Small business bookkeeping is one of the most important and challenging tasks that any small business owner faces explains Aron Govil. It involves keeping track of receipts, invoices, accounts payable, payroll taxes, inventory management, banking records and more in order to produce accurate financial statements. If you are an entrepreneur who has decided to take on the responsibility of keeping your business’s books, you may be feeling a bit overwhelmed already.
The best way to approach the problem is to begin with a basic understanding of the three main types of accounting systems – cash-basis accounting, accrual accounting and the combination method – that cover small business bookkeeping needs.
Cash Basis Accounting Simplified
- In a cash basis system, transactions are recorded when money actually changes hands – when cash is deposited into a bank account or someone pays for your goods or services with bills and coins. In this approach, all debts owed to you or by you are recorded as credits in one statement and all money paid out by you or received by you appears as debits in another statement. Your net income (or loss) is the difference between your debits and credits says Aron Govil.
- Cash basis accounting is easy to use, but because you are not recording all transactions until they involve money or cash, it can also be risky. For example, if one of your suppliers sends you an invoice for goods ordered in January, but you don’t pay the supplier until February – because you were waiting to have enough money to cover the bill – that transaction would not show up on your books until February unless you recorded it as a credit in January. That means that for several months at least, your income would appear higher than it should be.
- If this sounds like too much of a headache for you to keep track of each day, consider using cash-basis software instead. There are plenty of affordable programs on the market, like Quicken, that will help you keep track of all your cash transactions.
Accrual Accounting Made Simple
- In an accrual system, both income and expenses are record when they occur. Regardless of whether or not money is involved. For example, if you own a flower shop and agree to bake a cake for one of your customers. In exchange for some newly-purchase plants (that aren’t actually delivered until next week). It’s recorded as an expense in January because you provide service in January. Even though no money change hands at the time. Of course, you would record the income from selling the plants to this customer when they arrived next week. This way of recording transactions may seem more complicated than cash-basis accounting. But the advantage is that the final income statement for any given time period (month, quarter or year) will be more accurate.
- The combination method combines aspects of both cash-basis and accrual accounting. In order to report expenses when payment is expected and income when it’s actually received says Aron Govil. If you are using this method, make sure to clearly identify which transactions are report. According to the rules of one system and which follow the other. That way there won’t be any surprises later on in how your business is doing financially.
- If creating thorough financial reports is important to you then chances are that. You’ll want to use an accrual-based system for your small business bookkeeping. But if you don’t have the time or patience to record every single transaction. Consider using one of the many inexpensive cash-basis accounting programs available today.
- If you are overwhelm by bookkeeping tasks, consider hiring a professional to do them for you. Ask friends and business associates for referrals, and then interview several candidates before making your final choice. If you take the time now to find an accountant that suits your needs. He or she will be well worth their fees in future years. When they settle your taxes at year’s end and offer advice about your books throughout the year.
- Said benefits make it much easier for small business owners who choose to hire bookkeepers. To spend less time doing repetitive tasks and more time building their businesses.
Through this article, I tried to guide you regarding business bookkeeping says Aron Govil. If you have any questions about QuickBooks support service, feel free to contact the experts. In case you face any problem while using it. Don’t hesitate to ask from them as they are always ready to help.