Being a business owner is about more than a great idea and excellent customer service skills. You must wear many hats – from the cleaner to the accountant. Becoming a business owner is undoubtedly a learning curve.
Bookkeeping is also among the more complicated parts of business ownership. If you’re having a hard time knowing where to start, familiarize yourself with these core bookkeeping fundamentals:
Professional Support
No matter how many forms of software and accounting systems you purchase, it’s always worth having a trustworthy tax agent on your side. Anyone can input data into software to streamline their processes and produce reports. However, that doesn’t mean the information is accurate.
Tax agents can be a wealth of knowledge with how you gather, input, and organize your data to meet your legal obligations. You can also rely on tax agents to remain abreast of best practices and new standards for peace of mind.
Basic Accounting Principles
You might understand accounting at an elementary level, like gross profit versus net income. Still, there’s more to it than that. Understanding the differences between when revenue is earned and when cash is received can be crucial. You should also understand how to match your revenue with expenses for accurate profit reporting.
If you need help understanding basic accounting principles that have the potential to result in reporting errors, reach out to a trusted accounting professional for advice.
Chart of Accounts
A chart of accounts (COA) is a list of accounts in a general ledger to record financial transactions. They are generally grouped into categories and have reference numbers for quick and easy reporting.
Most COA entries fall into categories like assets, liabilities, revenue, expenses, and equity. There can also be sub-accounts within each of these categories. For example, liabilities might have sub-accounts like accounts payable and wages payable. With a chart of accounts, you may find it easier to record and follow all transactions in your general ledger.
Bank Reconciliation
Any money coming into your business must align with anything going out, and vice versa. That’s where bank reconciliation comes in. Using your chosen accounting software, you must be able to account for all money. If anything, it’s necessary for tax and reporting purposes. Bank reconciliation can also help highlight accounting errors, detect fraud, and manage risk.
Fortunately, most accounting software and systems make it simple. If you record a bill, any money coming out of your bank account to pay for it can be reconciled against it.
Record Keeping
As mundane as record keeping is, it’s vital for analyzing your financial position and responding to inquiries. It can also make any required audits easier. Keep your business’s financial records, receipts, invoices, and supporting documents organized by year.
According to the IRS, you should keep records that support your income, credits, or deductions on tax returns until the period of limitations for those tax returns runs out.
The time limit can also depend on the type of record it is. For example, you should keep records forever if you don’t file a return or have filed a fraudulent return. Keep records for at least seven years if you’ve filed a claim for a loss from bad debt or worthless securities. If you’re unsure how long to keep specific records, check in with your local accounting service provider.
Bookkeeping is a crucial part of business ownership. It can make you a master of financial management, strategic planning, and taxes. When you understand these fundamental principles above, you may find it much easier to manage your business’s bookkeeping and produce accurate financial reports.
