The Importance Of Keeping Impeccable Records

Overview

Two Methods

The term bookkeeping refers to keeping records of all the financial transactions your business makes, so let's go over some basics in bookkeeping and accounting practices. It's important in business bookkeeping especially, to have a set accounting process you follow. In recording financial transactions for small business owners, there are two proven bookkeeping systems you can choose from to meet your business needs. The first is called the double-entry bookkeeping system and is probably the most reliable.



The Double Entry Bookkeeping System 

The double-entry bookkeeping system is the standard for most small business owners today. It has a detailed system of recording financial transactions that use the concept of debit and credit for each one. In this process, every transaction affects two or more bookkeeping accounts, through an introduced concept of debit and credit. The benefit of using this process is that it's an accurate, complete recording of all business transactions, and can be used to evaluate the condition or performance of your business. 

This method is valuable, especially when you need credit or want to investigate the possibility of allowing investors into your business. At this point, you will need to provide specific financial information that any bank or lending institution will request. When using this type of double-entry bookkeeping, financial reports such as these can be easily generated. As your business enjoys bigger and better success, these financial situations often represent growth opportunities you won't want to miss! 

Single Entry Bookkeeping

Smaller business bookkeepers may only be using what's called a single entry bookkeeping process. However, this accounting system is sorely outdated and much less reliable, although it is still acceptable for the I.R.S. when preparing tax returns. Basically, this is just a general ledger or simply a cash book where they keep a record of all the daily cash transactions for their business. A balance sheet is often the only form of accounting the business can produce, aside from cash receipts and a monthly document containing their outgoing bills. 

With single-entry bookkeeping, anyone's transaction affects just one account. The remaining tasks are keeping books that reflect sales made, inventory, capital, and basic accounts payable and accounts receivable, on a monthly basis. These records are usually kept in an informal manner as well. The problem with this type of accounting process is, while it may seem to be effective enough for cash flow in handling the minimal amount of business transactions you make, you leave yourself with very little opportunity for growth. 

Bookkeeping Methods

There are several different ways to keep your books, as a business. In today's economy, many small business owners utilize bookkeeping software, hire accountants once a year to do their taxes, and try to keep their own books the rest of the time, to save money. After you attain a certain measure of success, however, you will want to consider hiring a professional bookkeeper. In any case, no matter where in this process you now are, let's go over some common practices in bookkeeping to give you the scope of daily tasks.



Chart Of Accounts

A chart of accounts for your small business includes the data from multiple different accounts such as revenue and expenses and serves as organized indexing of them. This is an example of the main accounts that typically are a part of the bookkeeping records and thus, on your chart of accounts: 

• Assets - this is where your 'Accounts Receivable' accounts go, such as: Inventory, Cash - Checking & Savings Accounts, and any money owed to your business, or credit you've extended. 
• Fixed Assets - also under the main 'Assets' heading, but will include your building or business space, vehicle(s) used for the business, business equipment such as computers, etc.
• Liabilities - this is your 'Accounts Payable' area, involving any debt of the business. Includes current short-term obligations and long-term obligations as well, plus space for any future promises. Also will include owed payroll and sales taxes, as well as accrued wages owed. 
• Equity (Owner) - your investment in the business, and any retained earnings that you turn back into the business. Remember, any future growth opportunity allowing investors to invest in your business will come from the data held within these bookkeeping records. Therefore, save future account space for common stock and preferred stock. 
• Revenue - Sales / Profits, interest income from any business investments, and Sales Costs / Cost of Goods 
• Expenses - if you are unfamiliar with the type of accounts that go here, check out the I.R.S. tax form schedule C and go by this. Don't forget to include an expense account for your business, even if you aren't currently utilizing one.

Generating Financial Statements, Etc.

The success of your business widely depends on the financial state of it, and in order to succeed in the long run, you must show bigger and better profits over time. This is why keeping impeccable records of all your financial transactions is so important because you will need to be able to generate financial statements from time to time, as growth opportunities arise. By scheduling a call we can help you get started on the road to success. A ledger or journal for recording all daily transactions manually is also highly recommended. An income statement is another one of the financial statements commonly referred to and requested of small businesses for credit requests. 

As a business owner, you must be able to make tough financial decisions for the good of your business, and having a great bookkeeper or bookkeeping system is the key to financial success. And keep in mind the fact that when you need expert financial advice or top-rated financial services you can trust, remember us here at Boyd Group Services. We help small businesses to achieve independent financial success through financial planning, growth opportunities, and investments, etc. so schedule a call today and set up a consultation so we can discuss your particular needs, and give you the expertise you need.