Whether or not you decide to hire a bookkeeper, it’s a good idea to know the basics of bookkeeping. Because good accounts are the basics of a good business, you need to make sure you know what it’s all about to save you not only the trouble of having someone trying to con you, but also save you time and money in having to find for a specialist only when it is tax season.
Here are the 10 things you need to know about bookkeeping.
- Bookkeeping Entry – There are two types of bookkeeping entries that you need to understand so you know which one to use for your business. A single-entry bookkeeping is usually for small businesses that have low volume of transactions while double-entry bookkeeping is for businesses that are more complex and deals with high volume of transactions.
- How To Record – You will need to specify what type of transactions took place in your business. You will need to have separate records for each type so you will know what went where.
- Accounting System – You either use the cash or accrual accounting system. Cash accounting system is used by home or one-person business where you record every transaction when cash exchanges hands. Accrual accounting system is used when credits are involved, either for your customers or when you’re requesting it from your suppliers.
- Debits and Credits – These are the records of incoming and outgoing transactions in your business.
- Accounting Cycle – This is where you record each transaction as it happens even when the cash is yet to exchange hands. Pretty much like how if you were to keep a diary of what’s happening in your life, these transactions are recorded chronologically in your accounting journals.
- Balancing Your Books – This is where your spending and transaction tally. You will record your assets (what you own), your liabilities as well as your equities in order to have an effectively balanced book.
- Chart of Accounts – This is a list of accounts you use to define each type of items from which your money is spent on and/or received.
- Financial Statements – These are important financial statements for your business. It will help you to file your taxes accurately as well as provide you an insight on how your business is doing.
- Bookkeeping Terms – Familiarizing yourself with the common terms in bookkeeping can greatly assist you in doing your books. Even though you will at one point get used to them, it’s good to learn and understand them beforehand.
- Software – You can choose to do your bookkeeping with or without a computer. But knowing what the good accounting software you can use are will help you to keep cleaner, more accurate and efficient books.