If you're a small business owner and want to do your Bookkeeping, you are in the right place. Bookkeeping may not be the most exciting thing ever, but we've got it down to a science. In this blog, we’ll discuss what is and why is bookkeeping important and the steps to do your Bookkeeping.
What Is Daily Bookkeeping
It is about recording all your transactions and keeping track of where revenues are coming from and which tax-deductible expenses. The bookkeeping process includes the following procedure.
- Journal entries
- Entries to ledger account
- Finally, adjusting the financial transactions entries.
Importance Of Daily Bookkeeping
Now Let’s dig into the importance of Bookkeeping, why it matters for your business. Bookkeeping is like a foundation for the financial health of your business. Following are the same major points to understand its importance.
It helps you catch tax deductions when you record and categorize every transaction in your business. You'll be able to see which expenses are tax-deductible. Without year-round Bookkeeping, you'll forget about one-off deductions like lunch with a client eight months ago. You could have deducted even with the best of intentions. Assumptions will always fall through the cracks at tax time unless you have Bookkeeping in place.
Helps You In Finances
It can help you get a business loan if you're applying for a small business loan. Banks will need to see financial statements, and I don't just mean the type. You can download it from your online banking site. You're going to need something that shows your expenses and revenues, otherwise known as an income statement. It is something you're going to be able to get through Bookkeeping.
Helps You Keep Check And Balance
as it can help you catch financial mistakes. When you're keeping a close eye on the transactions in your business, this means you'll be able to see things like Bank errors invoicing mistakes like paying somebody twice and sneaky subscription fees for services that you forgot to cancel.
Because it gives you a clear picture of where your money is going when you have Bookkeeping in place, you'll be able to keep track of your expenses. You can budget better. You'll also be able to understand your cash flow. You can see what's an expense versus payment to a loan or a credit card. You'll also be able to track how your businesses grow and improve over time and what months are busy and slow. It will help you plan for the future.
Guide To Do Daily Bookkeeping
A simple guide to doing your Bookkeeping on your own is more suitable for beginners or startups who just have started a business and there is not this much Bookkeeping to do. Just follow the following simple steps.
The first step to doing your Bookkeeping is separating your business and personal expenses. You would want to make sure that your business and individual transactions are not intertwined. So it's clear to the IRS what your business is earning, spending, and then what your bottom line net profit is.
C corporations need to have separate bank accounts for business and personal finances as C-Corps open themselves up to legal problems when their finances aren't different from individual transactions.
Now choose between single entry or double-entry accounting methods. The single entry method only records every transaction once, while double entry is a system of accounting that tracks where your money comes from and where it's going. Essentially you record every transaction twice.
Taking assets from somewhere called credit, Putting it somewhere else called a debit. Your debits and credits should always be equal.
You'll need to make intelligent financial decisions, so what is a single entry? It is essentially just recording your transactions once as they happen. It's less robust. But if your business is a simple sole proprietorship with no inventory and no employees. You can probably use the single entry method. If your business is any more complex, then you should go for the double-entry process.
Choose the cash versus accrual method of accounting. Cash basis is to record transactions only when you receive them. At the start of the business, you can choose the cash method. As your business grows, you can quickly shift to the accrual method.
Choose A Bookkeeping System
Your options are to do it manually using something like Excel or just paper or use accounting software. If your bookkeeping means are straightforward, this is the easiest and cheapest way to go.
If you choose to use accounting software, there are few options for small businesses.
Such as QuickBooks, Xero, FreshBooks, and Wave. You'll pay a monthly fee for the software, which you can use to produce simple financial reports. Keep in mind though you may need to have accountants’ help too.
Learn how to properly use the software to categorize your transactions into essential classifications. Understanding what you're spending on these types of categories can help you know what your tax deductions are. Not all transactions are equally tax-deductible. So you'll want to know what you're spending on office supplies versus what you're spending on meals.
For example, if you buy a box and pens for the office, you'll categorize them as office supplies. At the end of the year, the total amount you spent on office supplies will be there. And you'll be able to deduct that cost from your taxes.
Organize and store the documents you need to keep records for your Bookkeeping, but there's a bit more to it than just storing all of your receipts in a shoebox. There are two essential rules for your record-keeping.
- Rule one if the expense is over $75, you should keep a record to prove the expense.
- Keep the proofs or receipts for three years.
We recommend you store your receipts digitally. This way, you do not need to deal with storage boxes, and the IRS is excellent with this method, and you need them when you get audited, not for the tax filing purpose.
Finally, the last step is to make it a habit. If you do consistently, you'll have intelligent financial insight into your business every month of the year. And you'll save yourself a lot of time and headaches come from tax season.
At a minimum, we recommend entering all your transactions at least once a month.Do it somewhere fun, like a coffee shop or do something relaxing while you do the work. The more automatic your bookkeeping habit becomes, the easier your tax season will be.
Nobody likes stressful and tedious work bookkeeping. Now it is your choice whether you do your Bookkeeping on your own or hire someone else to do it for you. Virtual bookkeeping Services Is also an option. If you want to do your Books professionally and budget-friendly, go for Bookkeeping services.
Our expert in-house bookkeepers here are always here to advise you and give you a free quote. It will help save you time, provide you with confidence that adequately done your books, and make tax time.