Small business owners are often overwhelmed by the tedious and time-consuming task of bookkeeping and tracking their expenses. The reality though, is that once you have some practice and you know the basics of business cash controls, it really isn’t so bad.
There is no right or wrong way to organize bookkeeping for a small business. So long as your records give an accurate reflection of your businesses expenses and income, then official bodies like the tax authorities will see them as acceptable.
A comprehensive summary of the businesses income and expenses is what lies at the heart of bookkeeping. Every purchase or sale your business makes needs to be backed by a recording of the amount of cash, the date, and what money was used.
It’s vitally important to make sure that all your cash is accounted for. Make sure that all the transactions recorded on your bank statements get recorded in your books. Also, make sure that the balance shown on the statement agrees with the balance shown in your records.
If you have any uncleared or unrepresented checks, be sure that you know the exact amounts of them. This will explain any differences between your ledger and your bank statement.
Something else you should put into practice is doing routine counts of the items that you have in stock, and then make sure that it matches up with the figures you have recorded in your books. Unexplainable differences may often occur here because of things like returns and quality defects. It’s important to stay on top of this; and differences will be reflected in the financial statements and will usually have a direct effect on the profit line.
Once you have your paperwork all in order, you should consider how you’re going to go about recording your transactions.
You could use a traditional ledger, or you may opt for bookkeeping software. If you’re just starting out with your bookkeeping, consider recording your accounts both on paper and on computer at first. It’s a good idea to run a dual system for the first few months, and make sure that both have the same totals before you stop recording on paper.
Remember, bookkeeping is the glue that holds your business together. Without it, the business could fall apart. A healthy business will be monitored through its records frequently. Regular monitoring is vital so that problems can be corrected before it’s too late.
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