When you own a small business enterprise, or rather for any business enterprise (regardless of their size), knowing the numbers is essential. When you have tangible data for all your financial affairs, arranged systematically, you can foresee your business's future standing. This helps you make systematic decisions, make provisions for future emergencies, expand your business, know your taxes, utilize profits effectively, etc. However, for a small business, hiring an eligible and skillful accountant can be a tricky task. That is why accounting outsourcing might be a considerable route.
But before you go that way, you need to know the basic factors involved in accounting and bookkeeping. And if you are not familiar with that, we have got your back. Following are the basic steps on how to conduct bookkeeping for small businesses correctly.
Basic Methods of Bookkeeping!
Identifying Financial Transactions
Identifying financial transactions? What does that mean?
That question was likely the first thing on your mind as soon as you read the title. By the term' financial transactions', we don't mean the transactions related to sales, purchases, taxes, etc., but any such transaction can be valued. In other words, we need to identify any such transactions that hold value or can be translated in terms of money. This includes sales, purchases, taxes, land, salaries, assets, goodwill, debits, credits, etc. If you are having trouble with this step, the eligible outsourced accounting services will assist you.
Preparing Journal
Preparing journal entries are the first step towards documentation of an accounting. In this step, all the (identified) financial transactions are recorded. Each of them has their separate identities (or accounts), and every transaction related to that particular account is first recorded in the journal. In double-entry bookkeeping, every transaction that takes place involves at least two accounts.
For example, you purchase stationery for $10 and pay via cash. Thus, the stationary (account) will gain the $10 deducted from the cash (account) in the journal entry.
Maintaining Ledger
When you have prepared the journal for your financial year, all accounts involved are created and are adjusted accordingly. This collection of different accounts is called a ledger. These ledger accounts can be adjusted at the time of journal entry as well. That saves the hassle of creating multiple accounts and maintaining them at the end of the (financial) year.
For example, the stationary account gets $10 on its debit side, whereas the cash account gets $10 on its credit side in their respective ledger accounts.
Originally Published By https://bookkeeperlive.com/