Getting Comfortable with Bookkeeping
Regular, skilled bookkeeping helps businesses retain precise financial records, which you are legally required to keep for tax purposes. Daily bookkeeping also offers many business benefits:
When income and expenses are faithfully recorded, it is easier to see where you stand financially and stay on top of cash flow needs.
When your records are well-organized, you can locate information easily when it is requested by your accountant, a lender or an investor.
Financial statements from your bookkeeper can help you track cash flow and analyze your company’s SWOTs (Strengths, Weaknesses, Opportunities and Threats). It is important to know how you are doing before making big changes such as hiring new staff, buying new equipment or adding a location.
Financial statements can also show you which efforts have or haven’t worked, which can help you plan for the future.
Should You Do Your Own Bookkeeeping?
The answer is typically, no. Many business owners do not have the skills or the desire to do their own financial recordkeeping. That’s fine! You can hire a bookkeeping company to do it for you—often for less than the value of your time which is better used on revenue generating activities.
Basic Terms to Know
Knowing these terms will help you communicate with your bookkeeper and/or accountant:
- Account: where business credits and debits are recorded
- Accounts payable(A/P): funds owed by your business to others
- Accounts receivable(A/R): money owed to your business by others
- Asset: any item of value owned by your business, including cash and A/R, as well as equipment, land or vehicles
- Budget:an estimate of what you will earn and spend during the year
- Capital: cash or other assets you have to start and run your business
- Credit: an entry that reduces assets and expenses and build income and liability
- Creditor: where you owe money
- Data: numbers entered into your bookkeeping system
- Debit: an entry that builds assets and expenses and reduces income and liability
- Debtor: a person or company that owes your business money
- Deductible expense:a purchase that reduces the amount of income tax you owe because it lowers your profit
- Depreciation: a decrease in asset value over time due to wear and tear or natural obsolescence
- Equity:your net assets minus your liabilities
- Expenses: purchases made by the business or costs the business incurs.
- Fiscal year: 12 months. Income taxes are calculated at the end of that period, whichever month it starts in
- General ledger accounts: where debits and credits are displayed in your ledger or main accounting record
- Gross profit:your business’s income beyond the cost of sales
- Liability:debt owed by the company; can include loans or credit card balances
- Net profit: the money a company has after expenses are subtracted from gross profit
- Opening balance: the amount a company carries forward on the first day of the month. Should match the ending balance of the previous month.
- Profit: the difference between your earnings and expenses
- Reconcile:reviewing your records to make sure they match your bank statement; also ensures all invoices owed to you have been paid
- Recurring: a transaction for a preset amount that occurs regularly
- Remittance: payment
- Statement:summary of financial information; can be a profit and loss statement, income statement, balance sheet, etc.
When you contact BookWerksTM, we start where you are in your understanding of how outsourced bookkeeping works and its value. Many new business owners need a bit of education before they can make the best use of bookkeeping services. We’re here to help!