One of the most important tasks for small business owners is tracking all financial transactions. Though it’s not done in a book anymore, bookkeeping is a vital way for small business owners to record any transaction for their business and make sure they know where all funds are so everything is accounted for.

Pick a Bookkeeping Method

The first thing to do is to set up business accounts using software or a spreadsheet and choose a bookkeeping method. The two main types are single-entry bookkeeping and double-entry bookkeeping.

  • Single-Entry – Each transaction is only entered once. This is better for very simple businesses, like those that don’t have equipment or inventory on hand.
  • Double-Entry – Each transaction is recorded twice, as a debit and a credit. This is the preferred method for most businesses, as it helps the books stay balanced.

Record Financial Transactions

Every financial transaction needs to be recorded. It is important to make sure the transaction is recorded under the right account and that it’s recorded correctly. For double-entry accounting, this means making sure there are a credit and a debit recorded for any financial transactions. Specific details won’t be recorded here, just the debits and credits for each account.

Learn How to Balance the Books

At the end of the fiscal year, it’s necessary to balance the books. This simply means adding everything up. If the debits and credits match for a double-entry book, that means the books are balanced. If these do not match, a mistake has been made somewhere. Go through the transaction records to find and correct any errors.

Prepare Financial Reports

Financial reports may be needed at the end of each quarter, at the end of the year, and in other situations. A balance sheet shows the current finances of the business. An income statement breaks down revenues, costs, and expenses, so it’s easier to forecast how the business will do in the future. Cash flow statements show the current cash flow for the business and how well it is doing.

All small business owners need to know how to record financial transactions to keep up with the profits and losses for their business, to prepare to file taxes, and to see if there are enough funds to expand. Using the information here, it’s possible to get started bookkeeping for any small business. If you need any help during this, professional bookkeepers will be able to help you get it all set up and keep up with the finances of your business.