Beginners Guide to Bookkeeping
Is this your first time working with a bookkeeper? Here's what you need to know to get the most out of it and make sure everything goes smoothly.
1. Bookkeeping Has Purpose
Bookkeeping isn't something you have to do just because you're a business. It's a process that helps you achieve several business goals.
• Correctly calculating your taxes and making sure you can pay on time.
• Making sure you have enough cash on hand for routine and unusual business expenses.
• Paying your bills on time to avoid late fees and take advantage of early payment discounts.
• Making sure you collect all of the money you're owed.
2. Single vs. Double Entry
Accounting and bookkeeping generally use a double entry system. That means that every transaction affects at least two things.
Take sales for example. A single entry system would just be writing down every sale in a list. But what really happens with a sale? You get more cash, you reduce your inventory, and you increase your profits. Your accountant can of course take your list of sales and figure out your inventory and profits later, but using a double entry system takes care of everything at once.
Sounds complicated? It really isn't. Bookkeeping software takes care of the extra entries for you, so all you need to do is put in the information once. It's as much work for you as making your list but saves you money by reducing how much work your accountant needs to do.
3. Cash vs. Accrual
There are two general accounting methods.
• In the cash method, when you get or spend money, you enter it in your books right now.
• In the accrual method, it's about when you give or get the service not when you get or give the money. For example, if you get paid up front for a 12-month contract, you record 1/12 of the revenue in each month of the contract rather than recording all of it when you get it.
For tax purposes, you generally have a choice of methods if you have gross receipts of $25 million or less. GAAP rules for publicly-traded companies may vary, but it's often easier to keep your books in the method you intend to use for your taxes if you're not required to use GAAP.
4. Use Software to Import Transactions
If you're having a bookkeeper enter everything by hand you should think about linking your bookkeeping software to your bank accounts and inventory and sales system for automatic imports.
Your bookkeeper's real job is to make sure everything's running smoothly, take care of unusual transactions, run reports, and figure out new ways to save you money or boost your profits.
5. You Don't Know What You Don't Know
Accounting and tax rules often defy common sense. You may think you're doing everything right while being blissfully unaware of an obscure loophole that makes a word mean the opposite of Webster's dictionary.
If you try to do things on your own, the best case is that it creates an expensive mess during tax season as your accountant tries to figure out what you did. The worst case is that your books don't give you a true picture of your business and cause you to make a poorly informed decision that could cost you big or put you out of business.
Let your accountant set everything up and ask questions about anything you're unsure of or that's new. It isn't a bother, and it will give you a better understanding of what's going on. To get started, simply book an appointment.