Must Know Bookkeeping Facts For Small Business In 2023

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As a small business owner, running your business is your biggest priority and passion. You’re doing everything you can to make it succeed. However, something that is just as important to your business’s success—but you might not have a passion for—is bookkeeping.

You need correct, up-to-date financial information to understand how your business is performing—to plan for the future, prepare for taxes, and make decisions. That’s what bookkeeping provides.

But, though bookkeeping consists of simple accounting procedures, they aren’t so simple if you don’t have a background in business, finance, or accounting. Remote Books Online outlines the basics of  bookkeeping for small businesses  to help you understand how it works and how it can help you succeed.

How Small Business Bookkeeping Works

Bookkeeping is the process of gathering, organizing, and recording all of your business’s financial transactions. When this information is organized appropriately in one place, you can get a complete picture of what’s going on with your business. This picture becomes a powerful tool for decision-making and can help your business succeed.

A bookkeeper will take your information and enter it in a general ledger; a record-keeping system where all of your transactions are listed. Transactions included are:

  • Assets, which are everything owned: cash; accounts receivable; property, manufacturing plants, and equipment; and also intangible assets such as a patent or trademark.
  • Liabilities, which are everything owed: accounts payable, salaries, notes payable, taxes, interest, business expenses, and purchases.
  • Equity, which is the owner’s part of the company: the capital invested in the business or what’s left after liabilities are paid.

To get started, you must first decide whether to use single entry or double entry for your transactions. These entries will be posted as debits or credits. A debit entry shows an increase in assets or a decrease in liabilities. A credit entry shows an increase in liabilities or a decrease in assets. The way debits and credits are explained can seem contradictory, but they have different impacts depending on whether they are entered as assets, liabilities, or equity.

  • A single-entry system only shows one side of a transaction, whether it’s a debit or credit.
  • A double-entry system shows both sides by capturing transactions in two corresponding or opposite accounts, where one entry will be debited and the other credited.

Although it is more complex to manage, a double-entry system is preferred in most instances. This double entering of credits and debits ensures that records balance. It’s also easier to locate errors, prepare financial statements, and see what’s happening with your business. Believe it or not, the double-entry system has been in use since the 1400s.

Next, you must set up your accounts in the ledger. The practical knowledge of accounts you’ll get through having this information in one place is invaluable to your business. These are the types of accounts you may set up:

  • Cash accounts (often separated for receipts and payments)
  • Accounts receivable
  • Accounts payable
  • Inventory
  • Sales
  • Payroll
  • Purchases
  • Loans payable
  • Owner’s draw
  • Retained earnings

As you can see, with all this information accounted for in one place, bookkeeping can become an invaluable tool to understand all aspects of your business, including:

  • Income
  • Expenses
  • Cash flow
  • And, keep you up-to-date for tax time

Bookkeeping is a must-havefor small business owners like you. And, to be at its most valuable, it needs to be consistently updated with current information.

If, like some small business owners, you don’t feel comfortable you have the skills or the time to handle bookkeeping yourself, Remote Books Online can help.

Get Your First Month of Bookkeeping for FREE!