Difference between revisions of "Bookkeep"

{{fa}}Bookkeeping, like accounting, is one of the necessary evils of running a business. Despite what many may think, those two terms refer to different processes. Bookkeeping, as it will be discussed here, refers to simply collecting records of expenses and revenues, and then posting those transactions to a general ledger. Accounting is the process that follows bookkeeping, and involves converting the information in the ledger into useful business metrics and reports.<ref name="rf1">http://www.accountingcoach.com/bookkeeping/explanation</ref> Luckily, bookkeeping is the simpler of the two, and can be learned by following the simple steps below.  

#*This system can be as complicated as a wired-in cash register that feeds into accounting software or as simple as a box full of receipts and notes. This will depend on the amount of transactions your company does on a daily or weekly basis.<ref name="rf2">https://www.sba.gov/blogs/bookkeeping-basics-part-1-how-set-and-manage-accounts-payable</ref>

#Use accounting software. The simplest way to ensure that your transactions are recorded reliably is to invest in an accounting program like QuickBooks, FreshBooks, or Expensify. These will take a lot of the guesswork out of recording different types of transactions and present your information clearly. Many of these programs are available for free or on as a free trial for a limited time.<ref name="rf2" />

#*Amount owed/paid<ref name="rf2" />

#Be consistent. For any system you use, be sure to enter your transaction data on a regular basis and in the same way each time. This is to be sure that transactions are not overlooked and that you have the most up to date picture of your business's financial health. In addition, it is a good idea to establish a regular schedule for transferring information from the journals to the ledger, perhaps on a weekly or monthly basis.<ref name="rf3">http://www.nolo.com/legal-encyclopedia/bookkeeping-accounting-basics-29653.html</ref>

#Use the same accounting method for all entries. 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. The accrual method, however, accounts for transactions when that transaction occurs, for example when expenses are incurred or when a customers buys an item (but not necessarily when money changes hands for the transaction). Which method you choose will depend on your own goals and business strategies.<ref name="rf4">http://www.nolo.com/legal-encyclopedia/cash-vs-accrual-accounting-29513.html</ref>

#Compare the two accounting methods. The cash method of accounting is more commonly used in small businesses because it gives an accurate representation of the cash balance of the company.<ref name="rf4" /> As the business grows, however, it may become less important to know the exact cash balance of the company and focus instead on its current health. This is where the accrual method comes in. By tracking expenses when they occur and revenues when they are earned, rather than paid for, the accrual method negates the effects of payment delays in determining the financial health of the company.

#Decide on which method to use. 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 (all revenues). Any company with revenues over those levels is required, by law, to use the accrual method.<ref name="rf4" />

#*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.<ref name="rf5">http://business.tutsplus.com/tutorials/bookkeeping-101-what-you-need-to-know-to-run-your-business--cms-21996</ref>  

#*The introduction of accounting software has made the two-step process of journals and ledgers almost obsolete. The software will automatically update the ledger, making the process one of simply inputting transactions as they occur. However, some businesses still choose to use the journal-ledger method.<ref name="rf1" />

#*Retained Earnings (profits reinvested in the company).<ref name="rf5" />

#Post transactions regularly. How often you post transaction to the ledger from the journals will depend on your transaction volume. It can be daily, weekly, or even monthly. However, this should be done consistently to ensure that you are not suddenly overwhelmed with work at the end of an accounting period. Again, accounting software will help you stay up-to-date on these processes.<ref name="rf3" />

#Analyze your ledger accounts. Ledger accounts are mainly useful for quantifying the financial health of the company. While true financial reports are best left to professional accountants, anyone can compare ledger accounts to create simple comparisons or reports. For example, compare sales to expenses to get a general idea of how your company has fared recently. Obviously, if sales are higher than expenses, you are making a profit. For more complex reports, turn to an accountant or accounting program.<ref name="rf3" />

*Be sure to pay your suppliers a few days in advance of the payment deadline, whether it is 30 days or a longer time period. This will give you some leeway if you forget to pay on that day and put you on good terms with suppliers.<ref name="rf2" />

*If bookkeeping begins taking up too much of your time as your business grows, it may be a good idea to hire help. Hiring an educated accountant will allow you to gain a more complete and accurate picture of your business's financial health.<ref name="rf2" />