Simple Bookkeeping for Small Business Owners

At the end of every pay period, the bookkeeper will accumulate employee payroll details that include hours worked and rates. From there, the total pay is determined with the applicable taxes and withholdings. In the accounting software, the primary journal entry for total payroll is a debit to the compensation account and credits cash.

Which accounting method should I choose?

Any monies you owe to suppliers or other agencies for goods or services provided are placed under Accounts Payable. Accounts Payable is an expense account that lets you know how much money you owe to your creditors. Rent, business insurance, and software subscriptions are expenses you pay before receiving the benefit of the service—these are prepaid expenses. Proper bookkeeping also allows you to determine the areas within your company that could benefit from improvements.

• Manually recording transactions by hand is the most time-consuming option for recording transactions.
• The first essential spreadsheet in your bookkeeping system is the Chart of Accounts (COA).
• For small businesses, accounting software is a must-have for managing financial data efficiently.
• Additionally, bookkeepers may have certifications, but accountants have — at a minimum — an accounting degree, and they may have completed the certified public accountant exam.
• Choosing an S-Corporation (S-Corp) structure for a business offers several benefits, which is why it’s one of the most popular entities for small business owners.
• Whilst you do not have to submit the individual records to HMRC you will want to make sure you can prove you know how to keep books for a small business.
• Accounting software makes it possible to do much of this on your own, though you may decide to outsource some basic bookkeeping tasks to an online bookkeeping service as your small business grows.

Small-Business Bookkeeping Basics

While Excel can be helpful, entering the data can be time-consuming. Hence, it may be best to consider using bookkeeping software from the get-go. If you don’t want to take any chances and instead enjoy numerous convenient features, FreshBooks can help. This is a reliable accounting software that can automate everyday tasks and minimize errors.

Why Bookkeeping for Small Businesses is Important

When in doubt, don’t be afraid to talk to other business owners and find out how they hired a bookkeeper and what bookkeeping methods they prefer to use. Failing to reconcile your bank statements with your accounting records can result in undetected errors and discrepancies. Regular reconciliation ensures that your records are accurate and helps identify potential issues early.

Consult Your Accountant

• Your reputation for paying on time – or not so much – will be important to vendors who deliver supplies to you and to creditors who decide whether or not to extend you a line of credit.
• Shoeboxed generates reports for reimbursements, expense reports, and tax deductions with one click.
• However, there are plenty of reasons to make quarterly, or monthly financial statements as well.
• These can either be set up as separate sheets (or tabs on the same spreadsheet) or set up in one comprehensive sheet.
• You may not need specialist bookkeeping software as it might be done with Microsoft Excel or its freeware equivalents.

Business taxes are unavoidable, and no matter what your taxation structure is, they can get expensive. Bookkeeping not only helps you create an income statement for the year; it can also help you narrow down your taxable income by tracking expense categories so you can make smart tax deductions. Instead of tracking this Keep Records for Small Business information down on your own, you can simply consult your books during tax season.

Monitor Cash Flow

Again, if you don’t expect to pay for a particular purchase (if you received damaged goods, for example), then make a note of this and explain why. You should always carefully check all government guidelines on running a limited company to ensure you are being fully compliant with the law. If you’re self-employed, you need to be aware of the example of small business bookkeeping Making Tax Digital for Income Tax scheme instead, which is set to be introduced in phases from April 2026. LLCs are a popular business structure because they offer protection and flexibility.

What to Include in an Auto Repair Shop Business Plan

In business, you must keep records of your transactions in your books. Your accounting books provide a place for you to review your business’s income and expenses and see where you stand financially. By keeping your books organized and up-to-date, you can take control of your finances and make smart business decisions.

For more detailed information refer to Publication 583, Starting a Business and Keeping Records. Your bookkeeping system should make logging your income as simple as recording expenses. As data goes in, you’ll see your accounts receivable (AR) category grow. This account is simply the total amount of funds owed to your business. Then, once a month, set aside a time slot to reconcile your bank statements, review your monthly reports and LLC chart of accounts, and reconsider your business plans and goals. You should commit to a time slot every week (or how is sales tax calculated daily, if you can find the time) during which you know you won’t be interrupted.