Bookkeeping basics: A guide for small businesses

Manual bookkeeping is the “traditional” way of preparing and documenting your business’ financial records. In this method, you might use a pen-and-paper ledger, or an offline program like Microsoft Excel or Word to record income, expenses, interest, and any of the other cash flow items that appear in a financial report. The manual method can work if you prefer a hands-on approach, but it can also be time consuming, and it leaves more room for human error. When you’ve answered these questions, talk with your commercial banker to learn about the merchant account products they offer. If you accept in-person payments, you’ll buy and set up an online payment processor with in-person credit and debit card reader hardware and sync it to your online store. Examples of payment processors include Square, ShopKeep, Shopify POS, and Stripe.

Using the data you gain from keeping a ledger, your next step will be to generate and prepare financial reports for analysis. The major reports to include are the profit and loss, the balance sheet, and a cash flow analysis. Additionally, the aged accounts receivables and aged accounts payables reports are helpful in knowing which customers have not paid and which vendors are yet to be paid. These reports will help you gain greater insights into the financial health of your small business. Startup small business owners, however, may not have the financial resources to hire bookkeeping staff.

Which software features to look out for

Accounting software makes it easy to store these documents and reference them in case of an accounting error or audit. Before you take on any small-business bookkeeping tasks, you must decide whether a single- or double-entry accounting system is a better fit. The entry system you choose impacts how you manage your finances and how your bookkeeping processes will work. Some good books on the basics of bookkeeping are Bookkeeping For Dummies by Lita Epstein and Bookkeeping Made Simple by David A. Flannery.

Consider using one of the best bookkeeping services to make managing your books a breeze. Bookkeeping beginners need quick wins to get started quickly and efficiently. The tips below are industry standards that will help any small business excel at bookkeeping. Here’s a crash course on small-business bookkeeping and how to get started. We are bookkeepers passionate about keeping your books so pristine that you could eat off them.

The FIFO Accounting Method

In his unique, conversational tone, Michalowicz draws you into his theory, making it one of the best accounting books for small business and feel more like a leisurely read than a traditional business book. You might be tempted to keep reading to the end and not stop to implement the actionable steps outlined in each chapter. If that’s the case, the book is readable enough that you can go back through it a second time, pausing to download the free resources available on the author’s website. This means recording transactions and saving bills, invoices and receipts so you have all the data you need to run reports.

In Neat, for example, you can upload a picture of any bill, receipt, invoice, or other source document from your phone. When you get back to your car, office, or couch, you’ll find that the data on that file has been automatically extracted, parsed, categorized, matched, and stored for future recall. If you organize those categories into a table, you have a (title cased) Chart of Accounts. Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development.

Choose your bookkeeping software

This gives you a second trail to follow when eyeballing discrepancies, looking for trends, and thwarting fraud. By keeping track of every dollar you spend, you can gain insight into where your money is going and make informed decisions about allocating your resources. A lot goes into it—from managing payables and receivables to balancing how to bookkeeping for small business books. But what might seem like an overwhelming task isn’t so bad when you break it down to the bookkeeping basics. When manually doing the bookkeeping, debits are found on the left side of the ledger, and credits are found on the right side. Debits and credits should always equal each other so that the books are in balance.

• And in such cases, may take on the accountant role themselves—an important responsibility in any company.
• Most small businesses today don’t track business finances in literal bound books.
• This is money that you’re due to receive, hence its placement in your general ledger under Accounts Receivable.
• In this detailed guide, author Mark Smith explains important topics in easy-to-understand language.
• Before you take on any small-business bookkeeping tasks, you must decide whether a single- or double-entry accounting system is a better fit.