Accounts Payable
As opposed to accounts receivable, accounts payable is the debt that you owe others. Accurate records ensure you make all your payments on time and for the correct amount, additionally they ensure you do not pay the same bill twice.
Inventory
Tracking inventory is important for any company that sells physical goods, but also for companies that have consumable supplies used to provide their services. Products in stock must be carefully accounted for to prevent stealing and misplacing. Information such as purchase dates, purchase prices and stock numbers are relevant information for inventory records. The numbers in your book should be periodically compared to the actual stock by doing physical counts of existing inventory.
Revenues and Expenses
This section provides information regarding the money coming in and going out of your business, it will track all the incoming revenue from your sales and interest; as well as all the expenses associated with operating your business. This will include accounting for your cost of goods sold (those expenses directly related to producing your product or service) and your other operational expenses.
Employees
As an employer, you are responsible for maintaining employee forms, records and withholdings. Keeping this account accurate is essential for meeting tax and other government reporting requirements. Not accurately recording employee expenses, paying taxes in a timely fashion, or submitting quarterly and annual employer returns can result in fines and penalties your company could allocate to growing your business.
As a small business owner you might consider your bookkeeping activities a burden, however with proper organization and information, your bookkeeping will be a tool that helps you run your business more effectively.
Many business owners think of bookkeeping as an unwelcome chore. But if you understand and make effective use of the data your bookkeeper collects, bookkeeping can be your best buddy, helping you run your business more effectively. If you find yourself struggling keeping your books up-to-date we help. Contact us today for information on our bookkeeping services.
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