Essential Guide to Bookkeeping in 2020

Whether you have decided to embark on the journey of self-employment to test the waters of entrepreneur life or the finances of your business is going downhill due to lack of proper records and tracking of expenses, this essential guide to bookkeeping will be your saviour. 

Bookkeeping is the method of recording every financial transaction of a business in a proper manner within the accounting period. Without bookkeeping, you won’t have a clear image of how your business is doing in terms of finance. 

Every operating business needs proper bookkeeping in order to succeed and grow. 

So you may ask why bookkeeping is so important?

Bookkeeping helps your business prepare for the tax and law, track your business’s growth, improve your cash flow, get you bank loans and investors, and the list goes on. 

Now that you know how important bookkeeping is for your business, you might want to know what bookkeeping services are there for you to consider.

1. Reaching Out for Professional Help

The traditional way is to hire a professional bookkeeper or get help from accounting firms who has knowledge and expertise in the field of managing financial records. Getting professional help will reduce the chances of errors in business transactions and save you from unwanted expenses. Your finances will be well taken care of and you will get the time and energy to focus on your business without the added stress. 

However, sometimes hiring a bookkeeper or paying heavy fees to accounting firms for their services is not an affordable solution to freelancers and small businesses. 

2. Manage Bookkeeping with Online Softwares

If you think you have the time and a little knowledge of DIY, then you could benefit from bookkeeping software like Quickbooks, Xero, and Wave. 

These easy-to-use bookkeeping tools can help you track your business’s finances and track every transaction. Bookkeeping software is a great affordable option if you don’t want to spend on professional help. But you will need to invest your time and know the basics for using the bookkeeping tools. As a business owner, there are various other important matters that require your attention. Bookkeeping tools can only do so much for your business. 

3. SaaS Bookkeeping Service

SaaS Bookkeeping combines automated bookkeeping software along with a professional bookkeeper to manage your business’s bookkeeping.  

SaaS bookkeeping can be the most suitable and affordable solution for small businesses but not a good option for very large and complex organizations. 

Instead of paying monthly wages, consultation and service charges, you just have to bear the monthly subscription fees that will be a cost-effective option for most businesses.

4. Knowing the Basics of ‘How-to’ Bookkeeping

Whatever you choose to do with your business’s bookkeeping, learning a little about bookkeeping can never hurt. Keep in mind that the instructions below are given considering a very simple transactional example.

In the real-world, bookkeeping includes various transactions and accounts that must be balanced on a regular basis. 

• Use Double-Entry Bookkeeping for Your Business

Double-Entry Bookkeeping is the most suitable bookkeeping method for businesses of all types. Every business transaction has two parts. Let’s say, for example, you spend money to buy raw material for your business that will appear as a deduction in your cash account. But the raw material is an increase in your inventory account. The purpose of double-entry bookkeeping is to help you understand where your money is going and coming from. 

• Chart of Accounts in Bookkeeping

Setting up a chart of accounts for your business is crucial as you will be recording every transaction and need a clear idea of how the money is circulating through your business. Apart from what’s adding in your inventory, there are many other accounts that you need to have a track of.

Some of the essential charts of accounts that you need are: purchases, sales, accounts receivable, accounts payable, retained earnings, payroll expenses, etc. 

• Balancing the Books is Essential

Balancing the books can be a little tricky to do. Recording and updating the chart of accounts according to gains in business requires an understanding of the concept. 

When you get a profit from selling your product or service, the profit is an increase in your profit’s account but the cost of producing or providing the service should be deducted from the profit you make. Not only that, but you will also have to pay wages to your workers and supplies that were used in making or providing the final product. 

To make sure the books are balanced at the end of every accounting period, a bookkeeper follows the equation; Assets equals Liabilities + Equity. 

If the books don’t balance, you must go back and make changes to remove an error from your calculations.

• Create Financial Statements for Your Business

Through proper bookkeeping, you will be able to produce financial statements for your business. The three types of statements that you can create are income statements, balance sheets and statements of cash flows. These statements are important documents for your investors and lenders as they show your financial performance. You could retrieve the financial data from your accounts to prepare each financial statement. 

Most businesses prepare financial statements annually or when they need to present the information in a formal manner. 

 

Some Final Words

Businesses exist to make a profit. Without keeping track of your business’s transactions in a proper way, it’s nearly impossible to understand the direction of your business and reach your organization’s goals. 

Neglecting bookkeeping is not only disastrous for your business, but also for the tax season. If you’re not well-prepared for the tax and IRS or CRA, you could end up paying for deductions. 

Choose a bookkeeping method that suits your business’s needs. Doing it yourself will consume your time and energy that you could invest in running your business instead. 

At Centrosome, we provide a wide range of accounting and bookkeeping services that are catered to all industries in both Canada and the US. Helping business owners just like you to figure out what the business needs most in order to maintain its financial health and grow is our mission.

Book an appointment to talk to one of our professionals today!