Bookkeeping 101: Understanding the Basics

Once the entries are assigned to the correct accounts, you can post them to the general ledger to get a bird’s-eye view of your current cash status. Most accounting software does this for you, so you don’t need to worry about an extra step. The next step is choosing between a cash or accrual basis for your bookkeeping. This decision will depend on when your business recognizes its revenue and expenses. For example, you may find yourself in a dispute with a vendor or under audit by the government.

• This might be credit the company has issued or outstanding invoices to be paid by clients.
• Our expert bookkeepers here at Bench have built an Income Statement template in Excel that you can use to turn your business transactions into an Income Statement.
• Under double-entry bookkeeping, all transactions are entered into a journal, and then each item is entered into the general ledger twice, as both a debit and a credit.
• The more information (and supporting documents) you can give your CPA at tax time, the more deductions you’ll be able to legitimately claim, and the bigger your tax return will be.
• In simple words, it tells you what your business owns, owes, and the amount invested by shareholders.

For example, if you prepare and post an invoice in the amount of $150 to John Brown for consulting, you’ll need to record that information in a journal entry. It can be difficult to track business expenses, but by using a business credit card, for example, you can make sure that all of your expenses are kept together and tracked. The easiest way of doing this is by categorising your bills into types of expenses to make things a lot easier. Depreciation – All held assets depreciate (go down) in value over time and this depreciation must be accounted for. Assets – All the things a company owns which are required to do business. Common examples are properties, tools, vehicles, and of course, cash.

The Benefits of Bookkeeping

However, as technology gets more and more advanced, even smaller companies could get benefits from going digital. This is where a cloud bookkeeping solution like Zoho Books comes in. Zoho Books helps you keep accurate records of your business finances. It provides quicker and easier solutions for cash management, accounts payable/receivable, bank reconciliation, and generating financial statements.

If not done at the time of the transaction, the bookkeeper will create and send invoices for funds that need to be collected by the company. The bookkeeper enters relevant data such as date, price, quantity and sales tax (if applicable). When this is done in the accounting https://www.bookstime.com/articles/business-bookkeeping-basics-for-business-owners software, the invoice is created, and a journal entry is made, debiting the cash or accounts receivable account while crediting the sales account. Every financial transaction should have a line item in the general ledger, which tracks everything in one place.

The Accounting Process

Some of these elements are done more regularly than others to ensure that the books are always up to date. Other elements are completed at certain time periods as necessary to complete a business task. However, it’s important to note that your bookkeeper won’t be the only person working on your business finances. So you’ll want to understand which tasks your bookkeeper is and isn’t responsible for handling. Our partners cannot pay us to guarantee favorable reviews of their products or services.