How to Do Bookkeeping: Basics Every Small Business Owner Needs to Know

Since the IRS accepts digital records, it’s smart to use a cloud-based system like Dropbox, Evernote, or Google Drive so you never have to deal with smudged receipts. You can also use apps like Shoeboxed, which are specifically made for receipt tracking. If you’re going to be doing your own bookkeeping, it’s worth talking to a pro when you set up your system to make sure the accounts you create align with your industry standards and CPA expectations. You need to know your net profit in order to do your taxes, and to figure that out, you need to know your total income and expenses. And the only way to know that for sure is to have accurate, up-to-date books.

This turns a random receipt into proof of a business expense. If your organization depends on grants, grant accounting should be on your radar. It can help you track grant-related revenue and expenses so that you fulfill your mission and maintain excellent relationships with donors, stakeholders, and others who are important to you.

DIY vs. professional bookkeeping

Apart from having the data for your transaction on hand, you’ll need to decide which accounts that will be debited and credited. Using the accrual accounting method, you record income when you bill your customers, in the form of accounts receivable (even if they don’t pay you for a few months). Same goes for expenses, which you record when you’re billed in the form of accounts payable. The two types of accounting are the cash and accrual accounting methods. In essence, the cash method records transactions when actual cash changes hands, like when a customer pays for an item or when you pay for an expense.

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Create Cash Flow Statements

From the cash you have on hand to the debts you owe, understanding the state of your business’s finances means you can make better decisions and plan for the future. Using a spreadsheet is the cheapest option, especially if you use Google Sheets rather than Microsoft Excel, which costs a monthly fee. However, general ledgers can get complicated if you’re trying to juggle multiple accounts.

Good bookkeeping is foundational to running a profitable business. After all, if you don’t know how much you’re making or where that money is going, you’ll have a hard time finding ways to expand your profitability. You can also search for professionals or bookkeeping services online. If you want to outsource your small-business bookkeeping, there are several ways to find experienced bookkeepers. How to find the best virtual bookkeeping service can help you get the process started.

Bookkeeping 101: How To Keep Records for Your Small Business

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In the world of accounting, these would be recorded using the official terms, as debits and credits to various accounts. As a bookkeeper, though, it is most important that you use a consistent system that makes sense to you. Legally, a company may choose either accounting method as long that company has less than $5 million in revenue each year or, if it sells products to the public, has less than $1 million in gross receipts . Any company with revenues over those levels is required, by law, to use the accrual method.