Bookkeeping is vital to properly managing your business resources. Additionally you will need these records for tax purposes. Whether you DIY or hire someone to keep track of everything you should understand the importance and the basics of bookkeeping.
Keeping good records of operations will alert you to any cash flow issues and potential legal problems as well and keeping all records up to date will make your year-end tax prep much simpler. Here are a few basics that should always be standard practice to keep in your books.
Revenue and Expenses
Every transaction should be recorded. How much is coming in and how much is going out and where is it is all coming from and going to.
It is important to record the cash your business spends so you’ll have an accurate number of expenses each year. Writing reimbursable checks and keeping detailed petty cash records are both valid methods of documenting cash expenditures.
Maintain records of all inventory! This will help you to forecast for the upcoming year by tracking trends, prevent stealing and misplacing merchandise and keep inventory holdings to a minimum. Dates purchased, stock numbers, purchase prices, dates sold, and sale prices are all relevant information for inventory records. And keep personal and business finances separate!
Accounts Receivable and Payable
Always keep track of what customers owe you and what debts you owe others. It’s prudent to record as much data as possible including invoice dates, numbers, amounts, terms, dates and amounts paid or due, balances, and client information in real time.
Hiring even one employee invokes your responsibility to file and pay forms and payroll taxes and each state has its own tax obligations. Employers are responsible for maintaining employee forms such as the W-4 (Withholding Allowance Certification) and the I-9 (Employment Eligibility Verification). You are responsible for maintaining records on withholding, employer matching, unemployment and worker’s compensation.
If you decide to do your own bookkeeping, you should consult with an expert especially at the beginning to make sure that you are on track. As your business grows, you may want to bring someone on and/or deploy more sophisticated bookkeeping software.
Preparing for Tax Time
With your books in order, prepping for taxes should be a breeze. With everything in order from the beginning it saves you from having to go back to try to figure things out. Don’t forget about the small things like car mileage and petty cash.
- Prepare Your Small Business for Tax Time
- 8 Small Business Tax Preparation Mistakes to Avoid
- Bookkeeping Basics, Part 1: How to Set Up and Manage Accounts Payable
- Bookkeeping Basics, Part 2: How to Set Up and Manage Accounts Receivable
- Introduction to Accounting
Accounting Photo via Shutterstock