Bookkeeping for Beginners: 6 Basic Concepts to Get You Started

It’s like driving a car without a fuel gauge or a map—sooner or later you’re going to get lost or run out of gas. While offering so many options to manage your bookkeeping, WP ERP Accounting is surprisingly easy to use. WP ERP also has a superb support team that will help you with any problem that you might face while using this tool. To do this, list all your revenue in a column and expenses in the next column and make a sum of both in the row below.

• Traditionally, you would need to wait to receive your monthly bank statement and reconcile the transactions on the statement with those posted in your ledger or accounting software.
• Mixing together personal and business expenses in the same account can also result in unnecessary stress when you need to file taxes or do your bookkeeping.
• As your business grows, you will come to realize that spreadsheets aren’t the best option when it comes to maintaining your financials.
• Without recording these transactions in your books, you’d forget to reclaim that hard-earned money.

The way you categorize transactions will depend on your business and industry. Generally speaking, your transactions fall into five account types—assets, liabilities, equity, revenue, and expenses. Individual line items are then broken down into subcategories called accounts. In our ice cream shop example, some accounts in your ledger might be “revenue-ice cream sales”, “expenses-ice cream ingredients”, etc.

DIY Using Spreadsheets

Using a bookkeeping method is the most efficient way of managing your finances. Not only it is the easiest way of doing it, but it is A Beginners Tutorial To Bookkeeping also the most cost-saving one. Enrol and complete the course for a free statement of participation or digital badge if available.

That’s why we’ve created a handy checklist so you can do bookkeeping like a pro. It’s full of useful tips on why doing your own books is important, how you can get started, the best https://kelleysbookkeeping.com/grab-posts-us-111m-negative-ebitda-in-q1-us-652m/ way to maintain it, what to look for in software plus so much more. To get started, you don’t need to search for the cheapest bookkeeper around, even if you’re a complete newbie.

Bookkeeping Basics for Small Business Owners

You also have to decide, as a new business owner, if you are going to use single-entry or double-entry bookkeeping. Single-entry bookkeeping is much like keeping your check register. You record transactions as you pay bills and make deposits into your company account. It only works if your company is relatively small with a low volume of transactions. At the end of the appropriate time period, the accountant takes over and analyzes, reviews, interprets and reports financial information for the business firm. The accountant also prepares year-end financial statements and the proper accounts for the firm.

However, for the novice, the introduction of bookkeeping-specific vocabulary and the rules that govern proper bookkeeping processes can be overwhelming. Faisal is a tech blogger who loves to help people by sharing useful information. Apart from that, he likes to travel and read books of all genres in his leisure time. Free statement of participation on completion of these courses. Study with us and you’ll be joining over 2 million students who’ve achieved their career and personal goals with The Open University. Click on any of the course content sections below to start at any point in this course.

Do Bookkeeping the Right Way With a Bookkeeping Checklist

Owners of the business have claims against the remaining assets (equity). One of the first decisions you have to make when setting up your bookkeeping system is whether or not to use a cash or accrual accounting system. If you are operating a small, one-person business from home or even a larger consulting practice from a one-person office, you might want to stick with cash accounting. 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.

If your business is a side project with a limited budget, you can probably get by going the DIY route. You might still consider consulting with a CPA or bookkeeper at the beginning, just to make sure you’re doing everything right. If you need to borrow money from someone other than friends and family, you’ll need to have your books together. Doing so lets you produce financial statements, which are often a prerequisite for getting a business loan, a line of credit from a bank, or seed investment.

Financial Statements

When it’s time to do your books, you’ll easily know where to find the financial information you need. There’s nothing worse than having to search through too many statements to find one small yet vital piece of financial business that you need. That can often be the case if you haven’t split your personal and business funds, so they’re always combining into one account and it’s easy to lose track.

Here are the basic concepts you can learn to get started right away to do the books like a pro. Any and every transaction you make needs to be recorded, either in your ledger book or in your accounting software application. Equity is the investment a business owner, and any other investors, have in the firm. The equity accounts include all the claims the owners have against the company. The business owner has an investment, and it may be the only investment in the firm.

It ensures that you don’t miss out on tax deductions

Very small businesses may choose a simple bookkeeping system that records each financial transaction in much the same manner as a checkbook. Businesses that have more complex financial transactions usually choose to use the double-entry accounting process. Bookkeeping is the process of recording all financial transactions made by a business. Bookkeepers are responsible for recording, classifying, and organizing every financial transaction that is made through the course of business operations. The accounting process uses the books kept by the bookkeeper to prepare the end of the year accounting statements and accounts. 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).

• For example, if you buy a laptop for your office, the amount will be debited from your account.
• Very small firms may use a basic spreadsheet, like Microsoft Excel.
• More importantly, it gets you on the path to transform your business into a money-making beast.
• In this course, you will learn how to manage accounts and financial transactions to operate a successful business.
• Here are the basic concepts you can learn to get started right away to do the books like a pro.
• It could mean a business expense gets lost in your personal account and you miss out on an important deduction.

Learn how to automate your small business, and stop devoting your time to boring tasks. Here are 12 areas of your business you can automate today. If Bench does your bookkeeping, you can also upload and store as many digital receipts and documents as you’d like in the Bench app. These days, you’ve got three options when it comes to bookkeeping tools. You can’t run a healthy, successful business without having your books in order.