If you're a small business owner and you want to do your daily bookkeeping, you are in a right place. bookkeeping may not be the most exciting thing ever but we've got it down to the science. In this blog, we’ll discuss what is and why is bookkeeping important and the seven steps to do your daily bookkeeping.
Is about recording all your transactions and keeping track of where revenues are coming from and which expenses are tax-deductible. The bookkeeping process includes the following process
• 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.
• Bookkeeping matters, 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. That you could have deducted even with the best of intentions. Deductions will always all through the cracks at tax time unless you have bookkeeping in place.
• It can help you get a business loan if you're applying for a small business loan. Banks are going to need to see financial statements and I don't just mean the type, you can download from your online banking site. You're going to need something that shows your expenses and revenues otherwise known as an income statement. This is something you're going to be able to get through bookkeeping.
• It matters 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 catch 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 improving over time and what months are busy and slow this will help you plan for the future.
Guide to do Daily Bookkeeping
A simple guide to doing your bookkeeping on your own more suitable for beginners or startups who just have started the business and there is not this much bookkeeping to do. just follow the following simple seven steps and you’ll be done.
The first step to doing your bookkeeping is separating your business and personal expenses. You would want to make sure that your business and personal 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.
This is especially important for C corporations to have separate bank accounts for business and personal finances. As C-Corpse open themselves up to legal problems when their finances aren't separate from personal 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 and putting it somewhere else called a debit. Your debits and credits should always equal.
Which you'll need to make smart 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 method.
Now 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 easily 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, Xerox, Fresh Books, 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 understand 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 on 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 important 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 to store your receipts digitally this way you do not need to deal with storage boxes and IRS is totally fine with this method and you need them when you get audited not for the tax filling purpose.
Finally, the last step is to make it a habit. if you do consistently you'll have smart 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 funs like a coffee shop or does 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 boring work bookkeeping. Now it is your choice 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 in a very professional manner 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, gives you confidence your books are being done properly, and makes tax time.