Small Business Bookkeeping is just about one of the most important responsibilities a small business owner will have. If you are making money from self-employment full or part-time you are considered a small business owner and the success of your business depends on creating and maintaining an effective record-keeping system. It does not matter if your business is a sole proprietorship, partnership, or corporation.
For tax purposes, you are required to keep good accounting records.
Most importantly, the record-keeping system you use must be suited to your particular business needs. Proper record-keeping for small businesses makes the process easier and keeps you compliant with the law.
It will also help you in the long run, to be prepared in case of an IRS audit.
Most importantly, records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success.
Record keeping is also about understanding your business, now and in the future. You should keep good records, that include:
1. Detail Tracking
You are required to track a significant amount of information, such as customers, sales, inventory, and expenses. Without a proper record-keeping system, tracking important details of your business may be impossible and can lead to you paying far more taxes than you should have.
2. Legal Compliance
As an owner, you may hold various licenses, permits, insurance, contracts, etc. As an employer, you will be required to maintain and report employee payroll for tax purposes.
3. Tax Preparation (Federal, State, and Local)
You need good records to prepare your tax returns. Good records of your business financial transactions may be able to save you thousands of dollars.
Your records must support the income, expenses, and credits you report.
You need Supporting documents including sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Purchases, sales, payroll, and other transactions you have in your business will generate supporting documents.
Generally, these are the same records you use to monitor your business and prepare your financial statements.
The financial statement may include income (profit and loss) statements and balance sheets.
- An income statement shows the income and expenses of the business for a given period of time.
- A balance sheet shows the assets, liabilities, and equity in the business on a given date.
Difference between an Accountant and a Bookkeeper
Bookkeeping is the first part of the accounting process, so the work of a bookkeeper and accountant often overlaps. The difference between an Accountant and a Bookkeeper is an accountant is a professional who handles the bookkeeping and prepares financial documents like profit-and-loss statements, balance sheets, etc. They perform audits of your books, prepare reports for tax purposes, and handle all the financial information that’s part of running your business.
Bookkeeping focuses on recording and organizing financial data, while accounting is the interpretation and presentation of that data.
Common Bookkeeping Methods
With manual bookkeeping business accounting records are entered into a notebook or journal. You should have a basic understanding of the types of small business accounts there are and debits and credits. You will also have to decide what accounting method you will use to enter your transactions.
Computer accounting software is a great option for handling your bookkeeping needs. I could not live without it! If you are starting your first business, you will quickly find out how important accounting software is to the success of the business. You don’t have to worry about having extensive knowledge of accounting. Computers transfer the right numbers to the right accounts and make sure those numbers get put on the proper side of the account, the debit side, or the credit side.
QuickBooks is the industry standard a free alternative that may not have all the bells and whistles like QuickBooks, yet it gets the job done, is GnuCash! It is a great alternative for those just starting out or someone simply working with a limited budget!