A beginners guide to small business bookkeeping

If two sides of the equations don’t match, you’ll need to go back through the ledger and journal entries to find errors. Post corrected entries in the journal and ledger, then follow the process again until the accounts are balanced. You’ve created your set of financial accounts and picked a bookkeeping system—now it’s time to record what’s actually happening with your money. Apart from having the data for your transaction on hand, you’ll need to decide which accounts that will be debited and credited. Once you’ve settled on an accounting method, it’s time to set up your books.

Taxes and government compliance to certain rules and regulations may be best managed by a certified accountant professional (CPA). Payroll involves the payouts to a business’s employees, including benefits, salaries, taxes, garnishments, and other deductions. Companies will use payroll processing software to streamline the process or outsource the task entirely. Your cash flow statement helps you understand how money moves into and out of your business. You’ll analyze your financial documents to get key insights into your business’s health, which will help you make smart business decisions going forward. To prepare a profit and loss statement, first include all the revenue your business made during that period.

Any money or investments (like equipment and property) coming in from the owner of the business (so, probably you!) goes under equity. We know, we know—that doesn’t make bookkeeping any less boring and painful. You can go with the baseline plan, the Simple Start plan, for $30 per month. If you need more users, you need business bookkeeping to move up to The Essentials plan for $55 per month.

Small Business Bookkeeping (2025 Guide)

The firm specializes in preparing personal and corporate taxation while providing fractional CFO work and leading the accounting and finance function for several small-to-medium-sized businesses. In his free time, you’ll find Jason on the basketball court, travelling, and spending quality time with family. The most common mistakes are mixing personal and business finances, leaving taxes to the last minute, missing out on deductions, and not retaining records for long enough. Every online bookkeeping service will offer a mixture of different features ranging from basic to advanced. As a result, a suite of features from one service will appeal more to very small businesses, while an entirely other set of features from another service might appeal to larger small businesses. The IRS outlines these different business taxes as income, excise, employment, and self-employment taxes.

Unadjusted Trial Balance

The best combine OCR and AI tools to make your data entry easier and less prone to mistakes. You can automate your invoicing by setting up recurring invoices for regular clients or customers. Automating payment reminders is also helpful and can reduce the risk of late payments. Opting for digital payments makes it easier for clients to pay, improving your chances of receiving payment on time. Understanding this difference can help you determine when you may need to hire a bookkeeper or accountant and how you can manage these roles effectively in your business.

• The firm specializes in preparing personal and corporate taxation while providing fractional CFO work and leading the accounting and finance function for several small-to-medium-sized businesses.
• There are some things you should consider when thinking about starting your own bookkeeping business.
• The firms agree up front on the rate at which they’ll exchange currencies, although the actual delivery of the foreign currency will be at a future specified date.
• They help businesses remain profitable and make data-informed decisions.

Choosing the right bookkeeping method is a critical step for any startup to be on top of their finances and ensure smooth growth. But let’s face it—bookkeeping can be overwhelming, especially when you’re busy building your business. Accounting, on the other hand, involves interpreting and analyzing the data collected through bookkeeping. Accountants assess financial performance, identify trends, and create reports that provide valuable insights into a company’s financial health. These insights are crucial for strategic decision-making, budgeting, and future planning. Next, invest in software that automates repetitive tasks like categorizing transactions and generating reports.

Is a CPA the same as a bookkeeper?

If not, the trial balance contains errors which need to be located and rectified with correcting entries. It’s important to note that some errors may exist despite the debits equaling credits, such as errors caused by double posting or due to the omission of entries. This content has been made available for informational purposes only.

With the help of cloud accounting software for small-business bookkeeping, you can pretty much automate the process. While cash basis may be easier to use, most businesses choose the accrual basis accounting for recording transactions. Under this method, you record income when you make a sale and expenses when you incur them. This is irrespective of whether you received or paid cash for the product or service. You must use a double-entry accounting system and record two entries for every transaction. When setting up accounting for startups, you need to choose a method of recording financial transactions.

Debits and credits should always equal each other so that the books are in balance. Whether you do the bookkeeping yourself or hire someone to do it, certain elements are fundamental to properly maintaining the books. Some of these elements are done more regularly than others to ensure that the books are always up to date. Other elements are completed at certain time periods as necessary to complete a business task.

Bookkeeping is how businesses, entrepreneurs, and decision-makers monitor a company’s overall financial health and activity. Without basic bookkeeping practices, it’s easy for financial transactions and spending activities to get out of control, which can lead to confusion, disorganization, and loss of profit. Bookkeeping focuses on recording and organizing financial data, including tasks such as invoicing, billing, payroll and reconciling transactions. Accounting is the interpretation and presentation of that financial data, including aspects such as tax returns, auditing and analyzing performance. Also, many countries mandate that companies that do business in their country set up a separate company in that country.

Cash versus accrual

Jason Ding is a seasoned accountant with over 15 years of progressive experience in senior finance and accounting across multiple industries. Jason holds a BBA from Simon Fraser University and is a designated CPA. Jason’s firm, Notion CPA, is an accounting firm with a business-first focus.

Most of the developed nations require consolidated statements so that losses can’t be hidden under an unconsolidated subsidiary. The International Accounting Standards Board (IASB) standards mandate the use of consolidated financial statements. You can find payroll providers that integrate with different accounting software for automatic data entry.

Keep up with Michelle’s CPA career — and ultramarathoning endeavors — on LinkedIn. When hiring external team members, keep in mind that some of the responsibility still falls to you as the proprietor. Individuals who are successful bookkeeping professionals are highly organized, can balance ledgers accurately, have an eye for detail and are excellent communicators. Consider using one of the best bookkeeping services to make managing your books a breeze.