Bookkeeping: What You Need to Know for Your Business

Bookkeeping: What You Need to Know for Your Business

You’ve recently launched a small business. Congratulations! You must have a million ideas for what to do next, but before you get too carried away, you need to make sure you have a plan for bookkeeping.

Good Steward Financial Company is a virtual bookkeeping service, and we specialize in guiding small businesses like yours through the world of bookkeeping and accounting.

Bookkeeping is an essential tool for any business, so let us introduce you to the basics.

What Is Bookkeeping?

Bookkeeping doesn’t mean just writing down every sale. It’s a process for cataloging all your business’ income and expenses and organizing that information in a way that provides financial insights.

Bookkeeping involves recording every business expense, sending invoices to clients, making regular payments for things like insurance and software, and preparing financial statements.

Bookkeeping provides you with a full financial overview of your business so that you can evaluate profit and identify potential funding issues before they arise. Bookkeeping is essential to good cash flow management.

Bookkeeping is like accounting, but they are not the same thing. Accounting is the process of analyzing the data that bookkeeping gathers. Your CFO will often be trained in accounting.

As a small business, you may want to consider looking for fractional CFO services if you are unable to afford a full-time CFO to help manage your finances.

Creating Your General Ledger

The first step of bookkeeping is to create a general ledger where you will track your business accounts.

Historically, general ledgers were books where everything was written by hand. Today, most businesses keep a virtual ledger that can be backed up more easily and helps with calculations.

The cheapest option is Google Sheets, which is free online spreadsheet software that only requires a Google account. If your business already uses Microsoft Office products, Excel is equivalent to desktop software.

However, these software options require you to create your own bookkeeping spreadsheets. While that might work for personal expenses, it’s a little too haphazard for businesses.

Many small businesses invest in QuickBooks bookkeeping services. QuickBooks offers both desktop software and a cloud-based option, QuickBooks Online, designed specifically for business bookkeeping.

Your third option is to hire a dedicated bookkeeper or outsource to a virtual bookkeeping and accounting company like Good Steward Financial.

Choosing Bookkeeping and Accounting Systems

Once you have your general ledger ready, you will have to choose your bookkeeping method.

There are two main options: single-entry bookkeeping and double-entry bookkeeping.

Single-entry bookkeeping records each transaction once. You sell goods or perform a service, the customer pays you, and you record the business’ earnings in the asset column.

It seems simple, and you may already use single-entry bookkeeping to track your personal finances. However, single-entry bookkeeping is usually only practical for small sole proprietorships, such as a freelance writer working from home.

Most businesses will find double-entry bookkeeping more useful.

Double-entry bookkeeping records each transaction with two separate entries, a debit (increase) to one account and credit (decrease) to another account. Debits are generally recorded on the left, and credits are recorded on the right.

For example, say your small business needs a new point of sales system, which costs $1750. When you purchase the point of sales system, you are decreasing the cash in the bank by $1750, but you are also increasing the value of your equipment by $1750.

So, you would record a debit of $1750 for the equipment account and a credit of $1750 for the cash account.

Double-entry bookkeeping is very helpful for the next step, balancing your books because it ensures that your books are always balanced.

Balancing Your Books

You’ve recorded all expenses and income, so it’s time to balance your books. Your business may choose to balance and close your books at different times, such as every month, quarter, or fiscal year, but the process remains the same.

A balanced book means that the total value of your account debits and credits match. At the end of each balancing period, you will post these entries to the general ledger and adjust your account balances.

Returning to our point of sales system example, if that was the only expenditure for a bookkeeping period (highly unlikely, but let’s keep it simple for now!), you would add $1750 to your equipment account and deduct $1750 from your cash account to balance your books.

When the balancing process is complete, you can calculate your adjusted trial balance, which is represented by the equation:

Assets = Liabilities + Equity

The two sides of the equation should match. If they do not, it’s time to review your ledger for errors until your books are balanced.

Virtual Bookkeeping Services with Good Steward Financial Company

Bookkeeping is a multi-faceted task that isn’t just about balancing your books. It also includes:

  • Cash flow management
  • Sending invoices
  • Making payments
  • Saving records, such as bank statements and tax forms
  • Processing payroll
  • Preparing financial reports
  • Preparing information for taxes

Do all these tasks sound a little complicated? We don’t blame you. Good Steward’s financial experts have spent years perfecting their skills for accurate, efficient bookkeeping and accounting.

While it’s important for you to know the basics of bookkeeping as a small business owner, outsourcing to a virtual bookkeeping service like Good Steward Financial saves you time and money.

Even if you decide to do your own bookkeeping with QuickBooks, you will still want a professional who offers QuickBooks bookkeeping services to make sure you know how to set up and use the software for maximum benefit.

Good Steward Financial Company is a trusted resource for all your bookkeeping and accounting needs.

We specialize in small businesses, so we know what your small business really needs to succeed, from annual audit assistance to fractional CFO services.

For expert bookkeeping help, contact us via our online form, or give us a call at 336-347-3851.